Article: Countering the merchants of emplocide

Employee Relations

Countering the merchants of emplocide

One reason CEOs, promoters and shareholders resort so easily to massive downsizings is that they suffer relatively little from these events, which destroy thousands of lives. Should we change the balance of pain?
Countering the merchants of emplocide

The past few months have seen brutal downsizings in heretofore relatively immune sectors. Far from being essential for survival or even improving financial performance, several of these seem imitative parrot plays. Jeffrey Pfeffer, of the Stanford Graduate School of Business, captures it well. "Layoffs probably don’t cut costs… in fact, there is little empirical evidence that layoffs help improve profitability, and some evidence they actually hurt profitability."  1

As bad as the actual pain caused to thousands of employees and their families, is the tension and demoralization of those who remain. 2 Next ,come the ripple effects of other firms following the examples of emplocide set by these generally model employers.

Reading the open letters from some of these bleeding heart CEOs, with love for their employees oozing out of every 'mea culpa' teardrop, I was reminded of the concluding verse from 'The Ballad of Reading Gaol' about men killing what they love:

Some do it with a bitter look,

Some with a flattering word,

The coward does it with a kiss,

The brave man with a sword. 3

Whether such CEO love is delivered by the sword or the stiletto, most employees would prefer not to be its object. If there is no succour to be found in love, shall we rely on mercy? We have no less a personage than Portia tell us:

The quality of mercy is not strained;

It droppeth as the gentle rain from heaven

Upon the place beneath. 4

Unfortunately for her and for our faith in human nature, Portia soon realizes (if she didn’t expect it all along) that mercy is strained. So strained that it has to be squeezed out of Shylock by the threat of a far worse catastrophe befalling him if he doesn’t relent. And who are we to argue with Shakespeare’s judgment? Perhaps we too shall spot kindness glimmering behind CEOs’ masks only when there is the threat of greater unkindness being visited on them.

In a much earlier piece, I had hinted at this pain-sharing necessity. 5 Do read that column for a fuller perspective on my views on downsizing. This time, however, I’d like to make specific suggestions to make business leaders more wary of declaring war on their workforces. Unless CEOs (as well as other members of the leadership team), shareholders (as well as other investors) and corporate reputations take concomitant hits, the pernicious trend of eliminating people as casually as waste paper will continue. What can be done to distribute the pain more equitably?

Progressive painshare

On May 27, 1942, Jan Kubiš threw a bomb that fatally injured, Reinhard Heydrich, one of the planners of the Holocaust and, at that time, acting Governor of the Protectorate of Bohemia and Moravia. Unable to find the attackers initially and in an attempt to placate Hitler’s fury, the Nazis decided that the village of "Lidice [which had no connection to the assassination] was to be destroyed. The men were to be shot on the spot and the women were sent to a concentration camp… The village was to be burned to the ground and its remains levelled so that no trace remained… The Czechs paid a heavy price in blood for the death of the tyrant, with over 5000 victims of Nazi reprisals, …the majority innocent civilians." 6 What shocked and disgusted the world was that most of the people massacred had no responsibility for planning, deciding or carrying out the act that led to the reprisals. 

Nearly ninety years later, almost every tech company overestimated the demand for its services. The more honest (or brazen) CEOs owned responsibility for the miscalculation. In an attempt to placate shareholder fury at the capacity that had been added heedlessly, the ones responsible for the blunder decided to decapitate the innocents brought in recently (as well as many older hands for good measure). No one seems particularly shocked that almost every single eliminated employee had no part in the decisions that brought on the crisis.

As repugnant as these parallel cases of vicarious, collective punishment should be to any individual with even a marginally developed sense of fairness, there are also perfectly rational economic reasons for targeting the top rather than the bottom of the pyramid. Depending on the level, each senior defenestration yields savings equivalent to at least tens and, more frequently, hundreds of operating and contractual employees. 7

Thus, it is both just and rational that the leaders that brought the company to such a downsizing pass and those whose continuation costs the company the most, must take the lead in paying the price for it too. The distress can be distributed through the organization in the following ways.

The first suffering share is obvious: separations at all levels, with the proportion of people eliminated being higher at levels taking strategic calls and where reduction will save the most. To my thinking, the CXO level immediately below the CEO should lose twice the percentage loss of the operating and contractual employee levels. Intermediate level exit percentages can be suitably extrapolated. If levels are fuzzy, the same progressive impact can be achieved through a ranking by earnings. The CEOs' own continuation would be determined between that person’s conscience and the Board. 

The major show of solidarity retained employees can be asked to show is through a reduction in their Costs to the Company (CTC) including allowances and all benefits. Only half of this savings should accrue to the company, with the rest going towards a National Unemployment Fund which will be the subject of a future column. Even today, some CEOs and top teams make similar gestures though, if media reports are to be believed, some seem tainted by sleight of hand8.  To be a credible show of empathy and of any significant help to the firm’s finances, such cuts should not be much less than 50% at the level of the CEO and progressively less with each succeeding level. Again, in the absence of well-defined levels, a CTC ranking would suffice. 

