Regardless of individual opinions on whether CEOs should be terminated for layoffs or not - there's a surprising amount of comments here that seem to not understand that growing companies don't hire for today, but for where they want to be tomorrow. Where you want to be tomorrow is based on where you and your investors believe the world is going. If the world materially changes enough to shift your expectations about where it's going, then you change your plans (and headcount) accordingly.
In other words, when COVID hit and tech companies saw large surges because investors and CEOs saw industries leaping 5-10 years into the future overnight, they hired to support that growth. As the market has shifted and inflation combined with an end to the public health emergency has tempered growth expectations, investors and CEOs cut head count to match.
It sucks, and I'm not saying this is how it should be to those people who are impacted. But if you wait until the world is already where you thought it might be before you react and start building for that world, you're behind. Whether or not CEOs should be punished for getting the call wrong is what this post is about, but getting the call wrong sometimes is expected/necessary if you want to have a chance of getting it right.
>when COVID hit and tech companies saw large surges because investors and CEOs saw industries leaping 5-10 years into the future overnight, they hired to support that growth
Yes, they all egregiously failed. A massive, widespread, collective failure for which they should lose their jobs, as many other people do. On the face of it, it was obvious, that's not even hindsight bias - it was the topsy turvy world that bad news meant good news for stocks and S&P 500 CEOs that persisted for nigh on 15 years that was weird and had to end sooner rather than later.
I'm seeing a lot of this "screw up = get fired" narrative lately and I think it's a bit ironic.
Talk about screwing up in engineering contexts and suddenly the tune changes: now people will talk about improving processes, blameless postmortems, and how the individual is not at fault.
Imagine a youtuber saying googlers should be fired because some decision was made that affected the youtuber's income negatively. Or imagine an Uber driver saying that. Or a small business owner dealing w/ a Stripe mishap or whatever. If you are the one being targeted by these calls for loss of employment, then comes out the "I'm not the responsible person here" card.
So on the one hand, you hear people with pitchforks about how CEOs or whoever need to take responsibility in some movie-esque "bad guy ending" fashion, but turn the tables and nobody wants to step up to be responsible for their own shit shows.
Even if we entertain the idea of firing CEOs, is the implicit assumption that companies can run fine without one? By that logic, anyone could just give a bunch of money to a bunch of fiverr code monkeys and that business would run just fine? I don't really get what the logical conclusion of this whole line of argument is supposed to be.
> now people will talk about improving processes, blameless postmortems, and how the individual is not at fault.
That makes me wonder why investors, particularly activist shareholders who drive the direction of boards, are never under scrutiny. Maybe their decisions to chase unrealistic growth, which forces the hands of CEOs and lesser executives, should also be reviewed. Maybe they should be somehow penalized or sanctioned for driving companies towards failure. Shouldn't a massive event like mass layoffs trigger a change in corporate boards? Why shouldn't responsibility go all the way to the top, why stop at the CEO level?
The investors you refer to typically manage money on behalf of their investors and are actually under constant scrutiny. If they run mutual funds, their performance is measured every day, and if they underperform for a number of quarters in a row, their investors will absolutely “fire” them by withdrawing money from their funds.
Then sounds like their incentives are inherently not conducive to the business of running businesses built on reasonable growth, and causes them to fall prey to the groupthink of expecting unrealistic macro environments to continue indefinitely.
When you've been subjected to decades of drivel asserting loudly and repeatedly that the reason CEOs get paid big money is specifically because they are the ones who hold the responsibility for screwups like this, you start to think that maybe they should actually be held accountable, just like they say they deserve.
When an individual engineer screws up, if the processes in place are working correctly, that screwup should only cost some time and possibly a bit of money—most likely within an order of magnitude of a few days and $100. This is why we have processes in place: because people are fallible, and it's not good to give any one person that much power.
When a CEO screws up, there's no one to catch that screwup. The buck stops there. So many of these companies are structured specifically to give the CEO some significant degree of autocratic power—the power to say "this is what we will be doing, because I say so", whether or not they have other justifications backing them up—and now that we're saying, "Hey, that kind of power is supposed to come with accountability," you try to tell us they shouldn't?
As for "companies can run fine without one," I'd say that's a very useful hypothesis to test. But your strawman of "give a bunch of money to people on fiverr" isn't the logical way to test it: it's "set up a system with democratic processes in place, create a management committee, possibly with a rotating chairship, and in general give the employees more say over the direction of the company they work for".
> create a management committee, possibly with a rotating chairship, and in general give the employees more say over the direction of the company they work for".
this sounds very similar to a government where politicians are elected (un)fairly.
likely, this just presents another set of trade-offs.
Whenever you have to make decisions involving multiple humans, tradeoffs are pretty much a guarantee.
However, over the past few hundred years, we've been gradually coming to the collective conclusion that autocracy is inferior to democracy for systems involving larger numbers of people and decisions of larger stakes.
I don't see why that should apply any less to replacing the hierarchical model of companies, where a CEO can walk into any room and say "You're fired," with a (more-)democratic system, than it did to replacing kingdoms, where a king could walk into any room and say "Off with your head," with a representative democracy.
It's a very different situation. In a country you cannot escape the king, he will be the absolute ruler until he dies. Since there was no escape eventually they were replaced with democracy. You can willingly leave a corporation at anytime you want. Autocracy have an advantage over democracy when it comes to speed of change. Sometimes it's good change (progress) and sometimes it's bad change (i.e. over-hiring). Large corporations that become democratic will lose the ability to react quickly. In order for such companies to survive, the environment must remain consistent (no competition, no new technology).
> Large corporations that become democratic will lose the ability to react quickly.
Not really clear that corporations that stay autocratic do much better. As with kingdoms that turn into sprawling empires, all you're left is a bunch of middle management petty kings who the CEO-emperor delegates power to, who might not be much better. Bureaucratic rot sets in.
You can willingly leave a corporation the same way you could willingly leave a kingdom: easily if you're rich, and with great effort and danger if you're not.
now people will talk about improving processes, blameless postmortems, and how the individual is not at fault.
I’ve seen lots of public post mortems for engineering screw ups. Can you point me to a Fortune 500 public post mortem for a bad acquisition or something else CEO driven?
Earnings calls are post mortems for the performance of the previous quarter. A post mortem itself is just an analysis, it doesn't even have to be about a screw up. Screw ups are something else. When you think about cases like WeWork or Theranos, then I think we get into more familiar territory: gross negligence is a widely acceptable reason for firing, no matter if you're the CEO, Joe developer or a janitor.
An operational mistake by a SWE might be something like picking the wrong technology, and for a CEO, an operational mistake might be something like a bad acquisition. Just as a technology is a tool for the dev, an acquisition is a tool for the CEO. Both of these are examples of getting bad outcomes from their tool usage decisions, but they're still categorically operational mistakes, as opposed to gross misconduct.
So my two cents is that if one wants to argue that operational mistakes categorically warrant firing personnel, then yeah, I think I'm gonna have a problem with that line of thinking.
Earnings calls are post mortems for the performance of the previous quarter. A post mortem itself is just an analysis, it doesn't even have to be about a screw up.
This is bullshit. An earnings call is nothing like an engineering post mortem for an outage. There’s zero introspection or root causing.
It’s typical Silicon Valley style hypocrisy, where founders and CEOs claim there’s a certain company culture but never walk the walk themselves.
Give me a NY bank any day. At least they aren’t constantly blowing smoke up employees’ asses. Everyone knows the score.
You mean unlike the Experian breach post mortem, or the numerous "everything is green" Slack outages? IMHO, Costco talking about container costs is introspection. I'll grant that taking analogies too literally does indeed lead one to conclude the other party's arguments are bullshit, but I think that's just a matter of perspective and unwillingness to engage in good faith discussions.
So far as I'm aware blameless postmortems don't really exist for project level failures. If I propose a new system, say a new load balancing scheme, it staffed and built and then is a failure as a system I am actually going to get blamed for that failure.
In theory Pichai took the blame but in practice that means nothing. On the one hand there were no job repercussions, on the other there was no attempt to break down the factors that lead to the errors and discuss what changes would be made to prevent similar errors. So not blameless or blamefull, nothing at all.
I get the sense that when it comes to innovations in organizing and leadership, there is very little solid innovation. We’re pretty much working with the same dictatorial hierarchy that has existed since forever.
Some exceptions are perhaps Valve. Most other companies try to make a change at the margins and even that is heralded as a great innovation but generally fails to get adopted widely.
That's exactly where every single big corporation goes to: risk-averse and being milked as cash cows. Being a corpse in the way of others.
So why not speed up the process and at least cut the suffering from thousands of lives and skip the step when those risk-takers inevitably fuck up and overhire? Let all companies be boring cash cows after the initial stage, might even improve innovation from smaller players.
Yeah it’s a bit silly to push workers at a Big Tech behemoth to work like they’re at a startup. This is completely delusional and leaders who propose these things should get fired.
Ok, then fire them from not improving quarterly expectations. Seriously -- this is a real functional system that can work. You're acting like C-level accountability is an edgy suggestion. It very much isn't.
I suspect people would be more sympathetic to the plight of CEOs if they didn't make hundreds or thousands of times as much money as everyone else, even and perhaps _especially_ when they commit random acts of economic violence on their staff.
If it was obvious, then the market would have priced it in.
But it didn't. So the crowdsourced collective wisdom was indeed that industries were leaping 5-10 years into the future overnight. That was the thing that was "obvious" to most people.
You may have disagreed at the time, and if you'd shorted stocks you could have made some money. But the idea that "on the face of it, it was obvious" is blatantly untrue. You're able to say this only with the gift of hindsight.
I think that's a different question then if it's obvious.
I don't really understand the obvious claim. If it was obvious to investors and executives then what? They knowingly spent money they knew was a waste?
I wonder if for those who it was very obvious for "put their money where their mouths were" and bought a set of securities that would make them a ton of money on what was obvious when the obvious materializes in real life.
then, with that ton of money, they could buy enough shares to influence the board to implement their agenda.
in theory, this would quantify the definition of "obvious".
> If it was obvious, then the market would have priced it in.
Look, right now market is pricing in a soft landing and FED reversing the fiscal policy in the second half of the year, which is highly unlikely (i.e. "obviously" not going to happen). Yes, there are several people pointing this out. No, I'm not selling my (imaginary) house to short stocks and make some money from it.
