How to prevent your career collapsing with your company

Nov 19 2008 by Nic Paton Print This Article

If your company is in trouble, it may feel that the best response is to stick your fingers in your ears, hum loudly and hope it all goes away. But in fact a better response is simply to hand in your notice.

A study by Indiana University's Kelley School of Business has concluded executives at firms in the financial sector and others currently on the verge of collapse or bankruptcy could do well to rethink the long-term impact on their careers of sticking around.

Rather than hanging on to the last moment and then gathering up your personal belongings along with everyone else, the research found that executives who changed employers in the two years prior to a bankruptcy ended up suffering far fewer job consequences than their counterparts who stayed to the bitter end.

An analysis of the career paths for thousands of bank executives was conducted by Matthew Semadeni, assistant professor of management at the Kelley School.

In particular, those who jumped ship were much less likely to have to accept a demotion or move to a different city for future employment, effectively avoiding the "stigma" associated with the prior firm's failure, he argued.

"Our findings indicate that executives can lessen the prospects for a negative impact on their careers by strategically managing their exit from a struggling firm," Semadeni said.

"It is likely that most of them know about an impending crisis long before the public or shareholders do, and are in a good position to plan a departure that will benefit their careers," he added.

For the study, Semadeni examined the employment situations of 1,155 executives, including chairmen, presidents, CEOs and executive vice presidents, at 437 public and private Texas banks that failed between 1985 and 1990. He then compared them with 1,171 executives at comparable non-failing banks.

He discovered that more than three quarters – 77 per cent – of executives from failed banks ended up changing cities for employment, compared with fewer than a quarter – 23 per cent – of those who jumped ship prior to the failure and only 14 per cent of job switchers from non-failing banks.

Similarly, more than half of executives from failed banks were demoted in their next position, versus four out of 10 of those who bailed firms early and a third from non-failing banks.

Executives who did stick around and ended up discredited also had relatively few options to manage the associated stigma, said Semadeni.

Given that reality, these executives needed to reconsider whether staying at their current job, despite a tight labour market, was in their best interest.

The study also analysed the career impact of bank failure on a third group of executives not considered culpable for their organisation's failure, or so-called "innocent bystanders".

These executives were at the helm of financially-healthy banks within a larger bank holding company that ultimately went under, causing their smaller organisations to fail as well.

The analysis found these bystanders tended not to jump ship prior to a failure because they were unaware of the holding company's impending demise and therefore did not experience the same re-employment consequences as those who were considered directly responsible for the failure.

"Many executives and employees in the financial services sector are being affected by the current economic situation and financial market turmoil, even though they may not actually be culpable for the failure – or impending failure – of their organisation," Semadeni said.

"These individuals should take heart that, historically, they are not likely to suffer any long-term employment consequences as a result of their association with a failed organization," he added.

Meanwhile, in a separate UK analysis, an HR consultancy has added to warnings for employers to let staff go as a last, rather than a first, resort.

With UK firms this week announcing a swathe of job cuts, and predictions of three million workers losing their jobs by Christmas, Chiumento has called on organisations to be cautious about how they approach staff reductions.

While one obvious route was to consider offering voluntary redundancy packages, this might only encourage valuable staff you want to keep to go, argued chief executive Sarah Chiumento.

"Many companies are having to look at headcount and costs and some will offer voluntary redundancies as a way of managing this. However, it is important to remember that top talent will be the most likely to leave. They may expect to easily find a new role, so will be first in the queue for voluntary redundancy," she said.

"In an effort to encourage voluntary leavers, keep costs low and improve the acceptability of redundancies, volunteers are offered enhanced financial packages, but this does not always include practical help to make the transition," she added.

"In the present market, even high-quality talent will find it more difficult to find another job than they anticipated, leading to resentment towards former employers. Ultimately, equipping staff with the skills they need to find their next position is more valuable than a few extra pounds in a redundancy package and will be a legacy from their employer for future career progression," she concluded.

And, with the U.S car industry facing its own financial and economic meltdown, with leading executives pleading Congress for a bail-out to match that given to the big banks, the UK's think-tank the Work Foundation has published salutary research about what might happen to the thousands of workers who get thrown out of work if the industry is bought to its knees.

In a study of what happened to 6,300 MG Rover workers who lost their jobs when the UK manufacturer collapsed three years ago, it found two thirds of those that ended up landing new jobs nevertheless were forced to take a salary cut of more than £5,600 on average.

Just a third reported an increase in salaries and those who did not manage to find new work, unsurprisingly, suffered the largest drops in income.