Swinging the axe becomes popular pastime

August 4th, 2011 by · 9 Comments

This article was authored by Tony Poulos, and was originally posted on telecomasia.net.

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

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

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

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

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

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

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

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

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

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

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

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

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

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9 Comments So Far

  • Rather Not Say says:

    I’ve been in telecom for 26 years. It’s obviously been a constant state of mergers, acquisitions, and the ‘synergies’ that affect families. However, would agree that in more recent years it’s gone beyond being M&A driven, headcount cuts are usually just seen as a quick cure or supplement to other performance shortcomings that are not being solved. It doesn’t exactly breed a culture of loyal employees willing to sacrifice for the success of their company…

    As for myself, I recognize a business as existing to return a value to it’s owners. I’ve also faced financial devastation from ‘synergies’ following a M&A several years ago. It took a long time to get back on my feet, and one of the lessons I keep close is to expect zero loyalty from any employer and keep your resume updated.

  • Ttalk says:

    Rather Not Say….I couldn’t agree with you more! Loyalty is a lost trait. Long are the days when one could stay 20 years with an organization. Now you go where you can find a paycheck unless you’re fortunate enough to get a parachute every time you’re let go. Not only is our government a farst but so is corporate america.

  • Punisher33 says:

    board guys and investors probably couldn’t run any of these companies for a day…as for loyalty, there is none. that has been a trend since the 90’s, which the industry has no one else to blame but themselves, with moronic executives thinking the answer was to throw people on the street at it, then cut and reduce when times went bad…how could you breed any loyalty thru such poor management? more times than not, the cutting of the axe is simply ultimately solving a poor hire in the first place. The c-level, and I use that term loosely, does not care about anybody except themselves…period. Any employee should always be cognizant of this, and stay loyal to themselves!

  • Anonymously says:


  • carlk says:

    Robert, this is one of your best posts ever written! You really are a mensch, and maybe a citizen patriot too. 🙂

    If I said to you “labor exploitation” via “enterprise corruption;” lather, rinse and repeat throughout the ages, it wouldn’t be too far from the truth.

    As for “unions” that’s the last thing those capitalists in the BOD rooms and C-level narcissists want to deal with.

    In the case of America; however, the real question is how will “wage equilibrium” be attained across the globe where one dollar U.S. labor is ten cents or less across various seas?

    I once attempted to get that question through to Mr. Buffett, including what loan forgiveness program and magnificent U.S. write downs in the form of “nation restructuring” might be necessary to make America competitive again? That question never made its way to his ears, nor would it ever be answered honestly, I’m sure.

    If only the heads on the chopping block were to start falling off “TOP, DOWN” instead of “BOTTOM, UP!”

    Then you have a company like (3), whose top dogs are using the public markets to serve themselves exactly as Mr. Buffett teaches. That being with larger and larger slices of the company’s future profits, long before incumbent owners who are not part of the constant rounds of financing and refinancing teams, ever see the light of day for being smothered with so many shares. 🙁

    • Rob Powell says:

      It’s not mine, but Tony Poulos – and came via Telecom Asia with whom I am trying out a content exchange. But I definitely did have you in mind when selecting it! 🙂

  • carlk says:

    Too good and touche, Mr. Powell! I missed reading every line like attempt to teach younger ones, especially the top one where you introduced him. Just think, your best work is still in front of you! 🙂

  • Manish says:

    It Hurts! It Hurts! It Hurts! yes it does….no matter which part of the globe you’re. When the sole bread earner of a family with loans and mortgages is suddenly realeased on the street.

    The bigger problem is that this street gets so crowded in such times is that everyone is ready to be bailed out even at a fraction of what he/she’s worth of in better times.

    So in effect what these so called re-organisation, consolidation, restructuring exercises do is not only put the future in dark but also kill the past of all the poor souls for no mistake of theirs as they’ve to start from ground zero all over again!

    Its happenning all over …. even in India now! And I’m talking about a co. adding 3 million subscribers a month to its base and still not having the guts to retain its meagre staff [As the majority has been already outsourced to vendor roles]

    Bring back ‘Socialism’ I say! And lets have accountability at every level to make it sustainable 😐

  • I known first hand what it feels like to be laid off and hate to see these awful headlines. I’m always disgusted at the way the companies work to spin these things in a positive light.

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