Actually, hiring for a future that is based on economic predictions that are notoriously inaccurate due to many factors, including simple personal biases of the experts making the predictions is quite foolish if you think rationally about it.
Not when the downsides are unbalanced. If the future does not come to pass and you acted on it, you have to lay-off 10% of your workforce. If the future does come to pass and you didn’t act on it, other companies that did act on it eat your lunch and you may end up with many more people losing jobs than just 10%. So the question is if there should be truly zero level of faith in economic predictions, or if there statistically enough truth there for it to be worth steering towards the options with the best upside/downside ratio.
Ultimately CEOs of large companies are paid tons of money to be the person responsible for the company direction, so holding them responsible for making a wrong decision is fine. Just wanted to say that while hindsight is 20/20, it’s not necessarily the case that it was a poor decision in the moment when sometimes you have to play the odds.
> If the future does not come to pass and you acted on it, you have to lay-off 10% of your workforce. If the future does come to pass and you didn’t act on it, other companies that did act on it eat your lunch and you may end up with many more people losing jobs than just 10%.
These hypotheticals are way too favorable towards all of the non-Apple tech companies that gorged themselves during the irrational exuberance of the past two years. Since when was Google or Meta in danger of being outcompeted by a rival company who overhired to eat their lunch, rather than by their own mistakes? Were all of these overhired personnel really being put on vital projects necessary for the survival of these companies?
Perhaps some companies this analysis held true. But in most cases it seems just like a reactionary keeping up with the Joneses overhiring spree. Companies saw others doing it, and they imitated, not out of some sound financial policy.
You are absolutely correct. No economic prediction is perfectly accurate, therefore they are always at least somewhat inaccurate. So calling them inaccurate is a truism. In reality, some predictions are more valuable than others, based on their evidence, methodology, etc.
Moreover, it doesn't pay to be a hero on Wall Street. Like you hint at here, it's much safer to go with the crowd and be wrong than to go against the crowd and be wrong. That's just a fact of life in business.
Apple not overhiring isn't paying off for Tim Cook personally in terms of compensation terms, but seems to be paying off for that company on Wall Street.
I think the fact that so many CEOs got it wrong is actually an argument for why the shouldn't be fired.
If one or two CEOs got it wrong, you could argue that they were incompetent, ignorant, or greedy and they should have been better informed because plenty of other CEOs were. Everyone getting something wrong says to me that the failure wasn't down to individual mistakes and there was something larger at play.
If your CEO is a lemming, they are not capable of leading a company. They should be fired.
If you want to see a real leader, look at Tim Cook. He made decisions based specifically on where the company is, where it's going, and already factored in external factors (such as the pandemic growth). Contrast this to dozens of other "CEO"s who made a horrible decision hastily, executed layoffs horribly wrong, and then vaguely blamed a pandemic. The exact same lazy gameplan because these CEOs cannot lead, might as well replace them with chatgpt, maybe they'll write better layoff emails.
As a reminder, the CEOs core role is to steer the company. When that ship slams into an iceberg, you have failed your core role. What happens when workers fail their core role?
I think that's a bad take. Tim Cook is arguably the best CEO out there right now. Saying all CEOs should just do what Tim Cook did is like saying all swimmers should just be more like Michael Phelps.
> When that ship slams into an iceberg, you have failed your core role.
I agree with your line of thinking, but I don't think any of these companies failed in their core role. Looking at the FAANG companies, stock prices are down a bit, but none of these companies are on the verge of collapse and all are still market leaders in their respective areas.
Hell, for all we know, this could have been the plan all along. Hire a bunch of people while interest rates are low and let them all go when interest rates go back up. I realize that layoffs are not a good thing and they affect real people, but the reality is that they are not a sign that a CEO is failing in their core role.
> What happens when workers fail their core role?
It depends... If I've got one employee on my team who continually fucks up our deploy process causing outages. Yeah, they probably need to be fired. If every developer on my team fucks up our deploy process causing outages, then issue is probably that our deploy process is bad and firing people isn't going to fix anything.
The consequences of all swimmers not being like Michael Phelps are significantly lesser than the CEO example to the point that I don't think this comparison could ever be a fit one. If a swimmer swims more slowly, big deal, nobody cares. If a CEO makes bad decisions people's lives can be uprooted. There's a key difference here.
> If a swimmer swims more slowly, big deal, nobody cares. If a CEO makes bad decisions people's lives can be uprooted. There's a key difference here.
You've completely missed the point of my analogy. If you compare everyone else the the person who is the best in the category, then everyone else will pale in comparison. Using "You're not as good as The Best" as a reason to fire someone is stupid since there's only one person who can live up to that bar.
I absolutely did not miss your point. I don't think everyone needs to be the same as the "best". I do think that when we operate an economic system we need to have a certain level of quality in important positions-- one that has not been met. This isn't a game and our lives hold more weight than a swimming competition.
I'd much rather eliminate scarcity and the need for people to have a job to provide their basic needs. Accomplishing that is even more difficult though
I can appreciate your point, but you have to also consider that a characteristic of Apple is the sheer size of the business. Apple can afford to be more conservative with their business plans because they can weather storms more readily.
If Apple failed to plan for a huge economic event that let competitors gain some ground, they can survive that misstep because they have such a huge moat. Conversely, if Apple did over-hire, they can also survive that climate due to their size and stay the course while others falter.
If you're captaining an ocean liner (Apple) you don't worry too much about 5-10' seas and 10 knots of wind. If you're captaining a 50' yacht (eg. all the mid-sized SaaS businesses announcing layoffs) you definitely pay attention to that sea state.
Why would Meta have needed to either though? Or really Alphabet, Microsoft, Twitter, or a bunch of other companies? Maybe a handful more people to deal with scaling issues on products specific to pandemic needs, but the pandemic was always going to be temporary. They hired heavily in excess of just pandemic related concerns, it was more about expecting a paradigm shift. (Even now they almost all have substantially more people than before the pandemic though ,so you could argue it is less an error of type and more an error of magnitude)
Or maybe there just wasn't enough information to make an informed decision and the safest thing to do in that situation is just stay with the pack.
It's like if someone asked you to open a car dealership in a town you knew nothing about. The safest thing to do is just pick the area where all the other dealerships already are. You don't gain a competitive from doing that, but you also ensure they don't either.
It's not the ideal strategy, but doing what everyone else is doing so you don't fall behind makes the most sense some times.
I could see an argument for locally rational in the same way that no one gets fired for using IBM, but it's usually pretty clear to the lower level employees that something isn't right. Middle management and lower level employees all knew the economy was messed up, it's hard for me to conclude that the C*O's don't rationally know the same thing.
> You don't gain a competitive from doing that, but you also ensure they don't either.
In fact, you may gain a competitive advantage from doing the opposite of the herd if the herd is about to run off a cliff.
Wasn't the subprime mortgage crisis similarly caused by an entire industry engaging in practices simply because "that's what everyone else is doing"? Wasn't the irrational exuberance of the dot-com bubble also propped up by groupthink? Why can't bad decisions be called out for what they are and not be excused as rational economic behavior?
> Why can't bad decisions be called out for what they are and not be excused as rational economic behavior?
My point is that we only know it was a bad decision after the fact.
The economy is incredibly complex and anyone who tells you they can consistently predict what comes next is lying to you or lying to themselves. Even experts who dedicate their lives to studying economics get things wrong regularly. Calling for a CEOs head because they failed to predict something that pretty much everyone of their competitors also got wrong seems stupid.
To be fair, I think the culpability of CEOs has to be balanced with the corporate boards that appoint them and give them direction, and the major activist shareholders who were the ones who gave them marching orders to the tune of unrealistic growth targets into a volatile skewed economic situation in the first place.
But the point is when everyone gets something wrong, there should be time for at least reflection and steps to remediate such a mistake from happening again in the future. Just saying the "economy is complex" is no excuse. If anything, it is defeatism.
> there should be time for at least reflection and steps to remediate such a mistake from happening again in the future
I agree with you there, but when almost the entire industry got something wrong, I don't firing your CEO does anything to prevent that mistake from happening again. If you ask yourself, would it be reasonable to believe another person would have done better in this situation, I don't think the answer can be "yes" when pretty much everyone got it wrong.
Maybe the shareholders should stop and reflect upon whether their expectations of exponential growth, even in a booming market, especially in a booming market propped up by abnormal conditions, are reasonable. Because sure they lose money but they're not losing their jobs.
> Yes, they all egregiously failed. A massive, widespread, collective failure for which they should lose their jobs, as many other people do.
I am all for thoughtful discussions on how tech CEOs could be held responsible outside of empty mea culpas in blog posts, but "they should lose their jobs" feels like cutting off the nose to spite the face. Does ousting a CEO really help the company, or the workers who didn't get laid off? And where does the line get drawn? % of layoffs or absolute number of layoffs? How does the absolute size of a company get factored in?
> collective failure for which they should lose their jobs, as many other people do.
Only bad companies fire people for taking risks and failing. Good companies reward that behavior if the risk was reasonable and the learnings were positive. They fire people who take unnecessary risk.
Hiring into the pandemic was a good risk in my opinion.
Why was it a good risk? The writing on the wall that tech was overinflated, that TC was insane, that the money printing was going to have a severe correction eventually. It should have been common wisdom that it was a temporary state of affairs because the growth in tech was not built on irreversible trends. Lockdown would end eventually. All of those food delivery apps, at the very least, could not expect exponential growth once restaurants opened again.
> The writing on the wall that tech was overinflated, that TC was insane, that the money printing was going to have a severe correction eventually.
Sure, and then you lay people off when that correction comes in. In the meantime you're hiring the best people and having them do great work. And when they layoffs come, maybe some of them stay.
> All of those food delivery apps, at the very least, could not expect exponential growth once restaurants opened again.
Sure, but if they didn't build market share during the pandemic, they would never catch up afterwards.
When the market is on fire, you need to ride the rocket. You always know that you have layoffs in your back pocket for when the market cools.
It's not like these layoffs should be a surprise to anyone -- it happens after every hot market. Sure it absolutely sucks for those that are affected by it, I know because it happened to me in 2001. Barely got through it. But it's not a big surprise.
It is a big surprise because tech was in its own superheated bubble for about fifteen years ago and human beings have short memories. So perhaps that's why Warren Buffett's dictum of being fearful when others are greedy is so important to remember, even in greedy times.
But 1) it seems rather disingenuous for companies to posture one way and then pull the rug under their workforce who are being sacrificed in the name of a cooling market, and 2) perhaps companies should consider other ways to pursue profitability without massive layoff sprees?
