Who Really Deserves to Be Laid Off?


It's official: That first-quarter market rally was simply bizarre. The macroeconomic situation remains precarious at best, and plenty of companies are still performing mass layoffs in a marketplace that needs more jobs for workers, not more unemployed folks searching for work.

The U.S. unemployment rate is currently at a still very high 8.1%. That figure may be relatively improved from the worst of recent times, but it partially reflects a job market that has resulted in many Americans simply giving up on their job searches.

Only in the occasionally psychopathic world of investing could anyone see a headline about corporate layoffs and view that as possibly good news. Investors must stop shrugging off or even cheering for mass layoffs. Because the truth is, there's probably somebody else at that company who really deserves to be laid off.

Bulk pink slips
Although the Bureau of Labor Statistics recently said the number of layoff events in the first quarter decreased by 28% on a year-over-year basis, such cheerful tidings don't mean the pain is over. There were still 1,077 mass layoffs last quarter.

Meanwhile, here's a rundown of companies that have recently announced plans to reduce their workforces:

No stranger to layoffs, Hewlett-Packard (NYS: HPQ) is reportedly planning to ditch a whopping 25,000 to 35,000 workers, or about 10% of its workforce.

General Mills (NYS: GIS) is cutting 850 positions, or about 2.4% of its global workforce; about half of the lost positions will be from the company's Minneapolis headquarters. According to The Wall Street Journal, the move will result in "meaningful" cost savings in 2013, but no figure was given.

Last month, Yahoo! (NAS: YHOO) revealed plans to jettison 2,000 workers, or 14% of its workforce. Like HP, Yahoo! might want to buy its pink slips in bulk, since its workers have endured six rounds of job cuts since 2008.

Are layoffs really such a great idea?
Layoffs may boost profitability in the short term by cutting costs, but do they really work over the long haul? Investors ignore important long-term factors when corporate management teams decide to let go huge numbers of workers.

First of all, it's all too easy to let go of some brilliant intellectual capital when wielding the ax from the top. Do managements always even know who the best workers are?

In his book Iconoclast, neuroeconomist Gregory Berns revealed a common pitfall of companies valuing "good presentation" rather than the truly good ideas. In other words, people with the slickest presentation skills gained more attention for their ideas than individuals who had in fact come up with the best ideas and simply presented them poorly.

Mass layoffs can cause terrible strife over the long haul, not just because of lost talent but also because of these events' impacts on workers who don't get laid off. They may feel more pressure to perform, have less incentive to think outside the box, and suffer from survivor guilt.

How's that working out for you?
These may sound like touchy-feely intangibles, but CNN recently took a look at whether multiple rounds of tech layoffs have done much for corporate performance. In many cases, they haven't done a darn thing for the companies in question.

Not surprisingly, HP's last two rounds of layoffs haven't helped that long-struggling company. The stock's down 53% and the company has lost market share and suffered from lower profits.

Look at Research In Motion (NAS: RIMM) . There was good reason to argue that slashing its workforce wasn't going to help a company that was struggling to innovate, compete with, and even keep up with rivals in the smartphone market like Apple and Google. Sure enough, the stock's down 58%.

Last year, Nokia (NYS: NOK) cut 7,500 jobs in two rounds of layoffs. How's that worked out so far? The stock's down 61%, and speaking of slashing, its debt was recently slashed to "junk" status.

Who really deserves to be let go?
Sometimes companies really are forced to cut their workforces in order to survive financially. However, in too many cases, it's arguable that corporate managements use the investor-condoned "mass layoff" as a short-term profitability booster that really could gut a company's ongoing competitiveness.

Investors need to stop viewing mass layoffs as possibly a positive and view such actions as a negative. Management very likely made serious strategic mistakes of some kind.

And here's a thought. Investors may want to consider the idea that the real problem resides with corporate managements and boards. Look at Hewlett-Packard and its bumbling board of directors, which has repeatedly doled out millions of dollars for failed corporate leaders.

Speaking of Yahoo!, now-former CEO Scott Thompson recently resigned from his post after only four months after it turned out his resume included false statements (as did company filings). Apparently nobody checked to see if his qualifications were true. (Patti Hart, the Yahoo! director who led the CEO search committee, did step down.)

Think about it, investors. In many cases, who really deserves to be let go? Chief executive officers make the big bucks because their positions are supposed to be at risk if failure occurs. Boards of directors are charged with protecting long-term shareholder interests. Investors have viewed mass layoffs far too kindly for far too long.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's column on environmental, social, and governance issues.

At the time thisarticle was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Yahoo!, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.