Have you ever wondered how some CEOs and Promoters bring their salaries down to Re 1 to demonstrate solidarity in times of hardship? Part of the answer lies in benefits that are not always accurately costed for the CTC computation (e.g., a huge company-owned house and lavish retirals). The real kicker comes, however, by way of long-term incentives and other means of wealth accretion which yield large incomes and tremendous appreciation in value with each passing year. Until these enter the computation, there can be no meaningful pain-sharing with those whose emoluments have been reduced to zero. Unimaginable as such a sacrifice may appear to us, we have a century-old precedent of a promoter voluntarily putting his wife’s jewellry in hock just so that employee salaries did not become nil.9 Further, while the impairment of current and future wealth accretion of senior executives, in general, may suffice, additional wealth should be clawed back from individuals making the judgment calls that brought the fortunes of the company so low. 

Shareholders in pain

Even in tech firms, with their high rates of churn, the better employees have tenure measured in years rather than months. In the recent round of bloodletting, the most harrowing tales of bewilderment came from those who had been contributors at the same firm for a decade or more.

Contrast their sense of ownership compared to the legal owners, who in the case of investing funds, may measure their stockholding tenure in months, weeks or even days. Employees who have been slogging eight, twelve and sixteen hours a day can’t but help feel outraged if they suffer 'jhatka' to feed the appetite of people who may have never stepped into the premises of the business, leave aside adding any value to its performance. In response, I can hear CEOs plead: "We only did it to save the company from going under and in the interest of the many more employees whose jobs got saved as a result." I can buy that argument — provided the company passes three simple (but decreasingly palatable) checks to prove that the downsizing was really a last, desperate resort.

Assuming that maximal efforts were made to retrain and redeploy personnel internally before the downsizing, there should be no objection to freezing all recruitment (including contract workers) for a meaningful period (say, two years) after the reduction. Of course, there will need to be exceptions for critical roles that cannot be internally retrained (e.g., pilots in an airline), but these should be rare and clearly justifiable. As a result, we should see an end to the pernicious practice of 'round stripping' salaries by driving out higher-paid loyalists and substituting them with freshmen or GIGs.

Somewhat more controversial may be the proposal to add a slimming cess on profits linked to the reduced percentage of (permanent and contract) employees, which will go to the National Unemployment Fund mentioned earlier. Better tax designers than I can work out the rates and close the loopholes. The beauty of this idea is that, for companies that are genuinely struggling and have negligible profits, there will be no cost as a result of the cess. A better truth serum, for checking the there-were-no-alternative claims of companies, I cannot imagine. 

Lastly, we need to remove any element of unfairness in the relative treatment of two supposedly equal stakeholders: employees and shareholders. During (and for a specified period after) the hard times culminating in layoff, there should also be a moratorium on benefits flowing to shareholders through dividend payouts, buybacks or any other mode. This should go a long way to easing downsizing demands on CEOs from shareholders. 

Reputational pain

Corporates have been known to spend millions on developing and communicating  their Employer Value Propositions (EVP). This paragraph can save them all this money while boosting employee citizenship behaviour.10  The answer lies in three simple words – No Emplocide Here. Of course, this will not preclude individual terminations as actions of last resort for non-improvable performance or egregious conduct. Most employees understand the fairness of such decisions. What they cannot understand or stomach are mass expulsions from their figurative homelands (for no fault of theirs) simply to create greater 'lebensraum' for shareholder returns. In the current mood of panic caused by imitative emplocide, I can think of no more magnetic EVP to attract and hold the best talent. Conversely, a reputational toll needs to be paid by employers who scatter employees to the winds like chaff. 

It is logically ludicrous and morally repugnant to award 'best employer' honorifics to corporates that have just converted employees into EBITDA. Hence the first consequence of emplocide should be exclusion (for at least a couple of years) from consideration for all such evaluations and awards – whether for the corporate entity or individual leaders. 

It is equally questionable to lure prospective employees into jobs, under the pretence that their performance will make their futures, when it is their CEOs’ misjudgments that might terminate their tenures.11  Of course, recent press coverage should alert prospective recruits to employers who have put profits before people but memories can be short. Like the statutory warnings on cigarette packets, all employers must declare their previous 5-year record of downsizings in every corporate campaign and most definitely in any recruitment-related communication, whether on campus, in the media or to individuals.  

While I have been less than charitable to the general run of shareholders, there is no doubt that enlightened investors have made a huge difference in the elimination of other harmful business practices such as environmental degradation, use of child labour or trade in illicit produce. This has not necessarily been at the cost of financial returns.12 We need to place emplocide on the list of reputationally hazardous practices. Investor strength will then be an aid rather than an opponent of organizational fairness.