How did they fail? The spent 1 year salary times 15,000 people times $333,333/man-year. So $5 billion. That's a pretty big cost. On the other hand, it was a hedge against losing significant opportunities/market share. The question is "was it a good bet".
Another variable to consider: the 2020 - 2022 market was rewarding growth (as opposed to profitability or being cash-flow positive). The Corporate loan interest rate was practically 0%. Companies which could show growth, even at the expense of lighting cash on fire, were rewarded as far as the stock market is concerned. CEOs are expected to bias towards shareholder value, lest they be replaced by someone who will. And so, with these variables in play, many took the decision to rapidly expand their operations (costs) in any way that produced marginal growth. They lived and died by their ability to, on each quarterly earnings call, share the message of QoQ and YoY growth. For many companies this required rapid hiring.
The market now is demanding flesh and CEOs are either expected to provide it, or else get fired. Just like in the former time period, they would get fired had they not shown growth. I personally do not think a CEO should be fired now for having to hire employees, when they would have been fired in the first place had they not rapidly hired.
It is a very odd discussion to have since, even when running a company well, no public company should be compensating its CEO to the tune of even 1 million a year. It is absolutely a ruling class leeching off society that this happens. It doesn't happen everywhere or even in america in the past, big companies can be run without this behavior. It isn't supply and demand, it is cronyism.
Should a CEO be allowed to get calls wrong, sure. Should they get paid 200 million when they do? No. Should they get paid 200 million ever? No.
Shareholders should be suing every company that does this until it stops, imho.
Your argument is nonsense unless you can explain why you pick your cutoff point at $200 million.
Plenty of people in the USA would argue that $200k is a bad number: those overpaid software developers with their share incentives need to be stopped /s. Shareholders should revolt against those rich software developers?
> It is absolutely a ruling class leeching off society that this happens
I mean, the same argument can be made for US tech companies leeching off the world (or just leeching off USA citizens if you wish to be parochial).
A relevant simple thought experiment: what would you do if you won lotto?
> Shareholders should revolt against those rich software developers?
Of course they should. Hiring a few, strategic, expert developers at those rates might make sense. However, paying 200k+ for a newly graduated student with no experience should have been questioned firmly.
Ok, but did the company have to pay that much to get that same value? I saved a company from losing a $5 million dollar sale when I was 6 months out of university, but should I have received $5 million for my value? Plenty of other people could have accomplished the same thing.
Yes, it would be much better for inequality if everyone's salaries were low and the trillions of value created in tech to go to a couple VCs, their LPs and their trust fund kids.
Some of that goes to workers with vested options too plus 401k and pension investors as well. Also, we are not talking about low salaries with the FAANG companies; the rest of the industry gets paid much less and noone is crying a river for them.
And yet Steve Jobs transformed Apple from 90 days to bankruptcy to the biggest company in the world. Was he worth $200 million in compensation? Hell yeah. Because he is responsible for that wealth creation.
This kind of turnaround also happened at Barnes & Noble, all due to one man - the CEO, James Daunt.
Because they have a track record in the past of making highly profitable decisions. If you have a track record of doing a great job, you get a high salary offer. If you do a bad job at your new job, you still get paid the high salary.
Shareholders gain by these moves too. Individually they gain less than the CEO, but they'll simp for them as long as it pays out. The free-market cannot control/contain these outsized compensations. Regulation/taxes would do a little better. Especially if USA returns to high-taxes on income/wealth.
Yes, the poor shareholders that don't work for their money should be given more of it. Tim Cook doesn't deserve any of the $2T value Apple created during his tenure... it should go to the trust fund kids.
Instead of complaining about executives earning so much, why don't we find ways for you and I to emulate their bargaining power instead?
Shareholders can sell there stock and I'm sure many did - that's how they send a message that they don't like the path leaders are on. Shareholders buy/hold/sell stock knowing the contractual obligations. As a shareholder, albeit a tiny one, I don't see how I'm harmed.
When you say CEO compensation isn't tied to supply and demand, what data do have to support that? We pay football/basketball/baseball players well more than 1M dollars. Do you think the impact between a good and mediocre CEO for a large company is less than 1M? Even tiny drops in performance due to decisions at the CEO level would cost millions at the biggest companies. As companies scale larger, bad decisions will cost more and more. I think a rationale case can be made that many of these CEOs are generating more value than they cost in compensation.
You are replying to someone who is saying "I don't think it's good that things are this way" with "things are this way". I hate these kinds of comments. The other guy knows how it's not up to him to make this decision. That doesn't mean he shouldn't voice his opinion.
It's mostly up to the boards' compensation committees. The board members are mostly C-suite themselves in their day jobs. Go figure. The power of the majority of shareholders is diffuse, except for large funds and activists: decision makers in both groups tend to be from the same high-compensation executive in-group - so they will not rock the boat.
It's truly insane to see. HN has been filled, for the last decade, with stories and advice about hopping jobs every two years to garner 20-40% pay increases, completely oblivious to the bubble that was SO OBVIOUS to some of us. Armies of self-interested careerist strivers doing everything imaginable to optimize their income, in the midst of the biggest tech bubble since 1999, giving precisely zero fucks about the impact their actions had on either their employer, or on broader society (morally disgusting adtech and social media platforms work in particular).
And now these same people have the audacity to bitch that the very employers they've been strategically milking with their Machiavellian labor market plays would realize their mistake.
No. Full stop. To these people I say:
You've been paid $300-400k in total comp for a decade to build platforms that have DEGRADED the society we live in. You have extracted maximum rents from a job market that favored you, to provide NEGATIVE value to society, all while looking down your nose at lowly plumbers, carpenters, and those subhumans in flyover country who grow your food, mine your copper, and produce your electricity. Now the job market no longer favors you, and you, of course, regard this as the fault of everyone else. Fuck off. Fuck right off, right now.
That’s fine and all and I agree about CEOs reacting and needing to be ahead of the curve but when they do fail they still get the golden parachute and I still get the “we’ll write you a good letter of recommendation”.
What happens if the COVID lockdown demand surge happens and companies don’t hire?
Customers don’t get what they want. Businesses that want to move online can’t or have a worse experience. The companies themselves are under-resourced for the actual demand and can’t invest in the future of their business because they’re struggling to keep the lights on.
I understand people are pissed about layoffs. Entirely reasonable, and as someone laid off I can empathize. But at the same time, COVID was kind of a black swan event. No one know what would happen and companies made their best guesses. Many were wrong! And that’s fine.
For public companies, there was public information about their strategies and the bets they were taking. For private companies, it probably depends on what they’d share during hiring. I knew going into Stripe in January 2022 what their bets were, my confidence level in leadership, and my personal risk tolerance for an uncertain future.
We shouldn’t be ripping companies apart when they’re wrong. At least not with over-hiring that had a plausible justification behind it. I don’t want to work for a CEO who doesn’t take risks. I don’t believe that’s better for the world.
I'm not sure how "farm this out to the 1099's" is a solution to this problem. You're shedding the expense either way, and the same group of people who are frustrated about the layoffs now are also frustrated at organizations who find loopholes to use "contractors" instead of "employees" to avoid benefits, taxes, etc.
But, the bigger issue is, knowing that you should give this to contractors would have required the same foresight that would lead to you not hiring anyway. In other words, if you knew enough to know that you shouldn't hire full time people because you might lay them off, then you probably knew enough to not do this in the first place...so you wouldn't have to let anyone go.
Agreed. I'm all in favor of holding CEOs accountable for bad decisions, as we've all seen companies' value (both real and stock) destroyed due to idiotic short-sighted management decisions, only for them to insanely well compensated. But that's not what this is. They made reasonable decisions based on the information they had, and then markets changed.
I think where this is really stemming from is that these market swings hurt people, and those being hurt feel the CEO should share in that. And there is merit to that argument, that austerity measures should impact CEOs and upper management just like they do the lower ranks, regardless of fault. These people are in a better financial position to weather the swings. Their compensation has a lot more margin or "fat" to cut into before it becomes painful, and thus can save a number of jobs that might otherwise have to be cut. Most importantly it shows solidarity with the workforce. It makes it feel more like this is an external event that is happening to us, not something that the CEO is inflicting on the staff.
If the bar for asking a CEO to quit is "you did not correctly predict the future" then we're going to have to ask most CEOs to quit at some point. And most employees for that matter.
The issue I have is with broad strokes generalizations that layoffs indicate a failure of a CEO. They don't necessarily mean that. Any more than shipping a bug to production indicates a failure of an engineer who should now be fired. Similarly, not laying people off is not an indicator of success. Nor is not shipping a bug to production.
The question is not "can we predict the future," but rather "did we do the right things to capture the right data to make the best decision" and if the answer to that question is yes - then any other reasonable person in the same position would likely have made a similar (if not the same) choice, and it's not clear what firing anyone does besides being punitive. Again, same for any employee that makes a mistake. This is not me giving a free pass to CEOs.
>If the bar for asking a CEO to quit is "you did not correctly predict the future" then we're going to have to ask most CEOs to quit at some point. And most employees for that matter.
Fine. But that’s not the CEO “taking responsibility”, it’s the employees who fall on the sword who take responsibility.
If I build your house out of wood and it burns down, and I say I will “take responsibility” while doing nothing while you have to buy a new house, I’m not really taking responsibility am I?
> If the bar for asking a CEO to quit is "you did not correctly predict the future" then we're going to have to ask most CEOs to quit at some point. And most employees for that matter.
I think level of responsibility for CEO should be different compared to regular employees. They get paid fuck you money and never need to work again afterwards.
There was a thread about google layoffs recently where people discussed L9s being laid off and how such people are expected to "redefine the industry" every year and walk on water in general. Yet, somehow the responsibility that seems to increase exponentially with level goes to almost junior level "oopsie couldn't predict what would happen after covid when free money stop flowing, no biggie I guess, let's just fire all these people we have hired during previous two years" for execs. It seems that the only way for them to get fired is if one of employees they sexually harassed talks and even then they get golden parachute.
The CEO job is to choose the best prediction of the future from those available to them, and make sure the company executes on it. So yes, that's the bar.
But as you just said, it's to make the _best_ prediction of the future based on those available, not necessarily the right one. You hope that over time of making enough educated bets, enough pan out correct for overall company success. Companies are often wrong about many (perhaps most) things. They're just right often enough to keep succeeding.
