Author’s Note: The case study that follows is based on real events and a business I have observed, but the name of the CEO and his company have been changed to provide anonymity.

Charles Edmund, CEO of ABC Manufacturing Company Inc., sat behind his desk, unconsciously clicking his pen and staring at his closed office door. It was only an hour until the emergency meeting that he had scheduled with his managers would begin.

For the past three years, management meetings at ABC had grown more difficult to stomach. While he used to be energized by interaction with his managers, whom he had come to regard as his “second family”, Edmund now dreaded the meetings. And this one would be his worst nightmare.

During the 90’s, ABC had record revenues and profits year after year. The company’s success brought tremendous respect to Edmund and his management team from customers, employees, board members, and investors. In turn, Edmund provided generous salaries and benefits, and expanded and upgraded offices and manufacturing facilities. In 1998, ABC was named in a local business magazine as one of the city’s “10 Best Places to Work.”

Then outside factors began to undermine the company’s success. In 2000, a competitor recruited several of ABC’s top sales people, who took some major customers with them. The economy started to fall apart, and remaining customers reduced their buying. Revenues declined, but the vice president of sales had confidence that newly hired sales people would soon fill the gap.

The downward spiral continued through 2001 and 2002.  Edmund tried to implement expense-cutting measures, but managers resisted anything disruptive. For the first time in its 45-year history, ABC began to rely on its line of credit to meet payroll obligations.

At the beginning of the new year, the board of directors (controlled by ABC’s largest investor) asked Edmund to develop a turnaround plan. He held a two-day meeting with managers. They decided to delay new product-development projects and a scheduled upgrade to the computer system, cut back in marketing and travel, freeze salaries, and not make any new hires. Now that the sales force was more experienced, the sales and marketing managers believed they could achieve a 20 percent increase in revenues. Together with expense cuts, that made for a budget that projected a small profit – the first in three years.

The board was appeased until July, when dismal second-quarter numbers indicated that the sales plan had been no more than a hope and wish. At the quarterly board meeting in August, ABC’s major investor was quite upset and demanded that severe action be taken. The board gave Edmund another month to devise a more aggressive turnaround plan, and scheduled a special board meeting in September. As if that weren’t enough, the bank was pressuring him about ABC’s growing debt and apparent inability to pay it off.

The next few weeks were a blur for Edmund. He knew that he had to make a “reduction in force” – how he hated using those stupid human-resource catch phrases – but he lacked the internal fortitude to carry through with it. He felt personally responsible for the well-being of his employees. He not only knew many of them like sons and daughters, but he also knew their spouses and families: who had small children, who was anticipating retirement, who was putting kids through college, and who caring for elderly parents. How could he be the one to ruin their plans, dreams, and responsibilities? Especially when losing the job would have nothing to do with their individual performance.

Edmund wasn’t sleeping well, because he anguished almost 24 hours a day over what he knew what must be done. He had developed severe back pain, for which his doctor could find no medical reason other than stress. He spent as much time as possible in his office with the door closed, dealing with his emotions of anger, denial, depression, and desperation. He began spending extra time at church seeking divine guidance.

Rather than face another planning meeting, he decided to create the new turnaround plan by asking each manager to write a memo that presented his or her best ideas. But instead of valuable input, each memo was a treatise on why this department didn’t deserve to make any more cuts, how other departments were led by idiots pursuing lost causes, and why a layoff would destroy already poor employee morale.

Last night, the board held its special meeting. Edmund’s plan, compiled from the management memos and some of his own ideas, had not been adequate for ABC’s major investor. The board decided to make an across-the-board cut of 15 percent in personnel from each department, requiring that half of the cuts come from management ranks. The directors gave Edmund another month to implement the layoffs – or they would find someone else who would.

So it came down to this moment of emptiness, helplessness, and defeat. Edmund had to break the news to his management team in a few minutes. It was the worst thing he’d ever had to do. When he aspired to a position of business leadership, he never in his wildest dreams imagined it would be this painful.

Unfortunately, many business leaders find themselves in Edmund’s shoes. That’s why there are hundreds of books and articles out there about how to downsize, how to minimize the damage through job sharing and outplacement service, et cetera. But little has been written about the emotions that leaders go through in deciding to downsize.  It’s a gut-wrenching and personally anguishing choice.

Realizing how difficult it can be, let me share with you some thoughts on what Edmund should do now in order to save his company.

Stop the pity party! Now is not the time for denial and self-pity. ABC’s financial woes have deep roots, and the entire future of the company is in peril. Edmund must carry out an immediate downsizing, realizing that leaders have to take actions that will harm a few in order to save jobs for many.

Be the leader. Implementing an across-the-board cut is like aiming at the wrong target and hitting it with remarkable accuracy. Rushing into cuts that are not related to a renewal strategy is a stupid decision motivated by panic. It provides instant gratification to the board, but doesn’t address ABC’s real problems. Edmund should take the lead in developing a restructuring and renewal plan that reflects what’s happening in ABC’s marketplace. Then it’s easier to decide where to cut and how deeply.

Use downsizing to strengthen the company. Successful leaders reduce costs by eliminating nonproductive activities. Edmund and his management team should look at this as a chance to rationalize their operations form the bottom up, cutting away nonessential work at every level. Who knows? Maybe they’ll find they can easily achieve the board’s 15 percent reduction, but in intelligent ways that make ABC more competitive.

Change the culture. ABC’s history of comfortable profits have made its culture one of entitlement and dependency. Edmund has settled into a passive leadership role. He must assume the authority of his position, articulate the business logic behind the decision to downsize, and eagerly encourage all employees and managers to actively participate in the process of change. Downsizing is really about change management: change in the focus and the economics of the business, perhaps even changes in the company’s markets and products.

Make change a permanent process.  When the downsizing ends, the “rightsizing” continues.  Adjusting to the business environment shouldn’t be a mystical event that happens every few years, it should happen constantly. Leaders know that their outside environment is always changing, and that they have to always be aware of how shifts in demographics, technology, economics, and other environmental factors will affect their companies. Edmund and his managers should develop habits and processes that keep them aware of those factors, and then ask themselves on an ongoing basis what their strategic response should be to change. Those responses become strategy. And that strategy should drive ABC’s structure and staffing, not the other way around.

So while Edmund walks down the hall to his meeting, which is going to be difficult, he needs to understand that there’s light at the end of the tunnel (and it’s not a freight train coming from the other way!). He has the opportunity to lead his organization down the right track, make it leaner, more responsive, and more competitive. By viewing the downsizing challenge as an opportunity, ABC manufacturing can be awakened – and the nightmare will be gone.