Critical questions

There are some critical questions that have remained unanswered so far. The first is: who will implement these pain-share possibilities (they actualize only when jobs are cut and, in any case, it is unlikely that all these ideas will be implemented at once). To me, the ideal is self-restraint on downsizing and self-imposition of pain when it occurs. My most recent inspiration comes from Brunello Cucinelli who is "… proud none of his roughly 2,000 employees were let go when sales were hit by the pandemic."13 Remarkably, he has set a ceiling on his firm’s profitability and, when earnings go higher, he pours them into better pay and working conditions for employees. Everyone, I suppose, can’t be Cucinelli (though reading Philosophy instead of doing an MBA might help!) 14  and, for most corporates, a set of guidelines set by business associations and employer bodies might be an essential prod to action. Should such a stimulus fail to emerge or be effective, I am afraid the probability of legislative action will increase. 

Possible intervention by the state will immediately raise the next question: what will such pain-share programmes do to employment generation? Will it not scare away corporates from adding people in the first place? I really don’t think that will be the case if there is a profitable business opportunity and committed people are necessary for materializing it.  On the contrary, the easing of laws governing retrenchment has gone hand in hand with employers 'de-generating' employment through automation or contractualization. Those trends require bigger solutions and changing the cost of durable employment will not shift their trajectory significantly. 

The closest home for readers of this column must be the question about the role of HR in all of this. At the operational level, the greatest contribution HR can make is to have extremely effective re-training and re-deployment programmes. Contributions at the process design level are even more vital. Some tech firms are using the lack of legal codes (or their non-implementation in the strictest sense) to get by with minimal payments to those being turfed out. The situation abroad is even worse. 15 Ensuring a fair deal for those being separated and ensuring they are dealt with empathetically and gently must be owned by senior HR leaders. Finally, we come to the person occupying the place at the table: the CHRO. That seat hasn’t been granted simply to rest a broad backside. It is from that vantage point that CHROs can moderate overhasty accretion of staff when the business mood is upbeat. More importantly, it is here that they should question (even if they can’t veto) plans for emplocide. I know and respect several CHROs who did protest such reckless reduction (and sometimes were made part of it). On the other hand, there have been some CHROs who have been eagerly complicit in finding clever ways to increase emplocide at minimal cost. Before claiming they were only following orders, they (and those readers who feel we must accept this 'new normal') should recall Hannah Arendt’s words: "The sad truth is that most evil is done by people who never make up their minds to be good or evil."16

Notes:
 1.Elizabeth Lopatto, Why are so many tech companies laying people off right now? Didn’t they just have record-breaking profits?, The Verge,  26 January 2023.
  2.Josie Cox, The toll of layoff anxiety, Work: In Progress, BBC, 7 February 2023.
  3.Oscar Wilde, The Ballad of Reading Gaol, Complete Works of Oscar Wilde, Collins, 2016.
  4.William Shakespeare, The Merchant of Venice, Act IV, Scene I.
  5.Visty Banaji, People Are Not Beans, Angry Birds, Angrier Bees – Reflections on the Feats, Failures and Future of HR, Pages 347-350, AuthorsUpfront, 2023.
  6.Callum MacDonald, The Assassination of Reinhard Heydrich,  Birlinn Ltd,  2007.
  7.Visty Banaji, But Who Will Guard the Guardians, Angry Birds, Angrier Bees – Reflections on the Feats, Failures and Future of HR, Pages 260-266, AuthorsUpfront, 2023.
  8.Divyanshi Sharma, Weeks before firing 12,000 employees, Google CEO Sundar Pichai received massive pay hike, India Today, 30 January, 2023.
  9.Visty Banaji, Is HR Too Fragile?, Angry Birds, Angrier Bees – Reflections on the Feats, Failures and Future of HR, Pages 526-533, AuthorsUpfront, 2023.
  10.Rabia Imran, Mehwish Majeed, and Abida Ayub, Impact of Organizational Justice, Job Security and Job satisfaction on Organizational Productivity, Journal of Economics, Business and Management, Vol. 3, No. 9, September 2015.
  11.Jason Aten, Google's CEO Answered Criticism Over Layoffs at a Heated All-Company Meeting. This 1 Word Stood Out, Inc., 2 February 2023.
 12.Alexander Kempf and Peer Osthoff, The effect of socially responsible investing on portfolio performance, CFR Working Paper, No. 06-10, University of Cologne, Centre for Financial Research, 2007.
  13.Flavia Rotondi and Chiara Remondini, Billionaire Cucinelli Sets Profits Cap to Thrive for Centuries, Bloomberg, 4 February 2023.
  14.Daron Acemoglu, Alex He and Daniel le Maire, Eclipse of Rent-Sharing: The Effects of Managers' Business Education on Wages and the Labor Share in the US and Denmark, NBER Working Paper No. 29874, March 2022.
  15.Annie Palmer, Jonathan Vanian, Jennifer Elias, Jordan Novet, Lora Kolodny, Ashley Capoot and Sofia Pitt, Here are the layoff severance packages Google, Microsoft, Amazon and other tech giants have promised, CNBC, 20 January 2023.
16.Hannah Arendt, The Life of the Mind, Mariner Books, 1981.

 

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Topics: Employee Relations, #TheGreatTalentWar

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