As the markets clearly priced in during the pandemic, this was the best prediction of the future. As measured not just by the CEO, but the response of consumers and the public markets. You would be hard-pressed, without the benefit of today's hindsight, to make a reasonable argument for why this wasn't the right decision to make based on the data in front of you.
To get it right, even when there's a cost to themselves. Consider Parag Agrawal, who took and push for a decision most beneficial to most then-current shareholders, even when it was clear to all that he won't be CEO because of it.
I thought what they meant was just "you are laid off not because you had performed poorly". Of course, it is still the CEO's decision to over-hire, but the parent suggested that over-hiring was not CEO's fault either, but a necessary move to capture the additional growth.
Stepping back from any emotional assessment, the growth of these businesses was not commensurate with the hiring. You can look at both the financial reporting and the economic indicators from that period and a reasonable measure of growth was warranted but not at the level these companies [edited from "comments"] hired at. It was more of an irrational tragedy of the commons, where companies were hiring because they were afraid of losing access to talent due to other company's hiring. It was not rational through the lens of business growth.
This is an interesting take, and on the surface I'd buy this. I think the assessment from many companies was "we're hiring because of where the world is clearly going" (ecom sustains a 20% lift overnight, healthcare sees a 37x increase in telemedicine use, etc), but perhaps a lot of this was just "we want the talent because other people want the talent."
Those companies expected a major societal event to become the new normal without strong data to support it, and chased growth that was not going to be sustained.
> there's a surprising amount of comments here that seem to not understand that growing companies don't hire for today, but for where they want to be tomorrow
This can be simplified to market reading. People in finance get fired for getting this wrong all the time. Michael Burry was told investors lacked confidence in his ability to read markets and was on the brink of divestiture during his short.
I think it's fair to say that's what we pay CEOs the big bucks to do, and if they fail to do it it's fair we ask for ramifications. I'm more startled by the comments who would like to preserve someone who makes millions, is already set for life, and often displays an inability to relate to the front line workers they're supposed to represent.
Was it rational given the information we had at the time to think we would sustain that kind of rapid growth, the public health emergency wouldn't end, we wouldn't get inflation from the supply chain issues and the money printing?
To be clear, in my original post I'm not making a stance on whether I think CEOs should have made the particular calls they did or not.
If you want my opinion, though, it's easy with the benefit of hindsight to say they shouldn't have. But some industries were, in fact, thrown several years into the future and there wasn't a compelling reason at that time to assume they'd just fall back as things returned to normal. Others should probably have reasonably expected growth to slow down (or reverse) as people could get out in the world again. I don't think there's one broad answer to the market overall.
Frankly, it's a little odd to me that we would expect companies to just be able to weather whatever the economy throws at them with no changes needed. Companies fail. They grow, they then shed headcount. Sometimes its right, sometimes its wrong. But I'm not sure how we could ever live in a society where there could be a complete upheaval to entire industries over a single quarter, and then again 2 years later back in the other direction, and everyone trucks on like nothing happened.
What is the cost benefit for acting or not acting? Everybody seems to be treating this as a binary decision which it is not.
When running a business, it can be entirely reasonable to invest in something you think is unlikely to actually happen if the potential reward times the low chance is greater than the cost.
If you strip away all the bad armchair economics, I think what people are really upset about is the idea that gambling with people's jobs is an acceptable cost.
I think this sums it up perfectly. Companies are wrong all the time. They kill product lines, often times even shed customer revenue, to avoid having to further invest in a space that doesn't make sense.
The real question is "should we tolerate shedding jobs" and it's an interesting question. Without stating a personal opinion on the matter, it's interesting to think about how drastically this would shift the economic structure of the nation if the answer was "no"
> In other words, when COVID hit and tech companies saw large surges because investors and CEOs saw industries leaping 5-10 years into the future overnight, they hired to support that growth. As the market has shifted and inflation combined with an end to the public health emergency has tempered growth expectations, investors and CEOs cut head count to match.
I guess the question is whether leadership could have anticipated a retraction of the economy just a few years later. But this made me think of another question. How much job security can we reasonably expect in the first place? If we want jobs to be secure, then that needs to be legislated or people need to unionize (and take the pay cut). I'm aware that I have no say in how the business is run and I can basically be let go either anytime or within a short time and I need to prepare myself for that.
My take? They hope these actions show that they can lead “strongly” through times of “adversity” and make “tough decisions”. And in doing so, hope the stock market will reward them for it.
They are not doing the strategic long-term thinking here but optimize for short-term results.
Yes, changes happened today which impacted expectations of the future. Of course this should be fairly clear. All of our perception about what will happen in the future is informed on events that have already happened or are happening now. There's no other information to base it on.
It's not like Google/Meta/Microsoft were barely hanging on by a thread just able to get through their core workload before COVID hit. They didn't need another 10,000 employees to get through today. They needed (or, incorrectly, thought they did) them to support where the business would be going in the years ahead.
Nobody was debating whether the pandemic would end. The only debate was whether industries would snap back to operating how they did before, or if they changes would sustain. And the reality is that there was no correct answer for all industries. Some are permanently (or at least well beyond the end of the PHE) changed by this. Others went back.
> saw industries leaping 5-10 years into the future overnight, they hired to support that growth
This is the kicker for me. C-levels assuming that a once-in-a-lifetime pandemic leading to online growth would sustain for the next decade. They should make 10Y plans, not 1Q based ones.
In other words, when COVID hit and tech companies saw large surges because investors and CEOs saw industries leaping 5-10 years into the future overnight, they hired to support that growth. As the market has shifted and inflation combined with an end to the public health emergency has tempered growth expectations, investors and CEOs cut head count to match.
What you’re missing here is that it’s their job to be correct.
Covid was, perhaps, unpredictable but the end of Covid wasn’t.
Of course, accurately predicting the future is very difficult but these are the highest paid people in the entire world. They should be able to do very difficult things to dramatically help their businesses, that’s why they make the big bucks. If they aren’t performing they should be replaced by someone better. Otherwise what we have is cronyism and not capitalism.
Who holds the ceo responsible? The board. If the board themselves would have made the same hiring calls, it's unlikely they could fault the ceo for making those calls as well.
By extension -- who doesn't hold the ceo responsible? The court of public opinion, which is what all of these comments and articles spilling barrels of ink on this issue think should be the case, but is not actually the case (and for obviously good reasons). A company is not a democracy (again, for obviously good reasons).
On the other hand, these debates seem quite one sided. The boards of these companies aren't firing their CEOs. Why aren't any of the op-ed authors curious enough to ask about this? This author literally links to another one of his own op-eds in order to dismiss any such arguments about whether or not this is pertinent! They've clearly already made up their minds on this point.
Or is the real point not to have a debate, but to get people riled up and indignant about something that will always have bad optics (even when it's necessary)?
My company did a big round of layoffs and it was pretty revealing that not a single director or above were laid off. Despite reduced headcount, the org chart got DEEPER in some cases. For all the talk of bloat in the tech world, nobody wants to point fingers at directors who have little to do but schedule very expensive meetings with the directors under them.
Reminds me of a company I worked for where we up staffed to sixty people plus five managers in my department. Then a recession hit and after two rounds of layoffs, there were fifteen workers left and still five managers. Not only did those of us left have an increased workload, but now had to deal with endless bike shedding by the managers, all of whom wanted to be able to put their name on whatever we were working on, probably because they were scared of what would happen if there was a round three of layoffs. Round three never came and eventually hiring freezes were lifted, but it was really annoying dealing with all the useless petty changes that were pushed on our work during that time so the management layer could look like they were doing something.
The managerial class looting public companies for outsized compensation while taking near-zero risk, is a huge problem in the modern economy.
Being a steward of an already-giant company...one that has product-market fit, reliable sales/distribution channels, household brand awareness, and a position of gravity in the markets...is infinitely easier than building something from scratch.
Nobody who was employee #1567 should ever be granted $10M+ of equity in a business they didn't build.
It's quite literally stealing from public investors, and boards only enable this because they're incestuously composed of fellow managerial-club members.
> The managerial class looting public companies for outsized compensation while taking near-zero risk, is a huge problem in the modern economy.
From the public’s point-of-view, the “software class” are looting the public: outsized compensation for a risk of say 2% (20% fired over ten years).
Nobody who was employee #13370 should ever be granted $100k+ of equity in a business they didn't build.
I’m being sarcastic: but so many arguments against the “managerial class” can equally be made against the wealthy privileged software engineers earning $X00k (including stock options/RSUs etcetera).
The pay of a rank-and-file engineer is commoditized with pay-bands and kept in check by market forces (we're talking millions of people -- hard to prop up inefficient pay at that scale). Certainly there might some geographic inefficiencies but those are slowly being arbitraged away (there's zero reason a European developer should be making 1/4th of what an American developer would).
On the other hand, the talent market for Director at Public Company is much less efficient and opaque. You're talking about a club of a few thousand people globally who restrict entry via irrational signaling values like "was on the rowing team at Harvard" or "created PowerPoints for a year at McKinsey."
I'm certain we could 5X the amount of people we let into the "public company management" talent pool with near zero effect on outcomes at a macro level--while having the benefit of saving investors money on comp.
You can't 5X the amount of people you let into the engineering talent pool without making things much worse. That market is much more efficient.
FANG employee developers can earn more than directors, and as you go up the pay scale, more of a software developers pay is equity compensation.
Directors of the S&P500 earn median $300k per directorship including equity compensation: “The combination of cash and equity changes has pushed pay levels to a new milestone in the history of GECAT’s annual study, and median total direct compensation (TDC) now rests at $300,000” https://www.wtwco.com/en-US/Insights/2022/12/2022-director-c...
And your point is kind of irrelevant to what I was saying. I am arguing relatively, many software engineers at FANG earn what most people would call “obscene salaries”.
If you want to argue executives or directors are overpaid, you also need to consider why (a) highly paid software developers are not overpaid, and (b) why your solution shouldn’t be applied to everybody in the USA as a whole (given the USA is extracting money from poor people and poor countries worldwide).
Edit: actually, on rereading your 5X argument, I realise I just won’t try to understand your point. I need more objective numbers to work with when trying to understand an argument. I won’t be adding to this thread.
> The managerial class looting public companies for outsized compensation while taking near-zero risk, is a huge problem in the modern economy.
Has it ever not been a problem? In any type of economy? In any type of company? Seems like this a human nature problem and not a "modern economy" problem.
