Massive layoffs at Google expose firm’s ugly side

Alphabet Inc., Google’s parent company, is the latest tech giant to announce significant layoffs.

In a memo, which was sent last week to fellow “Googlers,” CEO Sundar Pichai announced that the company will let 12,000 employees go. This is equivalent to about six per cent of its worldwide workforce.

The magnitude of the layoffs is puzzling given the fact that the company is extremely profitable. According to most recent financial data, for the past 12 months, revenue stood at $282 billion (U.S.), and net income at $67 billion.

The company sits on mountains of cash — it has $116 billion in its bank account and is spending around $60 billion annually on share buybacks, a practice which helps inflate its share price.

Moreover, just six months ago, during the third quarter of 2022, Google was on a hiring spree, adding 12,000 new jobs. Hence, the explanation Pichai provided in his memo — “we hired for a different economic reality than the one we face today” — is unconvincing, especially since he also highlighted the exciting opportunities the company is facing in the future, mostly in the AI space.

A more likely explanation is that the axe was the result of pressure from Wall Street to deliver even better financial results. For example, in November, TCI, an activist hedge fund, with a $6-billion stake in the company, sent a letter to Pichai arguing that Alphabet “has too many employees and the cost per employee is too high … (it) needs to take aggressive action.”

In a second letter, dated Jan. 20, 2023 — after the layoffs were announced — TCI’s fund manager, Christopher Hohn, writes to Pichai and the board of directors: “I have appreciated our recent dialogue concerning Alphabet’s cost base. I am encouraged to see that you are now taking some action to right size Alphabet’s cost base.” Yet, Hohn argues that additional layoffs are required for a total of 20 per cent of the company’s head count.

But independent of whether the layoffs were due to bad planning on the company’s part or in response to pressure from investors and analysts, it’s the brutality in which the company executed them that really stands out.

“I appear to have been let go via an automated account deactivation at 3 am this morning” Justin Moore, an engineering manager who worked at Google for16 years, wrote on LinkedIn. Moore must have been pretty good at his job if he kept it for so long in a competitive firm like Google. Yet, none of this mattered. Many other employees shared similar stories of being fired “electronically” in the middle of the night — “Elon Musk style.”

There is no doubt that rolling out mass layoffs at a large, multinational corporation like Google is extremely difficult and carries its own risks. Laid-off employees can look for revenge, steal data, etc. Yet, “unplugging” employees who spent their entire careers with the company in the middle of the night, is as cruel as it gets.

This is all the more depressing when it occurs at a company whose mottos for the longest time have been “don’t do evil” and “do the right thing.”

Here is a short quote from Google’s old code of conduct where the company elaborates on the motto of “don’t do evil”: “Trust and mutual respect among employees and users are the foundation of our success, and they are something we need to earn every day.” It feels like a joke in today’s context.

Maybe it is a coincidence, but Google’s mottos were dropped from the company’s code of conduct a couple of years after Ruth Porat was appointed as CFO of the company.

Porat, who worked at Morgan Stanley for decades in senior executive roles before taking over as CFO, is highly regarded on Wall Street and analysts and investors delighted in her 2015 appointment. But it’s telling that she serves on the board of directors of Blackstone, a private equity firm that specializes in leveraged buyouts and was criticized in a 2019 United Nations report for massive investments in single-family home rentals that had “devastating consequences” for tenants.

Why was it so urgent for CEO Sundar Pichai — who received total compensation of $294.3 million over the past three years — to fire 12,000 people now when the company has $116 billion in cash?

Couldn’t the CEO who brags about how a “healthy disregard for the impossible is core to our culture” come up with a better solution?

Maybe give employees who underperform a warning first? How about an overall pay cut across the board of say, 5 per cent? (The median salary at Google is about $300,000.) That would have resulted in similar payroll savings and all employees could have kept their jobs.

Hedge fund managers may be thrilled by the cost-cutting at Google, but the destruction of trust it entailed could backfire. Googlers (as well as Amazonians, Metamates, etc.) will realize that no one really cares about them. They might work a bit harder for fear of being next on the chopping block, but their hearts are already elsewhere.

And when the time is right, they will be opportunistic themselves — and walk out the door.