Swinging the axe becomes popular pastime

Tony Poulos

Swinging the axe becomes popular pastime

August 04, 2011

I continue to be perturbed by headlines from the telecoms industry declaring staff cuts to reduce costs and improve profitability. Is there no other means to placate investors than to resort to such radical and life-disrupting means for people that have not necessarily failed in their jobs?

Today’s workforce appears to have become a totally disposable item. Staff get hired when business is good and fired when business even looks like going bad. They often get palmed-off to outsourcing companies who are then contracted to provide their services back, usually at a premium, just so it can appear in a different part of the company’s P&L and balance sheet.

The human resource ‘reduction’ tool usually has a dramatically positive effect on the share price of the company but demonstrates little more than a knee-jerk reaction from the executive suite, apparently unable to come up with anything more creative. Is that what they teach in MBA courses these days – when revenues go dull, sharpen the axe? Surely we can come up with something a bit more creative in this day and age.

I have always assumed that those massive C-level salaries, bonuses and incentive payments were made to attract top level business brains with extreme management skills, but I’m getting the feeling that when their remuneration is even remotely threatened by poor performance of the company being managed by them, the easiest way to protect it is to reduce costs by firing more staff. The anomaly is that it even happens when sales are improving.

Yet, how often do we see a CEO of a telecom industry company take the blame for poor performance and resign? Um, I can’t recall one in living memory. We’ve seen the occasional ‘dud’ get removed by hostile shareholders but even that is a rare occurrence. Even more rare is a C-level taking a massive pay cut to ensure staff keep their jobs.

Then you have the extreme cases like RIM that has not one, but two CEOs acting in a joint capacity. What’s that all about? Is the job too big for one? Is neither good enough to do the job on his own? Can’t they decide on one and give the other a different job title? Are egos coming into play? Do they have controlling interest? What is it?? Somebody please explain.

If I was one of the 2,000 staff members recently given the heave-ho at RIM, I would be asking exactly that. I would also have to guess that the salary package of one would go a long way to keeping all those people employed.

How about Nokia divesting itself of 7,000 staff? Didn’t anyone in the C-suite see the downturn coming when every other man and his dog in the industry did? The appointment of a Stephen Elop was probably too late to prevent the lackluster performance of existing Nokia products in the market, but his actions since in aligning with Microsoft have the experts reeling. This is a gamble of titanic proportions and if it doesn’t get results, and soon, the knife will come out again and many more Nokia staff will be joining the dole queue.

It’s not just these two giants of the industry, in the last few months we have seen the headlines – Telefónica plans big Spanish job cuts; KPN telecoms firm announces profit warning and job cuts; Telecom job cuts ‘good for investors’; Deutsche Telekom plans massive job cuts in management, and Cisco’s job cuts go deep.

To put this into some context, employers in the sector, which includes computer, electronics, and telecommunications firms, have announced 35,375 job cuts between January and the end of June this year.

The weird part of these mass layoffs is that the companies take a big hit upfront in severance payments. Even if these are amortized over a quarter or whole financial year they represent huge tranches of expended cash that further affect bottom-lines. If history is any indication, many if these positions will be refilled in the not too distant future and the whole cycle of hiring, training, payment of placement fees, etc. will start all over again.

I’m sure someone has done the sums and worked out that weathering the storm is probably a cheaper long-term proposition, but it probably won’t hold water with the boards, shareholders and investors. Maybe some of them should come in and try to run these businesses and see how just how tough it can be.

Better still, maybe they should be asked to confront the many loyal staff, often the sole breadwinners in a family, to see what hardship they personally have to face in order to keep the share price up.

Thumbail image from server side store: 
Tony Poulos
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