I think it is a fairly new thing yes. I could be wrong but the distinction between owner and manager seems like a fairly recent development. The people in charge have always reaped the bulk of the profits but also bore most of the risk. Now we have "managers" who take no more risk than an employee but receive excess rewards.
Agree. I guess it's self preservation - managers decide who is laid off and are more likely to believe it's the ICs who are unproductive, not the many tiers of middle management who do nothing quantifiable.
Quite hilariously engineers are going to be measured by "productive commits" soon, but I saw no guidance created to measure how managers are providing value
That's not the director's problem, so why would anyone point the finger at them? Competent directors have a lot to do, albeit mostly behind the scenes to the average employee. If they don't have a lot to do, then the problem is up the chain.
The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it.
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.
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it.
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.
It's not wasted money. They hired people at peak, and fired them when peak reverted. If they'd ceded market share to competitors who were aggressive when peaking then these CEOs should have been fired.
> They hired people at peak, and fired them when peak reverted
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.
> failing to predict market conditions a few months into the future
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.
> If you could do that reliably, you'd quickly become the richest person in the world.
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.
If any CEO could predict market conditions with any sort of accuracy, they'd make a hell of a lot more money and have loads less stress trading the market. It's impossible to know the future.
It depends on whether those few months or years were enough time to earn back the value invested in training newly hired employees.
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.
If there's a 10% chance that your business is forever upended, and if you don't react you'll be left in the dust is the right decision "90% chance we'll be good, no need to change plans" or "Hey we're making too much money to take any risks here, lets adapt to the 10% chance, and if the 90% comes to pass we'll just go back to the way it was"? I think it's pretty clear that tech CEOs made the right choice from investors perspective. I don't see how you can come to the conclusion that they failed to predict market conditions when you don't know what odds they came up with.
> How is failing to predict market conditions a few months into the future...
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".
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible.
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).
I'd like to see a few recent examples of CEOs making decisions for the future health of the company that knowingly lower the stock price for more than 2Q.
There are lots of examples of CEOs making decisions for the future health of the company that are rewarded by Wall Street. The trope that investors only care about the current quarter profits is just bs. In fact in my experience future growth potential is rewarded a lot more by Wall Street than consistent profits.
- Any form of R&D spending. Biotech companies are an extreme case of this, many making no money at all for years until they get FDA approval or go bankrupt. A lot of companies will invest in new development of new machines in order to gain an edge in the long run.
- 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.
Zuckerberg did this. He correctly or incorrectly believes, Metaverse to be the future and so he invested in it knowing that short term profit may fall because of this.
He did so however on the basis that it would increase the share price. Facebook needed a narrative to pitch to shareholders, the metaverse was the one they selected.
Over the long run, yes, that was his belief (and job). I don’t think he did so expecting a share price benefit in the following 2 quarters, the premise of the question.
If by "the future health of the company", you mean "ability to generate more profit down the line" then it's kinda tautological that (at a micro-level) those decisions are not going to lower the stock price - given that said stock price is derived from the net-present value of future returns.
That's of course assuming that the strategy is well-articulated and that the market understands it.
"Making shareholders money" does not have to be synonymous with maximizing profits, does it? You want to maximize the stock price. Amazon and Tesla seem like examples where stock price and profits were not correlated.
> that knowingly lower the stock price for more than 2Q.
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.
This isn't wrong, but firms are made up of large groups of investors. It is exceedingly rare for their priorities to align with anything other than "maximize long term discounted profits" or "maximize short term profits". If you have any examples of publicly owned companies that aren't executing on one of those two missions I would like to hear them. Even ESG can easily be seen as a way to maximize long term discounted profits by making the company more sustainable.
And profit maximizing in the mid or long term can sometimes require moves that reduce profit in the short term, such as R&D expenditure. Sometimes shareholders will seek a CEO that can solve a pending existential problem rather than maximize short-term profit.
This is actually much more correct. We also happen to be in an environment that will want most boards to slow and more carefully steer the ship. Layoffs often come with that.
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.
corporations have a fiduciary duty to their shareholders. what that means is not well defined, and a ceo could say: i’m not doing layoffs because my analysis is that they will hurt our business, not help, but generally the meaning of their duty to shareholders is that they increase share prices and layoffs make that happen.
> “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.
> 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.
they do have a fiduciary duty. what does that mean? it's not clear. people interpret it to mean increasing shareholder value in the short term. it doesn't have to mean that, but that's how corporate management tends to behave.
This is a poor, uninformed take. The incentive structure of public companies is only to maximize share price. If a CEO fails to do this, an activist investor will spot the opportunity, buy up shares, and agitate for strategy or leadership change until share price maximization is once again the top priority.
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.
> The simplest counter-example is the existence of dividends.
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.
>> The simplest counter-example is the existence of dividends.
> 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.
Being laid off isn’t sufficient to make this a bad situation for high performers. If they’re getting new jobs quickly, it’s just a short-term setback.
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.
> 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.
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.
Makes sense, thanks for your understanding! As I alluded to, I think you can make a convincing projection that the future state will be worse. It’s just that the current situation is still within the bounds of expectation, so it’s not itself a sufficient counter argument to anti-union sentiment.
I'm also a big fan of the model Germany uses where once a company reaches a certain size they're required to have employees on the board, who can then be accountable to their coworkers and make sure they have a say in major decisions that will affect them
If their job is to make money for the shareholders, and quarterly reports show that they are either making less money, or incurring in losses, then they aren't doing their job.
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.
Let me put it this way. If I were to hire an engineer that writes 10x more code than the next, but all the code needs to be rewritten after a year because he made some very questionable decisions, I would definitely fire that guy.
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?
>If I were to hire an engineer that writes 10x more code than the next, but all the code needs to be rewritten after a year because he made some very questionable decisions, I would definitely fire that guy.
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.
Alphabet is absolutely posting troublesome trends in their revenue reports. Google ad results down, YouTube results down two quarters in a row… That’s what pays the bills at Alphabet.
I mean, the trend is downwards... If you take the anomaly of 2020-2021 into account [0]
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?
You cited Alphabet revenue, not advertising or YouTube revenue.
> 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.
CEOs aren't mind readers. They have to make informed decisions about risks their company faces and act to neutralize those risks. If there was a 1% chance amazon would somehow be replaced by a startup if they don't spend 100 million dollars should they do it? I think the answer is obviously yes. Spending that money is not wasteful, it ensured the continued success of the company, even if the 99% outcome came to pass. The job of the CEO isn't to decide the probabilities here, it's to react to them.
But the problem with this whole mentality is that over hiring didn't really cost the companies that much, and furthermore, the issue has been addressed.
If I were a shareholder, why would I hold this against the CEO as long as the buybacks keep rolling in.
> quarterly reports show that they are either making less money, or incurring in losses, then they aren't doing their job
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”.
Those are trends of company health, not performance metrics of the CEO. The performance metrics of the CEO is "In discovery of this down trend, what can we do to reorg the business and trim the fat so that we can turn this down trend upwards? (put together plan) (fires those that don't fit within that plan)". This is a good CEO. Maybe hated by those he/she fired, but loved by those who depend on the company to succeed (including those owned by the employees themselves).
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?
Companies often build solutions to problems they know nothing about. Often they learn as they go. All research and market analysis points to this being the perfect place for a garden home so that's what we set off to create. But that was a few years ago when we did that market analysis and now the soil is clay. Ill suited for a garden without a lot of work and money to maintain it. It's time to change the direction of the home. You are right, maybe we shouldn't be doing gardening at all. Thank you for gardening with me (or attempting to). Your services are no longer needed here.
I think their goal is to make money by guiding the company in the right direction. If your company needs to lay off a large portion of workers that seems to indicate they failed at something. Either they failed to correctly judge how many people were needed for future growth or they failed to predict the companies direction.
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.
Do you fail at driving if you touch your brakes? I don't think so. The best drivers in the world certainly don't seem to think so. It's just one of the control inputs to driving your vehicle. Staffing levels are a resource company execs can increase or decrease as they see fit for the company. This idea that they should only hire someone if they predict they will need them forever is frankly bizarre and indicates a profound misunderstanding of what shareholders expect of their execs.
> The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it.
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.
I don't see how hiring and then firing huge numbers of people over the course of 3 years is making anyone any money. In fact, that sounds incredibly costly, not to mention the impact on morale and reputation.
Perhaps the "best way" was to make better staffing decisions, which a lot of these C teams failed at spectacularly.
People don’t have the guts to make the changes necessary to truly shift how power is distributed, because it would be painful to every level of society until it settled. I believe where we are today is our local maxima until something more tragic than the pandemic happens that shifts public appetite for large structural changes to our (at least western) society.
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.
If anything, fire the finance guys. They took on debt at variable interest rates during COVID and now that interest rates are hiking up that debt got a lot more expensive, resulting in the need to reduce head count, which is often the biggest expense at any tech company.
That’s a position held by Wall St types as it benefits them.
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.
Haven't the big tech firms mostly had their share prices drop precipitously in the past 12 months. Shouldn't the CEOs be fired if they not only failed to make shareholders money, but in fact lost lots and lots of money for them?
> Blaming the CEO for doing the job they were hired to do seems short-sighted
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.
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.
It is "the economy" insofar as it represents investor sentiment. Investor sentiment for the last 10 years was to fund losses in exchange for capturing market share. That sentiment is changing as investors seek to prioritize profitability and more sustainable growth trajectories. This is, generally, happening across the macro market. It's just that "tech companies" were most susceptible to the grow-at-all-costs mindset, so they're shedding the greatest weight now.
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.
I largely agree. In fact the whole fucking problem with most of this world is this concept of the bullshit stock market. I hate it with a passion so much.
The goal of the CEO of a publicly traded company is to make the shareholders money. As much money as possible. If laying people off is the best way to do that, they'll do it.
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?
This is such a short term take on the things. If employees loses morale then their future profits are risk. Most of these layoffs are handled in such a poor way you do loose real talent from the company. In short term yes they may improve the balance sheet but in long term it jeopardize the company.
Yes, let's treat the sacred shareholder as a needy spoiled child.
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.
Holding CEOs accountable or even firing them, would provide a powerful incentive to not do this.
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.
This is based upon the assumption that layoffs are a failure rather than a feature which, while I find it distasteful using people's livelihoods in such a way, doesn't actually seem to be the reckoning for a lot of people. When times are good why wouldn't you hire to maximize profits and then cut people loose when times are getting bad? If you can ignore the human factor it makes sense.
