Dan Adams is the founder of The AIM Institute and author of the books Business Builders and New Product Blueprinting, as well as the blog Awkward Realities and video series B2B Organic Growth. He is a chemical engineer with a listing in the National Inventors Hall of Fame. For more information, please visit theaiminstitute.com. 

The layoff news just keeps on coming. Many of the reported job cuts are in the tech sector, but the hatchet hits industries from air travel to healthcare and music. Nobody loves mass layoffs, but their increasing frequency implies an alarming level of acceptability. This is a symptom of a bigger problem — the tendency of today’s corporate leaders to make decisions based on short-term thinking. Before the ’70s, mass layoffs were rare, and for a good reason. In my book, “Business Builders: How to Become an Admired & Trusted Corporate Leader,” layoffs are detrimental to a company’s long-term health. Corporate America needs to return to that kind of thinking. It’s not that layoffs are always wrong. Sometimes they can’t be avoided. But before making that grave decision, leaders should factor in all the consequences — short-term and long-term. If they truly understand the costs of layoffs, they’ll try hard to avoid them.

Mass layoffs tend to be ordered by the type of leader I call “Decorators,” meaning their focus is on kowtowing to Wall Street and looking good in the quarterly financial report. (It’s not a compliment!) Conversely, “Builder” types drive sustainable growth by delivering differentiated value to customers — which means resisting the siren song of short-term cost controls like layoffs. (Leaders can visit areyouabusinessbuilder.com for a quick self-assessment.)

Layoffs take a devastating toll on the laid-off. Studies show they suffer 83% higher odds of a new health condition, twice the level of depression, four times the risk of substance abuse and up to three times the risk of suicide. But how do layoffs hurt companies? Here are three significant consequences:

1. Innovation plummets. In my book, I cite a study showing that the number of new inventions post-layoff fell by 24%. Why is this so bad? Because companies that don’t focus on delivering superior differentiated value to customers are forced to compete on price — which leads to the dreaded commodity death spiral.

2. Remaining employees morph into “nervous sheep.” When coworkers are laid off, others lose trust and confidence. Rather than thinking like owners and innovators, they fixate on their personal security, plunging down Maslow’s hierarchy into survival mode.

3. Talent retention takes a huge hit … and so does your brand. Downsizing a workforce by just 1% leads to a 31% increase in voluntary turn-over the next year. Obviously, this is terrible for your company, and not just in terms of the costs of recruiting and retraining. The blow to your reputation reverberates well into the future.

Talent matters now more than ever. The damage done in a layoff is so devastating to employees that you will likely never get them back, plus they will say negative things about the company. A few tips for avoiding layoffs:

1. Start letting Builders (not financial types) call the shots. Because Builders know that delivering real value to customers takes time, they’re generally averse to layoffs. They’d rather ride out periods of economic bumpiness than do something that harms growth long-term.

2. Shift from a near-term to a long-term investor base. Often, layoffs are a way to placate shareholders. You need patient investors who, like you, are focused on the longer-term.

3. Plan wisely for difficult economic cycles. Allow for ups and downs. Instead of over-hiring in peak times, outsource and engage recent retirees to handle higher demand.

4. Finally, opt for “softer” alternatives over layoffs. Choose furloughs or temporary salary reductions over permanent job loss. It’s better for top executives to take a pay cut than to ask the workforce to bear the brunt. Ultimately, layoffs weaken companies. One leader’s decision can have irreversible outcomes for many. It’s not just the laid-off employees and their families who suffer; it’s everyone who works for you now and everyone who will work for you in the future. When you think about it that way, you’re more likely to exhaust every other possibility first. I&FMM