Blaming the CEO for doing the job they were hired to do seems short-sighted. Blame the broken system that incentivizes this, that makes doing it profitable.
And then, let's change the system.
How is failing to predict market conditions a few months into the future and over hiring part of making a publicly traded company money? If anything, these layoffs are an admission from management that they're wasting money.
They fired people because they're getting pushed by Investors asking for better Return via stock price just keep that in mind.
META culled 11k and stated that they save $1Bn last year. Fast forward to last week: they somehow have $40Bn to buyback their stock, rewarding investors for a decent gain: 44% within a month. There's a good possibility that other companies will follow suite and execute stock buyback.
Stock Based Compensation just got wiped out from the book as well: typical RSU is 4 years, if some of these folks are on their first and second year (or have refresher), those future expenses are gone too, back to the pocket of Corps.
Salesforce is surrounded by vultures (activist investor) right now.
Juuust... keep that in mind: the mob wants their money back and they set aim at the CEOs.
I never noticed this, but hell, CEOs "manage hires" like most people manage their stock investments.
Most things like this are very difficult (impossible) to predict. In hindsight everything seems obvious, but it usually isn't obvious in the moment.
In 2020/2021, shareholders of tech companies were demanding growth and pouring money into these companies to create growth. Most companies took that money, hired people to create growth, under the impression that the flow of money wouldn't be abruptly and unexpectedly turned off, which is what happened in early 2022, leading the companies not being able to raise additional capital, leading to lay offs as they pivot their strategy to more cash efficient operating models.
TLDR: It's hard to predict the future. And when you're in a bubble, it's very hard to recognize it until after the bubble bursts. And, bubbles can last multiple years (even decades). If you asked people in 2021 if tech valuations would continue to increase, I'm guessing many people would say "yes" even though a few short months later the answer was obviously "no".
If an additional employee in a busy year can make more money for the company than it costs to hire, train, and employ that person, then the company can be expected to hire them and fire them when it's no longer as busy. That's not wasting money, that's making money.
I'm fortunate to work for a small shop with business values that include metrics like retention that aren't tied to making shareholders money, including a goal of "never have to lay people off". And we haven't, in 35 years of operation, through major upswings and downturns. We're aware that this makes us less financially competitive for sure in the short term and arguably in the long term, but we're OK with this compromise and others, because we'd rather take care of our people than win the rat race. But we're the exception, not the rule.
Literally nobody is able to correctly predict market conditions a few months into the future. If you could do that reliably, you'd quickly become the richest person in the world.
Faulting CEO's for failing to predict the market is setting an impossible bar. All they can do is respond in a reasonable way to current market conditions and direction. Markets are going up and they can hire. Markets are going down and they have to fire. Nobody has a crystal ball here.
How? Understanding broad market trends doesn't give you some god-like ability to time the market. Also worth adding, tech CEOs are some of the richest people on the planet, so they're already at the level where we should expect them to be able to forecast accurately a few months out. That's what they're being paid for, after all.
This is a poor take. The function of the CEO of a publicly traded company is to execute on major objectives of the firm. This might be optimizing for max profit, but it might not, depending on what your majority shareholders communicate to the board and management (as well as how they vote their shares).
Agree with the rest of your comment that you have to reach a better power equilibrium between labor, management, and shareholders (who should also be employees to some degree, aligning interests and all that jazz).
- Any form of expansion into new markets. Will take a lot of cash to get started and may take years before it becomes successful.
- Most marketing for brands that you already know, to keep them "top of mind". Nobody needs ads to know that Coca Cola exists, but they still spend a ton on marketing to maintain their brand image and make sure that people hear about them regularly.
https://www.theverge.com/2013/4/12/4217794/jeff-bezos-letter...
That's of course assuming that the strategy is well-articulated and that the market understands it.
The question alone is a bit loaded, because stock price is meant to reflect the future prospects of the company -- its long term profitability. A better example might be making decisions that knowingly lower the profits for multiple quarters.
Amongst the major objectives of a firm there is honoring debts and shareholders are mostly creditors.
You need to understand the fundamental difference between debt and equity.