It's not even clear to me that tech employees (as a whole) would be better off if such an overall system were in place for the last decade. Instead of (highly-visible) layoffs now, you'd have seen substantially less hiring across the last decade (invisibly) and probably much lower market-clearing compensation levels as a result.
You can't have the benefits of go-go-gang-busters hiring sprees without sometimes having layoffs, IMO.
1) you mostly need your money now, to pay rent or mortgage, food, activities. In that cyclic markets like this are bad for devs. In choosing between a higher salary that comes with a non negligible chance that you won't have a salary at all for a sustained period, or lesser compensation but higher stability, I choose the latter.
2) The crazy increase of salaries was the result of the raise of demand, and got matched by a raise of offer. Offer is by nature much less elastic than demand: it takes years to make a good dev, but we turned from the hottest market ever to layoffs in under 6 months. The problem is that the offer creation machine (education) is not elastic as well. You can't recycle your CS degree into a construction degree very easily. This means that while the market is slow over the next few years, we will see waves of devs freshly minted out of college, in proportions that correspond to a hot market. Assuming that the demand was generated by actual value creation, and that it restarts in a frw years, it will be a long time until we get back to job safety and prosperity
Stocks as in the thing that's worth half it was 6 months ago? House as in the thing you need to live in, have a mortgage to pay for, and can't liquidate? Car as the thing you need to move and loses value over time?
Cyclic markets are bad for some devs who have tech jobs. Cyclic markets are probably better than staid markets for those many people who would have never landed a tech job in an environment where over-hiring was a career-ending threat to CEOs.
A consulting company I worked for was really strict on how they managed resources on the bench. As a new employee, I was surprised by how many of my co-workers had at one time or another been laid off by our company and came back. The key seemed to be that the company had always been quite open and transparent about how it manages bench resources and that they rarely carry anyone for more than a month. Everyone knew what to expect and if they were on the bench and didn't have any likely projects coming up, they knew to adjust their finances accordingly for the coming layoff.
It's almost like just relying on the invisible hand of the market to create good results doesn't work.
And to be clear: just because you're incentivized to harm people, doesn't exonerate you when you harm people. "I was just following incentives" isn't a defense.
Depends on what you are optimizing for. Seems like tech employees are doing just fine. Enormous compensation, great severance, and entering a low unemployment market.
How many tears do you shed when someone with a vast amount of wealth has to take a few months to find a new job?
Yes, I'm aware that people's well-being is hard to measure. That doesn't make it not worth optimizing for.
> Seems like tech employees are doing just fine. Enormous compensation, great severance, and entering a low unemployment market.
1. Contractors are losing jobs too through lack of renewal of contracts, it's just not being reported because on paper it's an absence of an event, not an event.
2. Even among full time workers, tech workers aren't the only ones getting laid off.
3. The big companies are the ones being reported, but smaller companies are following suit, and don't have as nice of severance packages.
4. It is not in evidence that we are in a low unemployment market. Those who were just laid off aren't reflected in unemployment statistics yet. In many cases you can't file for unemployment if you received severance, so many will never be reflected in unemployment statistics. And there are a bunch of ways in which unemployment and underemployment simply aren't represented by the statistics, ever.
5. If the severances were as good as you're saying, it would be cheaper for the companies to keep the workers on. Representing this as anything other than companies using workers to subsidize their lost revenues is absurd.
> How many tears do you shed when someone with a vast amount of wealth has to take a few months to find a new job?
I'm not sad when execs get fired, that's what I'm proposing. But it appears you've done some mental gymnastics to convince yourself that the workers are the ones with vast amounts of wealth.
The latest numbers I have are going into January 2023 which were 1.8% for tech.[1]. Per your link, there were 120k people laid off in 2023, and 240k laid off in 2022, so the 240k would already be baked into the numbers. Your link also shows that there are still many more openings than the layoffs, althought the difference is getting closer
The number of "tech workers" depends on the definition used, but this grouping of BLS roles gives ~5 million workers from the US.[2]
If every tech workers laid off in 2023 stays unemployed all year, that would only bump the Tech unemployment from ~1.8% to maybe 3.8%. But we know that isn't the case because there are tons of open positions.
This is all very worst case estimates because many of the people laid off don't fall into the job roles I mentioned, they just work for a tech company
Am I oversimplifying, or are the layoffs more of a predictable function of correcting for zero interest money without fear of employment lawsuits?
Money was free (zero interest) during covid. Most tech companies increased staff to keep pace with each other. A lot of these hires were in support staff and junior positions needed to support low acquisition costs of new customers. Now that interest rates went up and growth stalled, companies are trimming both unprofitable customers and excess staff. Essentially, the CEOs get a free pass to fire people without risk of employment contract lawsuits.
From founder friends of private companies, the initial wave of layoffs during early days of covid was a godsend of sorts. It allowed them to fire problematic employees without needing to go through protracted performance reviews. Then they hired new people using cheap loans 6 months later. Now they're correcting again with layoffs, keeping top performers, and shifting staff over to high leverage projects like AI.
The short of it... did CEOs really make any significant mistakes? Or did they just take advantage of the market conditions in predictable ways? i.e. They did their jobs as it's currently incentivized.
I'm not saying it's ethical to mass hire and fire. And I certainly empathize with the people who've been laid off. But perhaps it's a more accurate depiction to say the current layoffs are part of a larger strategy to reduce staff and increase bottom line in preparation for AI acquisitions. It's not a correction but a significant reshaping of tech labor force as a whole.
I see the lack of accountability in this spree of layoffs as being similar to the lack of accountability in the recent automotive chip shortage. Tell me if this sounds familiar:
When the pandemic hit, car manufacturers saw travel plummet and decided that car sales would also plummet for the foreseeable future.
The executives in charge of the auto manufacturers responded by cancelling huge swaths of orders with their suppliers, believing that the new market conditions would be persistent.
18 months later, with vaccines arriving, demand for cars spikes. Auto manufacturers panic, and rush to place new orders with their foundries, who found new customers and now have 24-month lead times.
The MBAs shrug and say that there is no way anybody could have predicted this: after all, their competitors are in the same boat. They jack up prices and reap the rewards of their poor decision making, but the company and consumers would both be in a much better position if the executives had done their job properly instead of hammering the panic button.
Maybe this lack of accountability at the top is a deeper, more systemic issue.
The interest rate argument is nonsensical and parroted by armchair experts. Barring a few atypical exceptions like IBM, Big Tech companies don't borrow money to grow.
> I'm not saying it's ethical to mass hire and fire.
Agreed, although I don't suppose I'll ever see a post on HN with people angrily calling for the firing of Tech CEOs for hiring too many people at potentially higher salaries than their "worth" to the rest of the market.
> The short of it... did CEOs really make any significant mistakes? Or did they just take advantage of the market conditions in predictable ways? i.e. They did their jobs as it's currently incentivized.
Agreed with your argument, and taking it a step further, not only did they take advantage of the market conditions, they were forced to do so or face getting fired themselves. When your competitor is rapidly expanding, and/or you are not showing the revenue growth that the market is awarding, you get the boot.
The US is not a command economy and given the open nature of hiring and firing (few encumbrances) results in firms being able to hire quickly and fire quickly. It allows for a more dynamic economy. Obviously this adds some uncertainty to affected parties (firms and labor). Individual contributors lose their source of income and firms may be less financially stable (may now have financial constraints) on the other hand many people who would have otherwise been unemployed and not benefitted from being a hire, got hired, gained experience and earned income. Firms got to try some things out they might not have otherwise.
It looks to me the reporter of this piece is trying to ride an emotional wave for their own benefit and narrative.
That said, why aren't journalists and journalism firing contributors and editors when they get stories completely wrong for years and are found to be in cahoots with the establishment to carry water for them?
>The US is not a command economy and given the open nature of hiring and firing (few encumbrances) results in firms being able to hire quickly and fire quickly.
Really? My epiphanic assessment from working in corporate America is that the single biggest challenge for American capitalism is that it's very difficult to fire people. That is, there is much more organizational friction in making a decision to fire, than to make a decision to hire.
Even in at-will states, big companies require months or even years of "paper trail" to fire a non-performant or harmful employee. Notably, Amazon's aggressive PIP system seems to be specifically designed from the ground up to counter this problem, and even they seem to be dialing down the aggressiveness because of bad PR.
It's all relative. Relative to other developed economies employment laws are more flexible in the US. In China, interestingly, for private businesses it's relatively easy to fire employees. You get massive protests when an employer refuses owed backpay for people in mass layoffs.
I'm always surprised to see how many CEOs walk away with millions while running their companies to the ground. The vast majority of the S&P 500 corps are mostly monopolies (Telecommunication, Airlines, Insurance...etc.) and for the most part run themselves yet the CEOs are paid exorbitantly.
How much did the CEOs of Circuit City, Blockbuster and so many others made while being completely oblivious to what was happening around them? Even low-level employees probably saw the shift to online/Amazon yet CEOs still walked away with millions. The Corp structure/model seems to be completely broken and most of them can only survive as monopolies.
When there is strong demand for a product, a company should hire more people so that it can keep up with demand. Likewise, a company should hire when it has short-term capital investment plans that require additional staffing. I don't think anyone would argue with that.
When demand decreases, or when a capital-intensive buildout is complete, would it be incorrect for the firm to decrease its staffing levels?
If leaders expect to be fired if employees are ever laid off, then they will avoid hiring in the first place—with the consequence that fewer opportunities will be pursued and fewer risks taken. Is that what we want?
Unemployment today in the US is less than 3.5%! It's good for workers—and good for the economy generally—that managers are willing to hire people they may need to fire later on if things don't work out. Otherwise, those jobs wouldn't even exist in the first place.
Everything you say makes sense in theory, i.e. if we were in the early industrial world of Adam Smith.
How do you define "demand" in the context of SaaS? How many engineers do you need to run Google Search? Or Facebook? Or Spotify? Did the demand increase in the past five years? Have it decreased in the last year or so?
Here's the thing. None of these companies (Google, Meta, Spotify) have reported losses, not even a significant decrease in revenue over five years. They took the past year results, they saw a decrease in revenue, and they proceeded to lay off people. Google itself had a Q4 '22 revenue in line with the past years, except for the anomaly in Q4 '21 [0].
> If leaders expect to be fired if employees are ever laid off, then they will avoid hiring in the first place.
