First casualty: Employees pack items at an Amazon fulfillment centre. Companies can avoid such need for massive layoffs if they practise responsible recruitment and ethical hiring. — Bloomberg
WITH recessionary talks dominating headlines, we start to see major companies around the world embarking on large-scale cost cutting measures. The measures often begin by targeting the workforce and implementing massive layoffs.
Mark Zuckerberg, founder of Meta Platforms Inc (formerly known as Facebook Inc) in an open letter last year, announced that it would be laying off 11,000 employees or 13% of its workforce.
Micron Technology Inc, a global manufacturer of computer data storage and memory also announced that it would be cutting 10% of its workforce due to the slower global demand in the industry.
Amazon Inc, which is owned by the world’s third richest man, Jeff Bezos, announced in that it is slashing 18,000 of its global headcounts.
Apart from the tech sector, we also witness global investment banks, Goldman Sachs Inc which had a profit of US$13.4bil (RM85bil) for the latest nine months reported earnings informed shareholders that it will be cutting 4,000 of its employees.
Closer to home, Sea Ltd Inc, the company behind eCommerce giant Shopee has slashed 7,000 employees which is 10% of its total workforce.
Locally, even Carsome which had raised significant fundings putting it on a unicorn status laid off 10% in 24 hours.
Overnight, it appears that employees who were once important building bricks of the company had become a liability. Does that make sense?
Corporate interest comes first
The ideals of capitalism have always been cutthroat.
Rewards and remunerations directly correlate with productivity and output.
The financial performance of the company, specifically its earnings determine the employment status. Gone were the days of career longevity.
Lifelong careers in the same company are no longer a common sight.
Of course, there are more career options these days due to an expanded global economy.
Entrepreneurship and growth of the economic pie provides career mobility.
However, it also diminishes the value of loyalty and appreciation for employees’ efforts. While there is argument on both side of the aisle, it seems that corporate interest comes before anything else.
Indeed, there appears to be weaker financial performance of companies largely owing to overarching macroeconomic conditions.
But somehow employees are always the first casualty simply to safeguard corporate bottom line.
When one cannot increase the revenue, the easiest way to preserve margins is to reduce cost. This is very convenient as it coincides with the interest of the top management, and in turns the shareholders.
Sadly, it runs afoul of the employees’ sustenance and the livelihood of their families.
Government’s role to step in
In my corporate career, I have represented companies to apply for tax incentives to the government.
In the cost benefit analysis and proposals, large companies frequently rely on several basis to seek the consideration of the ministry.
The justifications include technology and knowledge transfer, creation of job opportunities and economic spillover effects.
In the interest of the nation and the society at large, tax incentives and favourable policies will be granted if the companies meet these conditions.
I realised though that some companies only rely on these justifications as a mean to demand for support from the government or to pad up their reputation.
They will always claim to do it for the livelihood of the employees and the thousands of families that may be affected.
However, when it comes to time to share the burden, some of the companies would not hesitate to retrench and layoff thousands of employees, impacting their livelihoods just for the sake of lining their pockets with extra dimes.
“Less men, more share” suddenly becomes the organisational value of the day.
This is where it is imperative for the government to step in to ensure companies which have enjoyed tax incentives and benefits must keep their end of the bargain or risk facing potential claw back.
Responsible recruitment and ethical hiring
Just to be clear, I am not a socialist and believe strongly that companies are engines of economic growth for a nation.
Successful enterprises which are ethical brings more positive spillover effects to the society than harm.
I can empathise with the challenges faced by companies especially small medium enterprises during an economic down cycle.
My concerns are how some corporate leaders or advisers believe that mass layoffs equal higher profitability.
In truth, it is a lazy way out which relies on the guise of restructuring to drive short term earnings spike.
Being in the business of managing capital, it is delightful to see companies which we invest in report higher profits each quarter or each year.
The question is, this comes at what cost?
If given a choice between two companies – one that delivers better financial performance but conducts frequent annual headcount cut and another that deliver lower but consistently growing financial performance while preserving the welfare of their employees, I would choose the latter.
To a large extent, it is paramount to practise sustainable earnings rather than report explosive earnings cycles followed by prolonged losses.
Barring black swan events, companies can avoid such need for massive layoffs if they practise responsible recruitment and ethical hiring.
ESG ratings should penalise layoffs exercise
With the rise of environmental, social and governance (ESG) and emphasis on the values of sustainability, isn’t it high time for companies to revisit the brutal method of mass layoffs?
If companies can spend hundreds of thousands hiring ESG consultants to present a corporate image that cares about the environment and society, the hypocrisy should not stop at just that.
ESG scoring should consider how well companies take care of the welfare of the employees and that includes providing work opportunity through good and bad times.
If a company embarks on mass layout despite registering billions in profits, it is my humble view that such companies should be penalised on their ESG rating scores.
Therefore, as the economy outlook for 2023 remains uncertain, it would be good to see companies to do their level best to protect the livelihood of the employees.
Relying on potential recession as the justification for mass layoffs should be avoided at all costs. If anything, layoffs should be the last resort in the order of cost cutting measures.
Ng Zhu Hann, is the CEO of Tradeview Capital. He is also a 0lawyer and the author of Once upon a time in Bursa. The views expressed here are the writer’s own.