A creditor gets his money back with interest, and that's all. The firm could prosper or flail and it makes no difference as long as they pay him back. If the firm goes bankrupt, he's first in line for what's left of it.
A stockholder might get nothing back, but if the firm prospers, he shares in it. He's last in line in a bankruptcy.
Edit: With that power they may notice a gap in capital during a financial crisis, and they may force the firm to fill it with layoffs.
the second sentence is beyond normal ignorance. We're done here.
> “There is a widespread and completely erroneous belief out there that there is some sort of legal duty that corporate managers have to ‘maximize profits’ or ‘maximize shareholder value,’” said Cornell law professor Lynn Stout, author of “The Shareholder Value Myth.” In Stout’s view, the misplaced assumption comes from an old case that cites stockholders’ interests. That case did not set legal precedent, she said, compared to a more recent case.
> “You can just pick up the Supreme Court case ‘Hobby Lobby’ decided just a few years ago,” she said. “Read the majority opinion, where Justice Alito says, and I quote, ‘modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else.’”
> By contrast, Delaware Chancery Court Judge Leo Strine, now chief justice of the state Supreme Court, wrote in the Wake Forest Law Review: “Corporate law requires directors, as a matter of their duty of loyalty, to pursue a good faith strategy to maximize profits for the stockholders.” The debate goes on.
https://www.americanbar.org/content/dam/aba/publications/bus...
> We evaluate the U.S. Supreme Court’s controversial decision in the Hobby Lobby case from the perspective of state corporate law. We argue that the Court is correct in holding that corporate law does not mandate that business corporations limit themselves to pursuit of profit. Rather, state law allows incorporation for any lawful purpose. We elaborate on this important point and also explain what it means for a corporation to “exercise religion.” In addition, we address the larger implications of the Court’s analysis for an accurate understanding both of state law’s essentially agnostic stance on the question of corporate purpose and also of the broad scope of managerial discretion.
It is not as black and white as "you must maximize profits" although this is consistently parroted by folks.
This is obviously not true.
Even in the most extreme version of the "shareholder value" philosophy, the goal is not to maximize share price alone. The goal is to maximize total return way that is sustainable within the timeframe that the major of (voting) shareholders consider relevant.
The simplest counter-example is the existence of dividends. Any time a company issues a dividend, they could often instead buy back shares and achieve a higher share price at some instantaneous point in time. But in many cases that would come at the expense of total shareholder return, which shareholders obviously care more about than price alone.
There are also all sorts of hilariously destructive financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero. Eg: take on as much debt as possible, sell all of your assets, layoff all of your employees, buy back all shares at any price, and declare bankruptcy. There might even be legal ways of doing this. Firms never do those things except on long enough time-frames with big enough personalities; GE is the poster-child here.
Most firms, especially large ones, have a complex set of strategic considerations. Short term share price plays an outsized role in decision making, imo, but it's almost never the entire objective function of a firm.
No. All professional valuation models account for dividends and buybacks. Both can and do effect share price.
> financial engineering tricks that a company could do to make their share price shoot to the moon just before cratering to zero
Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame.
I am not advocating for the correctness or perfectness of the current incentive structure. Rather, I am pointing out that any company which is not seeking to improve their share price will very quickly be targeted by short sellers and activists. And thus, management will change priorities to align with increasing shareholder returns or they will be replaced.
> No. All professional valuation models account for dividends and buybacks. Both can and do effect share price.
This is another way of saying that professional valuation models account for the fact that it is NOT true that the "incentive structure of public companies is only to maximize share price".
> Yes, I would have assumed it obvious that a company wouldn't seek to maximize their share price over an infinitesimal time frame.
Okay. But that's my whole point! Over WHAT time frame is the corporation optimizing total returns, and how are those returns DISTRIBUTED to share holders, and even then, WHICH shareholders hold the decision-making power?
Share price isn't the whole story, and isn't even the whole story if you consider variable time frames.
How about ... get ready for a taboo word in hi-tech: unionized? at a certain size, a hi-tech company must face labour union?
Before anyone suggests that Union protect low performer and penalized high performer, keep in mind that right now, at this moment, high performers are culled left and right in FAANG because their salary is too high.
