When companies announce that they are going to lay off thousands of employees, it shouldn’t be any surprise that employee morale drops like a stone. So why do they do it other than for the most obvious reason? Many large financial services firms have announced thousands of layoffs over the next few years, including Bank of America Corp. (NYSE: BAC), UBS AG (NYSE: UBS), Goldman Sachs Group Inc. (NYSE: GS), and HSBC Holdings plc (NYSE: HBC). All told more than 55,000 financial services employees are already or soon will be looking for work.
The Wall Street Journal has a story today that these announcements often backfire and cause employees the company would like to keep to begin looking for a new job. There are other consequences as well, many of which don’t help companies planning the downsizing. So why do they do it?
The principal reason must be to prop up the share price. There’s nothing that investors like to hear about more than an increase in profitability. And when a business is facing serious profitability issues, one easy way to make it seem as though management has a plan is to fire a few — thousand — employees. Cutting costs through layoffs is a guaranteed profit builder.
In some managements’ way of thinking, the impact of layoff announcements simply doesn’t weigh enough to offset the bounce to the share price. It’s classic short-term thinking.
Why it’s still a surprise after all these years and all these firings only indicates that a lot of top managers continue to think first of their own stock options and not about what might be in a company’s long-term best interests.
Of course business conditions change and companies need constantly to be aware of whether they have the right people in the right place at the right time. And also of course there are times that a company gets caught with too many employees. Is 30,000 layoffs too many? Someone besides the employees should be paying the price for that.
Paul Ausick
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