On Layoffs

The pendulum has well and truly swung over this past year from a red-hot employees’ market to an employers’ market. The great resignation has now become the unending layoffs. What started as mass layoffs around a year ago in the big tech companies has since morphed into a slow burn of smaller unending layoff cycles in companies big and small. A lot of the layoffs in large companies are driven by the need to appease institutional investors and squeeze increasingly higher shareholder value. Despite significant profits. But this does raise an important question. Is there a way to avoid layoffs? The question is perhaps more appropriate for smaller companies where the pressure from institutional (activist) investors may be less. Regardless, I believe there is.

The strongest antidote to avoiding layoffs is to be very deliberate and circumspect in hiring. To that end it is critical to avoid increasing headcount for the sake of empire building. And it is even more important to be acutely careful in hiring when the economy is at an upswing and capital is easily available.

It is undeniable that attrition, whether regrettable or un-regrettable, in most cases, is to the detriment of a team. This is not to say that sometimes certain individuals being let go may be necessary and perhaps even desirable for one or both of the individual or the team. But this should be localized and the result of a specific situation rather than a mass event.

Unfortunately, when capital was easily available. a lot of companies went all out and over-hired. This was exacerbated by managers and directors who got into an empire building mode and mis-aligned their success with the number of people directly or indirectly reporting to them. There is no denying that for better or for worse the size of one’s team or organization does come into play at some point, specially when someone might be looking for other opportunities. But team or organizational growth should be a consequence of increasing scope and impact. Not too surprisingly, the over-hiring and empire-building ended up resulting in significant layoffs when the economic conditions did not turn out to be very rosy.

One can only hope that the industry does not repeat these mistakes and avoids these cycles of over-hiring and layoffs.