Athira Sethu
Kochi, 8 November 2024
Sridhar Vembu, co-founder of SaaS major- Zoho, has criticized the big players in the tech arena for throwing employees out of jobs to impress investors on Wall Street. Companies that initiate layoffs out of “naked greed” need not expect loyalty from the very workers they continue to lay off, Vembu said.
Recently, many tech companies around the world, from big companies to startups, have been laying off employees. Most of these companies usually justify the layoffs by saying that it is aimed at improving profitability and increasing the price for stocks in order to give satisfaction to shareholders, but according to Vembu, some companies are financially stable and still lay people off to make more money.
In a social media post, Vembu mentioned that there are some companies with huge cash reserves and soaring profits that continue to lay off workers. He called such an instance where Freshworks with $1 billion in cash, growing at a healthy rate of 20%, fired 12-13% of its employees while simultaneously contributing $400 million to stock buy-backs. According to Vembu, greed is the driving force of such attitude, not any kind of need to cut costs.
He said, “A firm with a billion dollars of cash that is growing nicely and earning money should not lay off staff. And then to spend money for the purpose of buying back stock is an insult to workers.”
While Vembu understands the rationale behind layoffs due to financial hardships, he says companies that are doing fine should not indulge in such practices. For Vembu, this is “naked greed” rather than any true need.
Vembu did not mention the company by name, but his comments came a week after Freshworks, which competes with Zoho, announced similar layoffs. Freshworks had just posted strong financial results, reporting a 22% revenue rise. However, the company said it would cut 13% of its workforce, about 660 employees. During the same time, Freshworks approved a $400-million share buyback program.
Vembu questioned this logic. He couldn’t understand why companies which had so much cash did not invest that money in new business ideas or find some way to use the employees instead of laying them off. He emphasizes imagination and visions in running a company and even said lay-offs were failures of leadership.
According to Vembu, such a trend-where companies are more concerned about the maximization of shareholder value than the welfare of employees-is common in the US and is being followed all over India. Such a mindset breeds an extremely toxic environment that makes employees cynical and distrustful of employers.
In response, Vembu said that the approach is a different one for Zoho. His company is privately held, which allows it to focus on customers and employees first, rather than trying to please shareholders.
Vembu opposed the “Friedman Doctrine,” which says that a company has only one obligation that is the maximization of shareholder profit. He said that it leads to treating people as disposable parts, creating a “use and throw” culture, ending up killing the companies in the long run.
Vembu said 50 years ago, American businesses thrived because they took care of their employees and did not lay them off during good times. He warns that the “shareholder-first” model of business is unsustainable and, in the end, bad for employees and shareholders.