High performers also gravitated towards "cool new projects" that are getting wiped out as well. "High performers" know that if they performed well, they will get paid more, simple. They know the game so they will choose greenfield/moonshot projects (zero maintenance, more output regardless the biz-ROI).
Also on the topic of Union pushes Offshore/Outsource => already happened for some of these FAANGs anyway. Amazon India salary is going up up up up up up to a point where it is close to US salary.
Note that I’m not commenting on how high performers are doing in terms of getting new jobs! It could be bad, it could be good, I don’t know.
But layoffs with less worker protections have always been the trade-off for higher compensation for top performers. Just because the understood risk occurred doesn’t mean that it was a bad risk to take, or even that it was much of a risk at all (especially if top performers have emergency funds that tide them over to their next job)!
All this to say that your rebuttal to the high performer argument isn’t super convincing. I’m sure it could be made better, but as it stands it’s not offering much.
> But layoffs with less worker protections have always been the trade-off for higher compensation for top performers.
We'll have to wait and see how this play out in order to validate your statement.
Will the days of top-compn for high-performers come back again? Or are we heading for correction?
Hi-tech high-compn is one factor of inflation that bleeds to housing sector (see property prices in hi-tech dense area).
My other argument would be nobody can be LeBron James: high-performer for 20+ years consistently. Some only did for one stretch (3-5 years, or just in one company; different companies have different problems and organizational challenges), some longer (10 maybe, if they're lucky).
Burnout is real in hi-tech. Nobody has done any data or correlation between high-performers, top compensation, and burnout.
I see your angle "if it's a well understood risk" a.k.a making a deal with the devil ;).
Having said that, I'd like to see how things play out rather than using previous state of the hi-tech high-compn culture that exist thanks to cheap money via US printing machine.
Just laying it out that hi-tech workers tend to be dismissive when it comes to Unionizing.
They laid off people who had little to zero influence in defining the company mission, trying to cut spending. This suggests that the C-suite over-spent.
> Blaming the CEO for doing the job they were hired to do seems short-sighted. Blame the broken system that incentivizes this, that makes doing it profitable.
You can do both. A CEO would not need to lay off people if their long term plans worked accordingly, which means that they suck at their job. It's easy being the boss when everything goes fine and everyone buys your stuff. When things turn rough, these CEOs would issue a sorrowful apology, lay off tens of thousands, and still pocket hundreds of millions for the foreseeable future.
If I'm making a garden with 10 folks and realize my yard is full of clay, why would I continue to employ gardeners when clearly it's time to build a pool? Should I lose my house because I couldn't make a garden? Or is my vision of a garden home incorrect for the current location and I must change my vision to match what the market/location is telling me?
Maybe you shouldn't be doing gardening at all.
Isn’t that a relevant question to ask in order to determine how good a home manager you are?
That’s a bad take. Companies can incur losses while the ceos do their jobs. Short term profitability and long term growth are both ceo responsibilities. If you take decisions to boost short term numbers to gut the company’s health over a longer term you should be fired. The exact myopic view led to destruction of airline and car rental companies stock in the last decade. Those ceos were not making money for the shareholders beyond the few quarters they “made money”.
So any CEO who is not a psychic will most likely end up sucking at their job.
Similarly, if I hire a CEO who hires 20,000 people, then lays 12,000 off after a year, I would have to question his ability as the head of the company.
It is not about being able to predict the future, at all.
Also, have I mentioned that most of these companies aren't posting losses? Or even problematic trends in their revenue reports?
Also, revenue is not down. Growth is. Apparently, we live in this stupid dystopia where growth is more important than money, even for gargantuan companies like Alphabet. How are they planning on growing at a >10% rate YoY forever?
[0] https://www.macrotrends.net/stocks/charts/GOOG/alphabet/reve...
> Google’s parent company, reported $59 billion in advertising revenue for the fourth quarter, a decrease of 3.6% from the same period in 2021. Those results marked the second time ad sales fell since Google became a publicly traded company in 2004.
> Google’s video platform, YouTube, recorded a second straight quarter of declining revenue for the three months through Dec. 31, with sales retreating 7.8% from the year-earlier period to $8 billion.
Source: https://www.wsj.com/articles/alphabet-google-googl-q4-earnin...
