Devil Investor

The Devil investor:

IBM, an employer of over 100,000 employees in India has decided to start handing over “Pink Slips”, hell a sophisticated term for sacking personnel. Even the top performers have been asked to leave. The reason in accordance to some news sources is that they were not able to achieve their earnings estimates and the analysts tracking the stocks questioned the same. Would I just beg to ask this question that basis analysts estimates (who in turn have no investment in the stock by the way) a company gets scared and starts firing its employees. I would love to ask the management who’s dearer to them the most, “the employee” who slogs for the company or “the analyst” who sits pretty on a computer of some fund and questions the basis of conducting business. The fund is no one’s friend and neither are the analysts, they will exit the stock and their investment if the estimates do not improve, and they exit even if it improves (at some point in time). And if IBM could not make good use of the employees they think are loading their employee costs, hence am sure it’s a very myopic view of obliging the analysts. This is essentially called denominator management, and the market reacts to it by giving thumbs up to the stock of by increasing the price in view of its increased profitability (read perceived short term). They do not understand that by firing personnel an atmosphere of fear is created like a sword hanging on the neck of rest of the lot, thereby leading to loss of productivity, which in term will lead to lower earnings and hence yet again loss of investor confidence. Also, add to it is the performing segment which is sometimes fired thereby leading to halt of growth prospects. It is a domino effect. Instead of firing the bottom-rung operational employees, questions should be raised on middle management on how can they not be made productive enough. Why the company cannot steer them in newer productive directions? After all for companies like IBM, employees are the underlying assets and cash or stock price is just a reaction to the employee productivity.

If the companies start reacting to analyst’s questions and miss their targets on and off, it’s a question on the capability of management of the company and not the lower rung employees, and more than often they are the ones who are in the firing line. The biggest reason being the proximity of the Middle managers to the authority. IBM’s road-map to 2015 was a target; in essence the management after conducting their due diligence and charting the course of IBM gave themselves a target. Hence, failure of the same should be their onus and responsibility and not of personnel executing their actions. Given, the accountability if the management is not able to steer the employees in a set direction, shouldn't they be held accountable. Also, giving in to the analysts and investor sentiments that are handful in number as compared to the employees (who are the assets) are they not being myopic. If they could not chart out a course (the management) in the given course how could they prove their worth by firing their own employees. Also, they are befriending their employees for money (read investors), who without blinking their eyes will move to other profitable avenues. If making EPS the epitome of success and protégé for success is the ultimate mantra, then long term objectives of the company including a potential attraction of talent will not be achieved.

The performers in the market will potentially give a skip to the company which in turn needs smart resources for them to achieve the desired growth. Also, credit worthiness of the employees takes a beating with banks. Banks as we know empanel companies basis their creditworthiness and dis-burses loans to its employees based on stability of jobs, pay-scale etc. etc. However, after this the employees might find harder to secure loans or land lease or perhaps higher interest rates being charged. This will lead to overall dis-satisfaction and hence loss of productivity in turn leading to a domino effect.

Instead at this point in time, companies should invest in employees and train them for roles which are the new direction and steer the organization to productive use. Firing the employees is like slashing your own wrists to bleed slowly and for whom; the investors, who as soon as the stock reaches a little higher will sell it off and probably go and buy a beer for themselves. To please an unknown one is befriending a native, this is sheer dis-respect and naivety on the part of management.