Job cuts and huge profits

sh856531

Hi Guys,

I was just reading a new story about Microsoft cutting 5000 jobs. Given that I have an interest in software I thought I'd go and read MS's annual report. It says that MS made $14 billion last year in pure profit. Apparently it was the most profit the company had ever made - and that's saying something.

The thing that surprised me is that on the investing blogs and sites that I've read, no-one seems to bat an eyelid at the job loses.

Now I'm probably a lot more "free market" than just about everyone I know. Most of the people I know tend to be of the ilk that think that even making $1 billion in profit is somehow "too much", and would quite happily see a company bankrupt itself rather than shed a single job.

But the thing is, I can't really think of a "good" reason to fire 5000 people who helped you make $14 billion in pure *profit*. I can sort of see why they would do it - perhaps those jobs are just completely dead weight now that the economy is turning. But is it just me or does it not seem very heartless considering that the company is still *hugely* profitable and has huge cash reserves.

Does a company have an obligation to its employees, or should their first concern be towards the shareholders (of which I'm one via my pension)

I'd be really interested in any thoughts people might have to share

Best Regards

S

opinions4u

They are not a charity.

If there is nothing profitable for those 5,000 people to do (or the capital spent employing them could make more money elsewhere), they should not employ them.

While it's painful for those involved, retaining staff to do roles that aren't needed will reduce the opportunity for a company to invest in new developments and markets that can make future profits (and create future employment opportunities too).

Our banks were very profitable 12 months ago. Mismanaging their affairs hasn't done them much good.

sh856531

Hi opinions4u

> or the capital spent employing them could make more money elsewhere...

Does that mean you feel that a highly profitable company has absolutely no obligations to the people who made it successful in the first place? Absolutely no duty of care at all?

I'm not saying you're right or wrong - I just want to understand if that's what you actually believe or not.

Best Regards and thanks for your reply

S

gozomark

whose to say those 5000 people were behind the success ?

opinions4u

sh856531 wrote: »

Does that mean you feel that a highly profitable company has absolutely no obligations to the people who made it successful in the first place? Absolutely no duty of care at all?

Firstly, a company has to comply with local legislation when making job cuts. That's a given.

Secondly, they do have a duty of care to employees. Very often a large number of job cuts can be achieved by freezing recruitment and retraining existing staff to fill vacancies. Indeed, this can often be cheaper than paying redundancy money. Such an approach benefits employees and shareholders.

For example, a company wishes to cut its workforce by 10%, and has a natural turnover of staff of 7%. By not recruiting for 12 months, they only need to make 3% of their workforce redundant. And this can usually be achieved by asking for volunteers.

But ultimately any business is answerable to its owners (shareholders) who have a right to expect their investment to be managed properly.

sh856531

I could be wrong but I doubt job turnover at a company like MS is anything like 7% in the current climate. It'd be interesting to see how many of the cuts were invoulantary and which jobs roles were cut.

Thanks for your thoughts

S

exil

Turnover in my IT dept in the 80s was 10%-20% a year despite a recession at the time..... IT people tended to dislike staying put for any length of time

more recently the IT workforce has got older, the rapid growth in jobs has stopped, salaries are no longer so high compared to other sectors, and people tend to hang on to what they've got unless they'e very ambitious

Myrmidon_J

sh856531 wrote: »

But the thing is, I can't really think of a "good" reason to fire 5000 people who helped you make $14 billion in pure *profit*. I can sort of see why they would do it - perhaps those jobs are just completely dead weight now that the economy is turning. But is it just me or does it not seem very heartless considering that the company is still *hugely* profitable and has huge cash reserves.

As you say: the economy is turning. I think technology firms are likely to be amongst the hardest hit, though I can't imagine Micro$oft in trouble for the next, like, million years... Still, it is unlikely that they will make $14bn next year.

I don't know what the role of the 5,000 employees is, or was, but perhaps there is less need for programmers now Vista is released? Maybe they will be engaged at a later date as bug-fixers!

Does a company have an obligation to its employees... ?

No.
None.

(Or: only to the extent that its employees are capable of generating future profits.)

I happen to think that this is, indeed, a heartless system. (Consider the thousands working - until recently - in the car manufacturing industry.) But it is the system we are in, and until people conspire to change that system, Micro$oft will be applauded for making such decisions!

zedyy

I see what you mean and a cynic would see it as MS jumping on the bandwagon but the cuts may be in places where they are no longer needed, such as logistics. I don't they they'll be shedding the jobs of those who make the bread and butter.

sh856531

> I happen to think that this is, indeed, a heartless system. (Consider the thousands working - until recently - in the car manufacturing industry.)

There is a big difference I think - the car companies are making huge loses, not huge profits.

MS could quite easily survive through the lean times and look after the employees. The question is whether a very very profitable company should keep the employees, not whether companies that are haemoraghing cash should.

I can't decide to be honest. But I'm inclined to think that if the options were

- $14 billion in profit + 5000 lives ruined
Vs
- say $12 billion in profit + 5000 employees employed (albeit not necessarily efficiently)

I would probably look after the employees and the shareholders would just have to suck it up for a couple of years. Thats not to say that I wouldn't allow natural wastage to shrink the workforce and offer redundancy to those who wanted it.

I might be in a minority on the investing forum though :-)

Best Regards

Simon

gozomark

so you would value each job lost at $ 400,000 !