Cuts to middle management leave Canadian SMBs facing leadership void

Canadian small and medium-sized businesses may be facing a growing leadership gap, as new research highlights the operational risks of eliminating middle management roles during periods of restructuring.

A survey released by U.S.-based communications technology firm Firstup on August 27 found that reductions in mid-level leadership are contributing to communication breakdowns, limited employee development and reduced day-to-day clarity in organizations that have undergone layoffs.

“Managers are critical for relaying information, as well as translating organizational priorities into action, clarity, and connection for their direct reports,” said Bill Schuh, chief executive officer of Firstup, in the report.

The survey reflects the responses of 1,000 full-time, non-managerial U.S. employees whose companies experienced layoffs in the previous 12 months. While the data is based in the United States, the findings align with workforce dynamics increasingly present in the Canadian market.

Across Canada, economic pressure, staffing shortages and persistent inflation have pushed many SMBs to adopt leaner operating models. In some cases, that has meant reducing or consolidating leadership layers. In smaller teams where middle managers are responsible for both strategy and frontline execution, these cuts can quickly lead to internal strain.

According to the Canadian Federation of Independent Business (CFIB), nearly one-third (32 per cent) of small businesses in Canada expect their capital investment levels to decline over the next two years. Only two in five are currently making productivity-related investments—an indication that many firms may be delaying or avoiding internal capacity building during a period of uncertainty. The result, according to multiple business groups, could be a weaker pipeline of future leaders and less resilience to operational disruption.

Business groups have also flagged the potential for long-term structural issues if support functions like communication, coaching and feedback are deprioritized. Without middle management, those responsibilities typically shift to senior leaders—who may not have the capacity to take them on—resulting in gaps that affect both culture and operations. These gaps can be more pronounced in SMBs, where leadership roles are already stretched thin.

Managers remain central to employee experience and performance

According to the Firstup survey, 52 per cent of employees said their manager was their most trusted source for company information. Just 10 per cent said the same of senior leadership. Eighty-six per cent rely on their manager to interpret what company changes mean for their individual role, and 53 per cent said their manager is their first point of contact for work-related questions.

Managers were also identified as critical to employee development. Nearly three-quarters of respondents said they rely on their manager for coaching and feedback (72 per cent), support during workplace challenges (63 per cent), and clarity on recognition and daily tasks (75 and 82 per cent, respectively).

Despite this reliance, 38 per cent of employees reported that their manager had become less accessible following layoffs. Of those affected, 30 per cent said they felt less supported during times of disruption, and others cited increased confusion and lack of direction.

The report also found that senior leaders may not be stepping in to fill these gaps. Forty per cent of respondents said their organization’s leadership did not provide mentorship or career development opportunities. Nearly half (47 per cent) rated transparency from their senior team as only partial.

“Employees anticipate negative consequences as their managers become less available,” the report stated.

Leadership gaps deepen as managerial capacity shrinks

The report warns that continued strain on remaining managers may undermine long-term engagement and business performance. “We’re asking fewer managers to do more, and that simply is not sustainable,” Schuh said. “AI and technology won’t replace the human connection and leadership that great managers provide, but they can address the communication and engagement gaps that have arisen.”

According to Firstup, automation and digital tools may help reduce information bottlenecks, but they are not a replacement for consistent managerial support. The absence of a strong middle layer, the report notes, could lead to reduced retention, slower recovery from organizational change, and an erosion of culture—particularly for businesses already operating with small or overstretched teams.

As Canadian SMBs continue to adapt to economic pressure and workforce change, the role of the middle manager may remain one of the most overlooked but essential levers of business continuity.