You are saying that the people appointed as the better at foreseeing market trends, and taking higher risks for higher benefits, will do neither of those? Then why do we need them in the first place? They would be useless.
> Unemployment today in the US is less than 3.5%! It's good for workers—and good for the economy generally—that managers are willing to hire people they may need to fire later on if things don't work out. Otherwise, those jobs wouldn't even exist in the first place.
You are conflating several things here - unemployment, workers' rights, and economy of scale. They are not necessarily connected, e.g. lower unemployment and higher wages don't push managers to take risks on massive hirings.
> You are conflating several things here - unemployment, workers' rights, and economy of scale. They are not necessarily connected, e.g. lower unemployment and higher wages don't push managers to take risks on massive hirings.
These things are connected, but you have it backwards. Managers' taking risks on massive hirings leads directly to lower unemployment and higher wages.
> Managers' taking risks on massive hirings leads directly to lower unemployment and higher wages.
That's also not true, because it excludes a myriad of parameters, some of which we are able to observe in current trends, like inflation and talent pool size.
Is there only one explanation for lower unemployment and higher wages? No, and clearly I'm not saying anything like that.
But would you seriously argue that when a company hires 100 people it doesn't lower unemployment by 100 people? And that when 100 people receive job offers, their ability to negotiate higher salaries does not also increase?
> But would you seriously argue that when a company hires 100 people it doesn't lower unemployment by 100 people? And that when 100 people receive job offers, their ability to negotiate higher salaries does not also increase?
There's already a very common scenario where this does not happen: layoffs targeting higher earners.
Long story short - leaders are leaders bc they have the most accountability ('skin-in-the-game'). When they are the source of good in their group, they get all the perks (resources, money, mates, status, the best meat from the kill, etc); when they are the source of instability, they either relinquish leadership, or they are killed by their own (Revolutions of France and Russia).
This is why there was Occupy Wall Street and the modern Tea Party after the great recession - people were fundamentally discontent when wall street execs got bail outs AND record bonuses the next year. This is why you feel angry whenever you read those half-hearted, lawyer-and-hr-drafted canned statements about how the CEO is sooooooo sorry about lying off 10k of their own employees. This is why there is lack of trust in the mainstream media - they can get things wrong (Iraq / Afghan / Vietnam wars) and there is no accountability.
So let us bring back accountability. Apes. Together. Strong.
The US could, if it was inclined, legalise prediction markets & investors could subsidise markets for stock price conditional on the CEO stepping down, thus revealing in the strongest possible wisdom-of-the-market sense whether the CEO is going a good job.
This would solve the problem modulo short term inneficiencies and be much better than the status quo.
"What about the risk of insider trading by committing harmful / illegal acts? That is, could President Biden’s doctor decide to poison him, then make money when he has to resign due to ill health?
I think the strongest evidence against is that this basically never happens in stock markets. Tesla stock would plummet if Elon Musk died or resigned, but nobody realistically worries that Musk’s doctor will short Tesla and poison him. Lots of corporations’ stocks would sink to zero if you burned down their offices and factories, but nobody shorts them and then commits arson.
Probably this is because there are laws against doing harmful and illegal things, and people have decided that stock market gains aren’t worth breaking the law and getting punished. Since prediction markets have only a tiny fraction of the amount of money that stock markets do, probably people won’t consider it worthwhile to commit harmful actions to manipulate them either. If you were going to murder someone to profit off a market, who would you rather kill: a US politician (the PredictIt market on the presidential election has a volume of about $600,000)? Or a Fortune 500 CEO (whose companies might have market caps in the hundreds of billions)?"
Of course see also the rest of that FAQ, it's all great.
One strength of an economy is the speed with which workers can shift between different jobs/tasks/roles in response to market changes.
Suppose we discover a new gold mine in a rural area. Would it be wrong for a mining company to spin up in that area and start hiring like crazy? When the mine runs out, would it be a mistake for them lay everybody off? I don't think so in either case. True even if "gold" turns out to be fools-gold in the end.
A lot of CEO's would have been punished for not hiring quickly enough during the boom. Similarly during the housing bubble a lot of lenders would be (or were) punished for not loosening lending standards enough. And then blamed later for having too-loose lending standards.
Hate to say it but it seems rational to hire like crazy to hedge against a rocket hot economy increasing demand. Also seems rational to cut back when things cool. I certainly don't like it, but I do get it.
This makes sense, but I think we also need some of the protections other countries have, like if you're doing a mass layoff you need to cover wages for a month or two after, you need to prove you're not going to be rehiring for those same positions soon, etc
The only solution is to form a guild for software engineers.
Control access to the guild through credentials and other means. Provide mentorship and apprenticeship opportunities through the guild. Allow the guild to negotiate rates and working conditions with the industry.
If actors can do it, why can't we? If you want to level the playing field with tech CEOs, that's the way to do it.
In addition, both guarantee some minimum pay scale while working (which is mostly not a concern for software developers or engineers more broadly in the US) but do not in any way guarantee work.
I'm all for unions, but unfortunately there's too much propaganda against them for software developers to muster a majority vote in their favor right now. Rather than debate their pros and cons, I wish that we would do some root-cause analysis and design something better. Maybe something like guilds, working towards UBI.
As an analogy: socialism has many benefits. But the major downside is that it usually requires a roughly 6 hour daily commitment from every worker. I think that we subconsciously react to that loss of autonomy, and it comes out as projection. Like: taxes would be so high! We'd never be able to see a doctor! We'd be at risk of dictatorship! And various other distractions. When the truth is, most of us are so marginalized in the US that we can't see how our individual suffering might be alleviated if we focused on shared prosperity. So we make fun of any alternative.
I might suggest that a union could only fly if it transcended individual employers. So don't think Starbucks union, think service worker union. If one company does layoffs, the rest of the workers could pull the plug and all choose to move to another company for temporary reduced pay. Or by earning double income by participating in the union, workers would have enough capital to start a new company.
Anonymity would also be key. We should have the right to start and stop employment on our terms, picking up odd contracts here and there, without committing to any employer. The burden of managing that risk should fall on the union, not the individual.
We might also demand no distinction between remote and office work. Instead, we could work towards telepresence and delegating to robots, like with remote surgery. If that's possible, surely we can answer calls remotely.
A few links from searching for "union workers rights":
What else might be desirable in tech? Assuming that this will all be automated by the end of the decade, what other protections might be needed to safeguard our livelihoods? Even outside of unions, this should be forefront in our minds.
That's why a guild. It transcends any one company.
> Anonymity would also be key. We should have the right to start and stop employment on our terms, picking up odd contracts here and there, without committing to any employer.
> We might also demand no distinction between remote and office work.
Considerations like these are exactly what the guild can tackle on all our behalfs.
> Any executive who participates in decision-making that leads to hundreds or thousands of people losing their jobs should be the one leading them out the door
But executives that hire hundreds or thousands, regardless of if those jobs were ever needed in the first place deserve praise? Anyone making such an argument is stupid and deserves to be ridiculed, shamed, and insulted for defending it.
They should be held responsible for the results of their actions.
But current firings might not be the result of their actions.
So putting boni (which often are a major part of their sallery) in a trust to be payed out years later and which act similar to a security deposit would be a rough idea for a direction this can take.
But I think the main problem are not CEOs but how the current form of the stock/investment marked is _extremely_ hotly to long term sustainable company management. Stock holders are not seldom the main drive for bad CEO decisions due to a combination of which CEO and how they pressure the CEO (or what they tolerate). It not rare to see major stock holders push knowingly for long term devastating decisions because they short term yield high dividends and stock spikes and when things come crashing down they don't hold the stock anymore (quasi/oversimplified, to avoid consequences they might use all kinds of tricks to make it look different).
This article is just pandering to workers who have been or fear being laid off. If you fire every tech CEO who overhired during the pandemic boom there wouldn't be many left. You also have to consider how their performance would have been viewed if they didn't capitalize on the good times. Boards make CEO firing decisions based on who they think is the best candidate to lead the company going forward. Given the incentives of the American economy, most of these CEOs acted rationally with the information they had. We find it distasteful because they make so much money while workers bear the brunt of the pain, but the uncomfortable truth is that CEOs have no more crystal ball than anyone else with regard to macroeconomic conditions, and they are not graded primarily on their ability to maintain stable employment without layoffs.
Hiring at peak market is incredibly stupid. If can't reliable predict the future market, hire in down markets and get better people for less money. Some will leave in up markets, but tech work is cumulative. The good foundations that skilled people build will serve you well when you can't afford them later.
Or you can desperately lower your standards and pay huge TC to the borderline incompetent people you can attract during hot markets, and insult your existing highly skilled employees by paying morons who were just hired more than the people who got you here, and them fire people basically randomly.
This what every tech company seems to do.
I like the approach that Intel took, which was to cut back pay, in tiered fashion (i.e., greater cut for higher officers) for high paid employees (above $X, remember what X was exactly at this point) rather than fire a bunch of people at the bottom. (I think they did fire some staff in California, but not at their main base which is in Oregon.
Edit: 5% to 15% pay cut, with 15% cut for C-level and 25% cut for CEO
For everything within the law, CEOs are only accountable to company owners. That's it.
CEOs are only managing the company for somebody else -- the owners of the company. That's it. That's all they do.
When the owners don't like the CEO they just get a new one, until they find a person that will do their bidding (or at least increase their share value). Trying to change the mind of a CEO makes no sense unless you find a way to convince owners this is in their best interest.
The problem is not CEOs. The problem is shareholders / owners. The problem is people who don't care about other people. And the legislation that allows to exploit employees, chew them out when they are no longer needed while at the same time paying no taxes, not chipping in to improve general wellbeing of the population they earn so much money from.
> The problem is people who don't care about other people.
Agreed, but the idea that CEOs are somehow not part of this group is a bit bizarre, particularly when you consider that a large part of CEO compensation is often stock or stock options. You can't exonerate CEOs by blaming shareholders when CEOs are generally shareholders.
But think in terms of the goal you want to achieve. If your goal is to stop layoffs and convince the CEO to act in a different way that shareholders will not like, the CEO will be replaced. And you will not achieve the goal.
Again, the CEO is accountable to law and shareholders. Either you convince shareholders to change their mind or you change the law. That's it. Changing the mind o CEO makes no difference.
Well, if you're not trying to exonerate CEOs, saying "The problem is not CEOs. The problem is shareholders / owners" is a pretty strange thing to say. The CEO, as a person, made the decision; the CEO, as a person, is responsible for that decision. The CEO is the problem.
