The trend of prioritizing shareholder interests is influencing major decisions within tech companies, often leading to employee layoffs.
The New York Stock Exchange, New York, US
The concept of ‘shareholder supremacy’ dictates that executives prioritize maximizing shareholder profits above all other stakeholders, including employees, customers, and the products themselves. This philosophy places legal obligations on company boards to act solely in the interests of shareholders, often at the expense of the workforce’s stability.
In 2019, Uber was riding high with a pre-IPO valuation exceeding $120 billion, but shortly before its public offering, it had to cut this down to $75 billion, resulting in a 9% drop on its first trading day. During this period, Uber’s R&D teams engaged in ambitious projects that left employees perplexed, with initiatives like Uber Chopper and Uber Submarine causing concern about resource allocation.
Maddy Nguyen, a former Uber employee, expressed her frustration over the disconnect between corporate interests and employee well-being. She pointed out that while the company pursued extravagant projects to satisfy investor expectations, it often neglected sensible strategies for employees.
Uber’s stock price plunged more than 90 percent on the first day of trading
Experts argue that this tendency stems from shareholder supremacy, which dictates that corporate boards must prioritize shareholder profits when making decisions. This legal obligation leads companies to undertake high-risk strategies that can destabilize their workforces.
Publicly traded firms often choose to focus on shareholder gains, even if it means developing confusing products that jeopardize employee job security. This can create a cycle where companies take on ambitious projects in a bid to appease investors, ultimately resulting in layoffs when these strategies fail to deliver expected results.
Major tech companies such as Meta and Amazon have faced scrutiny from shareholders after failing to uphold their fiduciary duties. The prevailing sentiment in the tech industry is that the interests of investors take precedence, often leading to layoffs under the guise of economic necessity.
For example, Meta has made headlines with its significant layoffs, which it framed as a necessity for maintaining profitability amidst declining user numbers and revenue. On the day it announced layoffs, Meta’s stock increased, highlighting how the market often rewards such decisions, irrespective of their human cost.
Similarly, Salesforce’s approach involved a mix of stock buybacks and layoffs, showcasing a trend among tech giants to prioritize financial metrics over employee welfare. CEOs often cite challenging market conditions as reasons for layoffs, but this rhetoric often masks deeper issues related to corporate governance and the prioritization of shareholders.
In 2023, the tech sector saw 34% of all layoffs, translating to approximately 114,000 job losses. This trend reflects a broader pattern of prioritizing stock prices and shareholder returns, which has become ingrained in corporate culture.
Moreover, executive compensation is often linked directly to company stock performance, incentivizing leaders to focus on short-term gains for shareholders rather than long-term stability for employees. The stark contrast between executive pay and average worker compensation—illustrated by Amazon CEO Andy Jassy earning over 6,000 times more than the average employee—highlights the disparity in corporate priorities.
In conclusion, the focus on shareholder supremacy in the tech industry not only compromises employee job security but also raises critical questions about the long-term sustainability of such an approach in a rapidly changing economic landscape.
