Workforce Transition In New Age Tech Companies: Policy Recommendation For Sustainable Corporate Governance
The mass layoffs at the new-age tech companies create unhealthy corporate attitudes and call for a new corporate governance framework. Following a one-year study during 2022-23, the authors propose a sustainable framework of corporate governance for new-age companies that considers building social equity or maximizing human potential along with profit maximization. Looking through the lens of stakeholder theory and the triple bottom line approach, this framework can enforce greater value creation and ethical workforce practices.
The authors examined the aggressive growth and profit maximization strategies of the new-age tech companies that fail to address the business's humane and social aspects, resulting in huge emotional costs during the downturn moment. In response to the current pandemic-induced economic downturn and to meet investors’ demand, major new-age technology companies, including the U.S. Tech dominant companies, Facebook, Amazon, Apple, Netflix, and Google (FAANG), and Microsoft, Alphabet, Meta, Amazon, and Apple (MAMAA), witnessed mass layoffs in recent months. The conducive environment during the pandemic caused the outspread of technology companies such as Amazon, Meta, Netflix, and Twitter. There was unprecedented growth with a sole focus on profit and market value maximization. With the economy slowing- down, growing inflation, U.S Federal interest rate hikes, and the Russia-Ukraine war, the governance structure of the new-age technology firms collapsed. Further, the continuous pressure from investors to cut costs compelled the companies to resort to mass layoffs.
Author:
Sadrita Deb: Assistant Professor, Bharathidasan Institute of Management, Trichy, email: sadrita@bim.edu
Asit K. Barma:Director & Professor, Bharathidasan Institute of Management, Trichy, email: asit@bim.edu
The year 2023 seems appalling in terms of layoffs in the tech sector. Layoff. Yi, the layoff tracking website reports 696 tech companies laid off workers this year. About two lakh techies lost their jobs as of May 2023. In India, too, many tech companies resorted to job cuts to save money. Dunzo, BharatAgri, Rebel Foods, Sharechat, BharatAgri, and Ola are among them.
Accenture, with a sizeable worker base in India, has also laid off as many as 19,000 workers in fear of a worsening global economy, as per the media reports. In 2023, Amazon India laid off 1000 employees. Recently, Twitter shut down a few offices in India intimating the staff to work from home. The lay-off move by Twitter emphasizes Elon Musk’s mission to bring around a huge infrastructure and cultural change in the social media platform. Google India, too followed suit by laying off 450 employees and announcing a further layoff of 12000 employees comprising 6 percent of its global workforce.
The start-up sector in India, too, resorted to mass lay-offs in 2023 as a cost-cutting measure. The food delivery platform, Swiggy, sacked 380 employees as part of a structural revival. The Google-backed delivery platform Dunzo laid off 3 percent (approx.) of its workforce i.e., 90 employees out of its 3000 employees citing similar reasons for restructuring as Swiggy. Byju’s laid off nearly 1,500 employees from the design, engineering, and production verticals after laying off 2500 staff in October last year. In 2023, UpGrad-owned Harappa Education sacked 70 employees (35 percent of its 200-strong workforce). Unacademy-owned Relevel, too, fired 40 employees, or roughly 20 percent of its workforce as of date. Other companies that joined the bandwagon of mass lay-offs include B Capital-backed Bounce, an e-2wheeler maker, WestBridge Capital-backed Skit.ai, a voice automation start-up, Tiger Global-backed Moglix, an industrial goods marketplace, and UpScalio, a Thrasio-style venture that finances e-commerce brands.
As opposed to traditional companies, the new age technology firms are distinctive with their disruptive growth strategies, outwitting the theory of constraint and the law of marginal returns. These new-age companies are in a hurry to capture a substantial market share, with a myopic view on short-term profit, stock prices, and rapid growth in market valuation. Such aggressive upscaling and shareholders' primacy often counter employees' interests. Further, unrestricted growth with a considerable capital backup creates a solid barrier to entry by other firms and thus, creates an oligopoly scenario.
Opting for a mass layoff to cut costs and achieve short-term financial metrics is also detrimental to the organizational culture and society. The mass layoffs bear enormous emotional and social costs, often leaving especially the women workforce vulnerable. The lack of stringent governance policies in the organization or by the regulatory bodies to curb such unethical growth strategies does not leave many employees with a redressal mechanism.
The authors propose interconnected strategies for internal and external governance addressing the humane and social aspects of business, (i) long-term focus on value creation, (ii) identification of workforce as critical stakeholders of the firm, (iii) policies providing social and economic justification before layoffs, (iv) creative alternatives to handle short corrections in profit, and
(v) governance policies focusing on human resources with a legislative binding effect on the firm. The study also proposes organizational, corporate, and legislative governance policies with a binding effect on new-age tech firms that removes the prevalent oligopoly structure of this tech industry, adopting a stakeholder approach towards the governance of workforce transitions and the long-term sustainability of the business. The study is also useful for employees to understand the relevance of employee unions in the workplace. The government should urgently frame appropriate workforce relations policies for new-age tech companies to avoid the emotional and social cost of mass layoffs.
