By US corporate standards, former Mastercard CEO Ajay Banga was always in a league of his own — something that became obvious when Covid-19 hit. Banga, Washington’s US nominee to be the World Bank’s next president, dispatched an email to employees promising no layoffs even if business fell. “It was the right thing to do,” he told the New York Times. “One thing we didn’t need to do at a time was to add more fuel to the fire by making our employees insecure, by making them worry about their jobs, as compared to worrying about their health and their family.”
The US corporate way is usually very different. Meta began hiring furiously when online business boomed during the stay-at-home pandemic days. This year, as business slowed, Facebook realised it was hopelessly overstaffed. Said Mark Zuckerberg: “I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve decided to reduce the size of our team by about 13 per cent and let more than 11,000 of our talented employees go.”
Now whose fault was the excess hiring? Zuckerberg didn’t hesitate to own up. ”I want to take accountability for these decisions and for how we got here. Still, while Zuckerberg made the mistake, he wasn’t going to be the one suffering. Firstly, he’s Meta’s top shareholder. And, anyway, that’s not how it works in corporate America where mass firings are routine. It also didn’t matter that Meta remains very respectably profitable. While first-quarter profit was down 21 per cent, it reported earnings of $7.5 billion.
It was much the same sequence of events at Google. Google’s CEO Sundar Pichai sent out a grim e-mail announcing 12,000 layoffs. “The fact these changes will impact the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that led us here,” he said.
“Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today,” Pichai said. Google’s profit has also fallen but it still posted fourth-quarter profit of $13.6 billion.
There are clearly times when corporations must cut costs and reducing headcount becomes inevitable. But should companies resort to wide-scale layoffs when they’re still very profitable? Yes, it cuts costs and boosts share prices.
But could employee morale also have a share-price impact? Also, when firms are growing again, they have to ramp up by hiring new people, incurring recruitment and training costs. Also, in many industries, layoffs actually beget lower productivity and profits, studies show.
“I’m always amazed when times get a little tough how quickly layoffs happen, and when they’re not so tough they start pulling the trigger. That’s even more mystifying,” says Wharton management professor John Kimberly.
Zuckerberg and Pichai at least apologised for their actions. Julie Sweet, CEO of Accenture, which has 40 per cent of its employees in India and just announced 19,000 jobs layoffs worldwide, is bullish about the company’s prospects.
Accenture, which has seen explosive growth, reported quarterly revenues up 5 per cent at $15.8 billion. Sweet called the layoffs an “offensive” to insure Accenture meets long-term profitability goals. “We’ve identified an opportunity to go after structural cost,” she said.
India’s software services companies are still relatively benign employers though they too watch share-price movements. But there could be volatile days ahead. International banks like Deutsche Bank which are facing tough times are big customers for many top Indian software services companies.
Hi-tech companies and telecom, too, are large customers for Indian companies, notes Pareekh Jain, Pareekh Consulting CEO.
It won’t be all gloom and doom for Indian software-services companies. On the contrary, as cost-cutting becomes the topmost imperative globally, corporations will likely turn towards India’s software services firms. “That will happen, but it will happen medium-term like it did in 2008. There will be pressure to reduce costs,” says Jain. But while Indian software services companies have slashed staff in the past, they don’t usually reach for the axe at the first sign of trouble.
Even in the medium-term, the problem is while Indian software services may get plenty of contracts, they’ll mostly be low-margin work which doesn’t excite stock markets. Don’t forget both in India and abroad, stock options form a big chunk of CEO pay-packets. Could there be a temptation to boost stock prices by slashing staff? India’s corporate culture is still very different from that of the US and it’s possibly better if it stays that way.
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