Because you previously said:
> Alphabet is absolutely posting troublesome trends in their revenue reports.
Essentially you are telling me that if revenue as a whole goes up, but not in some divisions, that makes sense of layoffs across all divisions.
thats dubious. did that code serve the purpose needed? did it provide enough value during that time to offset the cost of replacing it? I've written plenty of dubious code to get out a feature in front of a customer who would have otherwise left us. Sometimes that was it and we never had to touch it again. other times, more people would depend on it and the initial feature justified the resources to rewrite it. Its more complicated than "was the code bad." code is the product of the constraints at the time. that includes things like time sensitivity or budget.
If I were a shareholder, why would I hold this against the CEO as long as the buybacks keep rolling in.
The board might not care about this though. Maybe they even intentionally put themselves in risky positions with too many employees because they see employees as easily disposable.
At what timescale?
Firing the whole company would save a whole lot of money at the detriment of destroying the company.
Or are we looking at just a quarter? There's plenty of terrible choices that will net a whole pile of profit in the quarter. And it's a string of these quarterly choices are what brought Sears, Toys-R-Us, and other vulture capital mediated destruction that a LOT of quarterly gains. And there's also just making terrible business decisions like Netflix updated account rules (Whoop, accidentally posted... sure).
How about a year? If your company has existed that long, you're still trying to fit in and make your niche. But if you've been around for decades, a year is still super short-sighted. Its very hard to gain respect, and very easy to destroy it over night.
5 years? That's the absolute maximum US stock markets look at. Which means nothing past 5y is "calculable". Long term choices aren't a thing.
Perhaps the "best way" was to make better staffing decisions, which a lot of these C teams failed at spectacularly.
I’m all for smaller changes occurring where possible, like worker reps on boards, more employee ownership, wealth taxes—something is better than nothing—but we won’t change the fact that power compounds, and gaining enough power allows you to evade all those rules such that those incentives don’t matter at a certain point. Changing that requires more chaos and uncertainty than most people have an appetite for today, and we should all be clear-eyed about that when saying things like “let’s change the system.” I believe it will change and we can change it, but I also believe it can only happen in response to trauma.
The orgy of tech hiring with the objective of denying candidates to other companies is evidence that the large tech CEOs no longer feel beholden to that. Automotive CEOs do, hence the COVID “we love you, remember us” ads, followed by shooting themselves in the head by breaking their supply chains.
Arguably, their goal is to maximize share price because most of their "income" is paid in shares.
An argument can be made that they are not acting rationally by laying off so many employees.
I find that to be ironic. One of the problems with a CEO is that they'll maximize short-run profit rather than do what's in the best interest of the shareholders.
Then when long term goals fail, shareholders will blame management when long term expectations are not met.
Shareholders are not strategic, with the possible exception of a few rarities.
If they want to get rich quick, they are free to try the OTC market with high risks and high rewards, or Vegas.
Something must have gone wrong if you hire 1000 and then fire 1000 a year later. And no, it's not "the economy" for every single (extremely diverse industry) tech company.
When that shift happens, if you're the company that continues the "old" (I.e. likely always unsustainable) way of operating, then you'll be left holding the bag.
Ok. By hiring too many people in the last couple of years and therefore now needing to incur the expenses and reputation hits of layoffs, those CEOs screwed up and fell short of their goals, right? So maybe they aren’t the best people for those jobs?
So, make "as much money as possible" while building a solid and sustainable business long-term, or make as much money as possible within a quarter or two and then walk away from ruins with a fat bonus for a handful of people? Because we have seen this before, and it ends with gutted, non-competitive husks of companies - GE, Boeing, to name a couple.
This idea that the shareholders need to get 10x returns even if it means a destroyed business has gone out of control. Pure capitalism is bad enough, but mix insatiable instant gratification, and it's completely destructive.
And more to the point, "I was following incentives" is no different from "I was following orders." It doesn't become suddenly okay to do harm just because there's an incentive to do harm.
Hacker News and corporate culture in general are toxic because of people blaming market conditions instead of taking responsibility for their own actions.
You're literally just saying we can't disincentivize sociopathic behavior, because those behaving sociopathically are just following incentives.