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Why Layoffs Don’t Actually Work At Publicly Owned Media Companies

Why Layoffs Don't Actually Work At Publicly Owned Media Companies

When it recently became known that the New York Times Co. (s: NYT) intended to lay off roughly 100 newsroom staffers, media industry writers and pundits wailed about poor management and bemoaned the death of the newspaper industry — yes, yet again.…

Then, Wall Street weighed in, resoundingly. The Times’ stock price immediately climbed 7 percent on the doleful news. Misery doesn’t love company, in the case of opportunistic investors. It inspires people to make money.

As the New York Times reported: “The Times’s announcement on Wednesday was welcomed by investors, with the company’s stock closing at $12.30, up $1.08, or 9.6 percent, after closing on Tuesday at a 52-week low. A report by the analyst Douglas Arthur of Evercore Partners, titled ‘Back on Track,’ said that expenses at the company were already dropping as spending on some new products had slowed. He said that despite the restructuring of its new apps, The Times had ‘strong digital offerings.’”

Wall Street traditionally throws its approval — at least at the outset — behind the anxious publicly traded companies that lay off large numbers of employees, in a bid to cut costs. Media companies are finding it much easier and more convenient to reduce the work force than to produce reassuring top-line growth. In one press release, a major media dynamo can turn investors’ heads than it could possibly hope to accomplish, by increasing revenues and profits, in a three-month earnings period.

No fuss, no muss, for the chief financial officer. But a question lingers after the final employees have packed up their coffee mugs and put their mementos of happier times in those cardboard boxes: Do the layoffs actually work?

Sure, a stock will invariably pop, which in itself may embolden a company to conclude that it did the right thing, for the blessed shareholders, anyway. Of course, if the senior management had been competent or forward-thinking, in the first place, it might have actually been able to avoid the pain it inflicted on the( ex-)employees and the organization as a whole.

And there is the rub. Once the euphoria from the cutbacks begins to fade — think of it as financial laughing gas — do the layoffs continue to serve a purpose? Inevitably, the company feels the pinch of the departed employees, in terms of productivity, innovativeness and work quality. So, a media company’s performance will start to suffer and eventually might threaten to fall off a cliff.

The company has probably forfeited the loyalty of the staffers who remain behind and compromised  its ability to recruit top-flight workers from rival entities. Why the heck would you want to join Company X after it just shed dozens of staffers? Wouldn’t it cross your mind that you could be the next to go in the enduing wave of layoffs at the firm?

In terms of what corporations really care about: Advertising revenue might then decline after a period of layoffs, too. The company may not be as strong as it was before it booted many talented employees. A company’s financial performance could suffer next. Advertisers would surely notice. And then the company is back at square one: Presenting a disappointing performance to Wall Street, even after the round of layoffs.

Let’s face it: A company only resorts to announcing layoffs when it is desperate to do something — anything — to prove to Wall Street that its stock is worth holding on to. But the analysts aren’t dumb. They eventually sell the company’s shares for the right reason: The firm’s financial prospects are questionable, to put it mildly. 

The shame of it all is that employees must be sacrificed for the greater good of a company’s reputation with investors. Don’t get me wrong. Wall Street is entitled to make a good buck, for sure.

But it is too bad that a media corporation is so bereft of innovative ideas that it must resort to the most common result: layoffs. When the laughing gas wears off — and it always does — look out below.

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