Big Tech Has Layoffs All Wrong

Silicon Valley’s tech giants have long claimed that they’re rewriting the playbook for how businesses should be managed. “Google is not a conventional company. We do not intend to become one,” the search firm’s co-founders wrote in their 2004 filing to list on the stock market.

It turns out that Google and its tech rivals are disappointingly conventional. The latest proof is how they’re shedding staff.

From Meta to DocuSign to Twilio, tech companies have laid off more than 275,000 workers since last year, according to Layoffs.fyi, a website that tracks such announcements. Many, such as Zoom Video Communications Inc.—which alone cut about 1,300 jobs—were rewarded with significant increases in their share prices. Zoom’s stock jumped nearly 10% on the day of its layoff announcement. Twitter recently engaged in yet another round of layoffs, reportedly cutting a further 10% of its staff.

But, beyond such short-term investor gratification, these staff cuts are misguided. Research shows that such layoffs are often a net negative drag on companies’ financial performance over time. They don’t consistently make firms more profitable, and employee engagement and customer service generally suffer. It’s also unclear that for most companies the cuts are truly necessary: many of the companies axing staff, including the likes of Meta and Microsoft, remain tremendously profitable.

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So, why are they doing it?

One simple reason is that this is what investors have conditioned CEOs to do. Over the past half-century, many U.S. businesses have stripped away worker protections, benefits, and job stability in the service of investors who have viewed employees as costs to be minimized for the sake of an upbeat quarterly earnings call.

Prior to that, American companies such as General Electric took a longer view and boasted about their generous treatment of workers. But, starting in the 1970s, a new cohort of investors, consultants, and business leaders squeezed employees in the name of efficiency and shareholder return. Their standard bearer was the late GE CEO Jack Welch, who cut the company’s workforce by 112,000 from 1980 to 1985 alone. Over time, big employers scrimped on pay and benefits so much that low-wage workers at firms including Amazon, McDonald’s, and Walmart needed to rely on public assistance such as food stamps.

The tight labor market of the past few years has given employees more power, as companies have had to pay better wages and offer greater flexibility to attract and retain staff. This has been true for low-wage retail and warehouse workers, but also for tech-industry talent. Some Silicon Valley executives seemingly resent this worker empowerment—especially some of the advisors around Elon Musk at Twitter.

“Twitter, like a lot of companies in Silicon Valley, was very bloated and overstaffed,” David Sacks, a Musk confidante and venture capitalist, asserted in a recent interview. “It was possible to cut three quarters of the employees and actually improve the performance.” (Recent Twitter outages, including during the Super Bowl, make one wonder what Sacks means by performance.)

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Cutting workers allows CEOs—some frustrated by “the Great Resignation,” “Quiet Quitting,” and messy post-pandemic returns to office—to flex their power over labor. “The Bosses Are Back in Charge,” proclaimed a recent Wall Street Journal headline.

For the tech industry, layoffs are also seen as a way to put entitled workers in their place, argues public relations executive and commentator Ed Zitron. In a post titled “Tech’s Elite Hates Labor,” he argued that “the tech industry hates that by creating a special class of worker, they have to cater to said worker, and pay them more for specialized skills and talents that other industries don’t.”

The economic downturn has provided a ready script for tech CEOs to justify the job cuts. They’re often going after the easy target of “middle managers.” And there’s PR cover when your peers are also jettisoning staff.

But the abrupt, cold approach to some of the layoffs has undermined the premise that the tech giants were somehow unconventionally great places to work. Employees at some companies were notified by email in the middle of the night and immediately locked out of their work accounts. Staff were laid off while on parental leave. Teams responsible for diversity, equity, and inclusion lost their jobs in disproportionate numbers. Workers on H1B visas who can’t find another role within a few weeks face having to abruptly relocate their families out of the U.S.

It’s striking how inhumane—and unnecessary—much of this is.

What is the alternative?

For starters, not laying off workers at all. Few of their businesses are short on cash to meet payroll. Microsoft and Meta—which laid off more than 20,000 workers, combined, with thousands more cuts reportedly in the works at Meta—alone scored over $90 billion in profits last year.

Research doesn’t support the idea that mass layoffs actually improve the financial or business performances of a company. One study that found potential financial benefits from layoffs still said companies shouldn’t expect any benefits for at least three years following staff cuts. Another academic paper, titled “Dumb and Dumber” concluded that cutting jobs “is associated with decreases in subsequent firm profitability.” Among the reasons why: the remaining employees are often stressed, anxious, and less engaged, which shows up in things like increased lateness or absences. Understaffing is inefficient and reduces customer service, further handicapping a business’s performance. Even the stock bump for downsizing can prove fleeting, according to studies.

It’s also short-term thinking for companies that face a still-competitive market for workers, and presumably will need to hire again. There were 1.9 job postings for every unemployed worker in December. Demographic trends—including a declining birth rate and drastically curtailed immigration to the U.S. over the last few years—also will make it harder for employers to find enough people to fill future openings. A Wall Street Journal analysis found that companies often wind up cutting far fewer positions than they announce, sometimes because they find they need the workers.

Many tech companies proved skilled at protecting jobs and supporting workers during the early part of the pandemic, when a number foreswore significant layoffs. They would be well served to adopt similarly creative approaches today.

Zapier provides one example. Rather than fire employees, the tech company chose to launch a “secondment” program, where workers are temporarily shifted to new roles. With hiring at a standstill, for example, some members of Zapier’s recruiting team chose reassignments in its data and product functions. “A downturn is temporary,” wrote Bonnie Dilber, a Zapier recruiting manager. “Did we really want to lose all of that recruiting talent only to spend all of those resources again hiring new people down the road?”

Atlassian is another tech company that has had a secondment program, and published a guide about how they work. Some businesses also use furloughs—extended time off with reduced or no pay—to cut costs in the short-term with the aim of bringing back employees when conditions improve. Others capitalize on downturns to actually add employees, grabbing valuable talent that isn’t normally available to them.

This isn’t to say that layoffs never make sense as a last-ditch option, especially if a company’s ability to keep operating and make payroll for everyone else requires a significant reduction in costs. Performance-related dismissals are also a necessary tool for businesses. But the idea that highly profitable tech companies are now “bloated” and should abruptly jettison thousands of staff is a sign of poor management—both for getting to this point and for lacking creativity and humanity in dealing with it now. Mass downsizing is a blunt tool with questionable benefits.

The CEOs should look in the mirror. Any mistakes that led to these layoffs are ultimately their responsibility. Some tech executives acknowledge approving aggressive overstaffing based on unrealistic growth projections—and, in fact, the layoffs represent a fraction of the tech hiring binge since the pandemic started. But it’s also easy to point to examples of ill-advised investments in bubbly areas such as crypto or the metaverse, in building ostentatious skyscraper offices, and in acquiring other companies for multiples of their actual business value.

Rather than employees, it’s perhaps the leadership of some of the businesses that deserves to be shown the door. Research does suggest that CEOs who conducted mass layoffs have been more likely to lose their jobs themselves. That’s eventually another way that tech companies could prove to be not so unconventional after all.

Delaney is editor-in-chief of Charter, a media and insights firm for owners of the talent agenda. Sign up for Charter’s free newsletter about the future of work here.