The Corporate Lobotomy

Over the past few years there has been an observable spike in corporate lobotomies, attributable partly to aging workforces, but mostly driven by economic pressures to downsize.

The word lobotomy comes from two  Greek words: λοβός – lobos, referring to a lobe of the brain, and τομή – tomē: meaning to cut or slice”. It’s a cutting off or slicing off of a part of the brain, with the intended effect of stopping some unwanted behaviors in the individual. Because nearly all psycho-surgical procedures have undesirable side effects, they are ordinarily resorted to only after all other methods have failed. The less disorganized the personality of the patient, the more obvious are post-operative side effects.[1]

I use the term corporate lobotomy to refer to a large-scale termination, voluntary or involuntary, that includes individuals in the organization in whom specific knowledge resides or who are valuable knowledge contact and connection points for the organization.

Most companies resort to large-scale terminations after all other methods of correction have failed or or when drastic immediate change is needed. “Reduction in workforce” (RIF) is the impersonal euphemism used to name it, which is unfortunate for two reasons. First, it hides the damaging personnel dynamics involved. Second, it masks the side-effects internal and external to the organization.

One common side effect is the hidden loss of knowledge capital. This should be a board-level concern.

Knowledge Capital

From an asset protection perspective, knowledge capital is too frequently ignored.

Knowledge Capital is an intangible asset that comprises the information and skills of a company’s employees, their experience with business processes, group work and on-the-job learning. Knowledge capital is not like the physical factors of production – land, labor and money capital – in that it is based on skills that employees share with each other in order to improve efficiencies, rather than on physical items. Having employees with skills and access to knowledge capital puts a company at a comparative advantage to its competitors. —Investopedia

For more information on how to assess knowledge capital, see the earlier journal of The Security Minute titled, Assessing and Protecting Knowledge Capital.


The concept of business goodwill as a valuable intangible asset has been written about extensively and is taught in business schools. Business lawyers and evaluators apply the concept of personal goodwill, usually referring to the goodwill of the owner or top executives of a business—but this concept also applies to personnel throughout the firm. According to James R. Hitchner:[2]

Personal goodwill is “goodwill that attaches to the persona and personal efforts of an individual.”

One sales manager, when hired by a newly formed company, was instantly able to attract high-caliber sales people to the firm based on the goodwill he had established through two decades of providing outstanding support to his sales people and directly to customers. His phone calls were immediately taken or returned by key prospects, and he was able to make introductory appointments for his new sales personnel. In just two months he accomplished what would have required a year or more most by most other sales managers.

Faced with a need to reduce ongoing costs, many companies encourage such managers to suddenly retire, inspired by a “special bonus package” designed to initiate voluntary termination. Such a move is likely cause serious long-term loss and future expense to the company unless orchestrated and executed in a manner that maximally transfers the goodwill that can be retained, and also protects it from transferring away to any potential new employers.

Yet many companies lose similarly valuable people, and unnecessarily incur greater than needed losses, apathetically (and often unknowingly) accepting all consequences as an unavoidable part of the “painful choices” that have to be made.

Preventing and Reversing Lobotomy Effects

One company retained the goodwill of the employees it was RIFing by taking special measures to help them land good new jobs. Rather than tarnishing the goodwill of the managing executives, the company it, adding to their reputation as “good people to work for”. In an industry whose executives were fast losing such reputations, the company enhanced the reputations of their executives and elevated their leadership status in the eyes of the industry. (Read more details of this company’s strategy in the earlier journal of The Security Minute titled, A Little Downsizing Brings a Lot of Risk.)

Unlike a personal surgical lobotomy, many negative effects of a corporate lobotomy—if quickly assessed and addressed—can and should be reversed using a prioritized action plan. Financial or other incentives can be established in a knowledge transfer program, which could even be an on-demand consulting arrangement to help minimize the costs, and allow ongoing optimization of its effectiveness.

Making the Right Moves

In times of financial or industry upheaval, sometimes difficult corporate changes need to be made. Minimize the accompanying losses by planning and executing the hard choices as smart choices, without lobotomizing your organization.

Best Regards,
Ray Bernard

1Hinsie, Leland E. and Campbell, Robert Jean, Psychiatric Dictionary, Fourth Edition, (New York, New York: Oxford University Press, 1970), p. 438 (back to reference)

2James R. Hitchner, Financial Valuation, 2nd ed. (Hoboken, New Jersey: John Wiley & Sons, Inc., 2006), p. 824. (back to reference)

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