Opinion | Lay-offs involve the many paying for the sins of a few4 min read . Updated: 10 Jul 2019, 08:34 PM IST
A job loss or the threat of one is among the most stressful events in a person’s life causing anxiety and depression
Last Sunday wasn’t a happy holiday for thousands of families across the world. Deutsche Bank kicked off yet another turnaround plan that envisaged laying off 18,000 employees across the world, including in India. The retrenchment comes as no surprise, even if the scale is shocking. This latest round of culling adds more numbers to the thousands of employees who have been axed in the last 10 years as the financial crisis played out in the form of closures and mounting losses. However, it isn’t just banking and financial services that have seen mass lay-offs in recent years. In 2017, Indian telecom companies laid off thousands of people following a series of mergers and acquisitions as well as shutdowns in the sector following the price war unleashed by Reliance Jio. Around the same time, the information technology industry was in the midst of large-scale retrenchment.
We are not done yet. As sectors such as automobiles face an uncertain future amid changing customer choices, there could be many more people finding themselves out of a job soon with no place to go. It is becoming a pattern. As business leaders find their strategies going awry, resulting in declining financials, a lay-off is the first piece of restructuring they turn to. It is easy to execute, shows activity and brings instant returns by lowering costs. Lay-offs are an inevitable consequence of market economics, but it is becoming increasingly evident that it may be less to do with competitive forces and more a consequence of poor leadership. The result is that many end up paying for the sins of a few.
Take Deutsche’s woes. The bank has struggled to stay afloat since the 2008-09 financial meltdown following a series of scandals, troubles with regulators, and a failed merger with smaller rival Commerzbank. In 2015, Deutsche was fined a record $2.5 billion by regulators in the US and UK for its role in rigging the key Libor interest rate. In October 2016, German economy minister Sigmar Gabriel said about the bank’s woes: “The scenario is that thousands of people will lose their jobs. They now have to bear the responsibility for the madness carried out by irresponsible managers."
That sums it up, even if it isn’t just madness but avarice and fraud, too, in most cases.
In India, many of the incumbent telcos were in deep distress even before Jio launched its take-no-prisoners assault on the market in 2016. The aggressive bids in the spectrum auction of March 2015, when companies coughed up ₹1.1 trillion, left most of them bleeding with massive debt on their books. The lay-offs that followed a few years later was the response of the same leaders who had taken the earlier decisions.
Lay-offs, especially sector-wide ones, are generally driven by major changes in the market or unsustainable pressure from competition. In 1993, Sears, till then the reigning retail leader in the US, finally gave in to Walmart’s sustained price pressure and laid off 50,000 people to lower costs. The same year, IBM laid off an equal number. It stemmed from the stubborn refusal of its leadership over the previous two decades to accept that the world was moving to personal computing. Again, in 2012, Hewlett Packard announced 20,000 lay-offs, following declining sales that stemmed from its inability to see that customers were increasingly looking for mobile machines. The company had no tablets or smartphones in its portfolio at a time when sales of these were taking off.
A lay-off is traumatic. There’s enough research to suggest that a job loss or even the threat of one is among the most stressful event in a person’s life, leading to anxiety and depression. Far from being momentary pain, unemployment leads to long-term earning losses and subsequently jobs of lower quality, besides impacting one’s psychological and physical health. What’s more, morale levels among surviving employees plummet—almost 30% by one indicator, as people simmer about the unfairness and injustice meted out to their laid-off colleagues even as they watch the very leaders and managers flourish who were responsible for leading the company to grief.
Yet, it isn’t proven that mass lay-offs allow companies to recover profitability. A study titled Cure Or Curse: Does Downsizing Increase The Likelihood Of Bankruptcy? by professors from Auburn University, Baylor University and the University of Tennessee found that downsizing firms are significantly more likely to declare bankruptcy than firms that do not engage in it.
Some companies, realizing the futility of large job cuts to shore up performance, have experimented with alternatives. In a 2018 article , Harvard Business Review cites AT&T as one of those firms. In 2013, the US telecom giant realized that 100,000 of its 240,000 employees had work that would no longer be relevant in a decade. “Instead of letting these employees go and hiring new talent, AT&T decided to retrain all 100,000 workers by 2020. That way, the company wouldn’t lose the knowledge the employees had developed and wouldn’t undermine the trust in senior management that was necessary to engagement, innovation, and performance," writes the author. The results were almost instantaneous: 18 months after the programme’s inception, the company had shortened its product development cycle time by 40% and accelerated its time-to-revenue by 32%, and since 2013, its revenue has increased by 27%.
When leaders fail, it is their bucks that should stop first.
Sundeep Khanna is an executive editor at Mint