> Either you convince shareholders to change their mind or you change the law. That's it. Changing the mind o CEO makes no difference.
I'm not saying we should change the mind of CEOs, I'm saying we should change the law.
And changing the law to penalize CEOs who do harmful things is met with a lot of opposition, because of people saying stuff like, "The problem is not CEOs. The problem is shareholders / owners."
What's your proposed solution? It seems that you understand how incentives work, so I hope I don't have to explain why changing the minds of shareholders won't work.
>Well, if you're not trying to exonerate CEOs, saying "The problem is not CEOs. The problem is shareholders / owners" is a pretty strange thing to say.
No, it is not.
When I say the problem is not CEOs I mean they are not the problem.
If I am manager and I hire poor devs and they fuck up a project, who is to blame? Is it the poor devs who can't code or is it me who hired them?
Did you know CEOs are actually hired to do a job? Hired meaning somebody selected them and decided, "Yes, we want this guy to run the company we invested so much in."
Imagine half of CEO candidates being bad people, half being good ones. Imagine that shareholders will always chose the ones that will only care for their share value and this happens to be choosing bad people.
So what is really responsible here for the problem? Is it the CEO being bad person or is it shareholders choosing bad ones?
Think a moment? What needs to change so that CEOs have are better for their employees.
See the problem? Even if you convince 99% of CEOs to be good people it won't change an iota, because owners will still chose the ones that will further their investment value. Who you really need to go for is shareholders. Make them pay for not treating people right, make it not worth.
> And changing the law to penalize CEOs who do harmful things is met with a lot of opposition, because of people saying stuff like, "The problem is not CEOs. The problem is shareholders / owners."
No, don't go after CEOs. It will just create a new stack of perverse incentives.
Go after shareholders. Because if you make laying off people costly to them, I can guarantee there is not going to be any more layoffs.
> If I am manager and I hire poor devs and they fuck up a project, who is to blame? Is it the poor devs who can't code or is it me who hired them?
See, this is why blame isn't a particularly useful way to approach the problem. In all likelihood, both share some degree of blame.
> Imagine half of CEO candidates being bad people, half being good ones. Imagine that shareholders will always chose the ones that will only care for their share value and this happens to be choosing bad people.
Imagine we put the bad half in jail. Then nobody will be willing to perform massive layoffs, and shareholders will have to pick from the pool of good CEOs. This isn't complicated.
Actual jail time is a bit more extreme than necessary: proportional fines are more along the lines of what I think would be best.
> Who you really need to go for is shareholders. Make them pay for not treating people right, make it not worth.
The problem with going after shareholders is that not all of them are to blame for problems.
Shareholders simply don't have visibility into companies to be able to make informed decisions. Technically shareholders have the right to some degree of visibility, but if you own a diverse portfolio you're spread too thin. Consider the literally most common form of investing in stocks: buying an S&P 500 index fund--are you really of the opinion that it's shareholders' responsibility to be intimately aware of the goings-on of 500 different stocks?
Even if you put this responsibility on the fund manager, 500 stocks is a lot (and the problem is even worse with total market funds). Additionally, [index] fund managers hands are partially tied: they can vote in elections but they can't sell the stock because they have to conform to the index.
And ultimately, minority shareholders can't even meaningfully vote. In many (maybe even most?) companies, <10 individuals combined own controlling shares in the company, and usually vote together. Minority shareholders might vote against a bad decision, but they still get punished for them in your proposed solution.
And finally, it's a big assumption to believe that share price is actually an incentive to shareholders. For the larger shareholders of a company, the shares in a company have to be viewed in the context of their overall portfolio. There are situations where driving down the price of shares you own can be profitable. For example, if you own shares in competing companies A and B, you can buy put options against your own shares in B and then drive it into the ground. You lose money on your B shares, but that's more than compensated by your puts and the rise in price of A shares.
> No, don't go after CEOs. It will just create a new stack of perverse incentives.
Sociopaths will always find perverse incentives (such as the company A and B example above). Making changes many layers of abstraction away from the problems as you're proposing just increases the complexity of situations and makes it easier to find loopholes.
The CEOs are the ones who make the decision to lay people off. They should be held responsible for that decision. It's not even about blame, it's just about solving the problem in the most direct way possible.
No. Government officials and politicians should be held accountable.
Instead, sadly, I can predict they will become more and more comfortable and untouchable which is exactly what they want. The reason? Social control has become really cheap in the last decade.
A number of people here are somehow defending CEO behavior, and should not be. Notable in this is that Apple CEO took a pay cut and didn't layoff, and Intel's CEO too a pay cut.
I don't think termination of a CEO should be a kneejerk to layoffs in the tens of thousands, and neither is a failure to predict the future. However, if the CEO keeps getting raises when the profits don't see a likewise boost, there is a disconnect. Google is still seeing rising profits, just not skyrocketing. And while everyone is skittish about interest rates and potential recession, that's not a given - unless you layoff enough people.
The free market is a chaotic system. Resources are constantly being reallocated to the most profitable use. This includes the work force. This is also called creative destruction.
This is the source of the prosperity from the free market, because market conditions constantly change, and business must adapt. Trying to force things into a steady state will result in inefficiency, stagnation, and will be much worse for everyone.
Perhaps some work is just bursty and companies need to be able to scale up and down to handle these cases, not unlike servers. Of course we are dealing with people not servers, so at the very minimum they need to provide generous severance packages. Even better, if this can be predicted, these employees should be brought in as temporary or contract employees so that there is no misunderstanding.
it only really matters whether the CEO is the right person to lead the company into the future.
if shareholders think the CEO / board is the right leader for the company, it wouldn’t make sense to fire them.
if, on the other hand, they didn’t believe the CEO is the right person to lead the company, it would make sense to fire them. good example is Bob Chapek of Disney who got replaced recently by dormer CEO Iger.
Why should relatively wealthy tech workers have more rights than everyone else? Get rid of at-will employment for people who sweat for a living before considering punishment for CEOs who consider 3 months severance for unneeded employees something considerably less than an atrocity. A huge percentage of Americans don't even have paid sick days.
Holding people accountable implies a moral decision.
These matters are purely pragmatic however: a CEO can be terrible but as long as the short term, risk adjusted cost of replacing him is more than the same number for keeping him, he stays.
This is why no CEO every lets themselves become replaceable. Or if they do they rapidly stop being a CEO...
Is it the view of the tech CEOs bosses (shareholders) that anything has been done wrong? It seems that they are responsible for their successes and failures both, and layoffs are only seen as failures because CEOs are pitching them as such to sell their layoffs to employees.
All the CEOs are just saying they are taking the full responsibility without any consequences, not even reducing their pay which is hypocratic. At the least, they have to really tell how they are taking the responsibility not just words!
For a CEO "taking responsibility" means laying people off to protect shareholder profits and taking heat from the media to protect other stakeholders from criticism. That's what they are paid so much money to do- someone making a normal salary isn't likely to take the initiative to cut thousands of jobs for the sake of the company.
A CEO doesn't have any obligation to the workers; they are beholden to the company.
Every company that pays above average needs a good clean out every now and again. People dont want to work hard forever and will start to coast. You need some way to incentivize and/or remove them.
The research Adam Grant presented on the subject is also interesting --there are other more stable, more profitable ways to save money other than layoffs.
The ceo-employee compensation disparity hovers around 10 to 15 times in most OECD countries, and corporations in those countries are just as productive.
I remember reading in a book called "everything is obvious" that this is a standard thing to attribute (or at least self attribute) success to personal competencie and failures to bad context. In this case I think that they are in fact being held somewhat accountable by their remuneration based mainly on stocks, which values are currently plummeting. With the consideration that we are talking about comp going from $200M to $50M... Your comp might have been divided by 4, but you still earn orders of magnitude more than all of the people you laid off, so I don't think there is much accountability in that.
Re: overhiring, it's been discussed on every layoff thread. The arguments go: they overhired and should be accountable and fix the process OR they overhired consciously but didn't care because capitalism OR they didn't overhire because there wasn't a way they could have known that the situation would turn out as it did OR they may or may not have overhired but that's irrelevant, they're now laying off to lower the salaries
I think this is somewhat American thing where CEOs are paid hundreds of times more than regular employee. Certainly, you'd expect the board to fire the CEO who can't perform. It's just if both the board and the CEO are cozied up together, why should they. And granted, there's a global downturn which gives a good excuse to explain the losses.
To be frank though, firing the CEO probably wouldn't fix anything. You'd have to fire also other execs, maybe board members as well and you don't want to burn bridges with your golf buddies. It seems there's just poor accountability in general for management in US, not going to steer this off to politics but there seems to be an upper class which, once you reach, will take care of you if you're properly networked. Which is kinda how it goes in other places as well. US just has mastered capitalism in a whole another level.
Real estate tracking site I use deleted all my followed properties when I shared with another email address. Phone update disabled my cellular data. Train carrying chemicals crashes, planes nearly crashing into one-another at airports.
Millennials suddenly wake up one morning and realize that they've been living in a system of capitalism this whole time (once they're the ones actually affected by layoffs).
In a profit and loss system, it is often the loss part that gives the best lessons into how the market works. Being fired is at least a very good learning opportunity, although certainly not an easy one.
Mostly all publications these days are supported/funded by outside “open societies or foundations” that want to further their own agenda. Unless it’s independent journalism, don’t expect these entities to objectively report anything.
And there should be some sort of three strike rules for those that publish their reporting. 3 provably wrong reportings should be enough. Or maybe lead to automatic full disclosure of all communication up to that point and if found that they knew it was false the publishing company is permanently terminated.
Objectivity doesn't mean dishonesty, it just means there's a slant. Every outlet has a slant. Discussions around "objectivity" are usually disingenuous, and are really discussions about whether the slant meets the approval of the subject.
In other words, when COVID hit and tech companies saw large surges because investors and CEOs saw industries leaping 5-10 years into the future overnight, they hired to support that growth. As the market has shifted and inflation combined with an end to the public health emergency has tempered growth expectations, investors and CEOs cut head count to match.
It sucks, and I'm not saying this is how it should be to those people who are impacted. But if you wait until the world is already where you thought it might be before you react and start building for that world, you're behind. Whether or not CEOs should be punished for getting the call wrong is what this post is about, but getting the call wrong sometimes is expected/necessary if you want to have a chance of getting it right.