Posted January 21, 2008 9:43 am by with 6 comments

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The ‘sphere is buzzing with “anonymous” tips that Yahoo CEO Jerry Yang will soon be faced with the tough decision of firing up to 2.500 employees.

Silicon Alley Insider appears to be the ring leader in the rumor spreading and seems to be all for the layoffs.

Jerry reportedly wants to announce the cuts with or before earnings (January 29th), but may not make them if the stock price recovers.

We believe Yahoo should reduce headcount by at least a thousand people, and others are looking for cuts of more than twice that. Yahoo’s stock has recently hit new lows, almost all of its key businesses are losing ground to Google, and shareholders are beyond frustrated. Jerry Yang, moreover, is perceived as a good guy who is unwilling to make the hard-ass decisions necessary to get Yahoo heading in the right direction again–a perception he is presumably eager to dispense with.

I admit, I’m not a financial analyst, but I feel that the cuts could easily have the opposite effect that Yang is hoping he’ll see. Here’s some consequences of laying off 2500 people just because your stock dips below $20 a share.

  1. How well would you sleep at night knowing that you’ve just laid off 2500 based–mostly–on your stock price? More importantly, how would those employees feel? See below.
  2. OK, so perhaps it’s a sound business decision now, but what if those 2500 employees feel like airing your dirty laundry? Can you imagine if 2500 disgruntled employees decide they need to vent by creating a blog post about Yahoo’s faults and failings? Heck, you can’t even stop employees from writing the damaging “peanut butter memo” so how do you plan to stop ex-employees from having their voice heard?
  3. What about the employees that remain? In the peanut butter memo, the claim was made that “We have lost our passion to win. Far too many employees are “phoning” it in, lacking the passion and commitment to be a part of the solution.” What’s going to happen to the passion of the remaining employees, when they see that recent hard-work might be rewarded with future layoffs?
  4. Have you thought about public perception Jerry? Sure, Wall Street might react well to the layoffs, but what about the average Yahoo user? What message will the layoffs send them? With your market share stagnant, you might lose more users if they believe you’re a dying company.

I’m sure there are more consequences that won’t emerge until after any Yahoo firing decision, but I hope that Yahoo’s focusing on the big picture and not just trying to give its stock price a shot in the arm so it can have a pleasant Q4 conference call.

  • I think most of these concerns are unfounded. As a former Yahoo! who’s been laid off there before (and came back once, then left again on my own accord) it probably won’t cause that huge a backlash in the blogosphere. Most Yahoos think the company is FUBAR anyway and could probably use some pruning.

    The fact is, Yahoo! got too big too fast and the time to cut has come and gone so many times it will feel cathartic to everyone involved and/or watching if they just finally do it already for Pete’s sake.

  • Dean

    Unfortunately, once you go public you no longer make decisions, Wall Street does. Those decisions stem from quarterly results – Forget about a bad year, if you have a bad quarter Wall Street will ask for heads on a plate, cost cutting, layoffs, etc.

    Wall Street doesn’t care about “tomorrow”. Wall Street doesn’t care about “people” Wall Street doesn’t care about what the affected employees might say. Wall Street doesn’t care about public perception. The only thing that makes Wall Street lose sleep is being a penny lower than expectations – and if Jerry Yang has a problem with that, he’ll be one of the 2,500 without a job.

    If Yahoo! stands pat Wall Street will crucify it. If Yahoo! lays off 1,000 Wall Street will grumble. If Yahoo! lays of 2,500 Wall Street will be happy and reward Yahoo with a bump in stock price.

    Not saying I don’t agree with you Andy, just saying that Wall Street is a short-sighted, cold-hearted mo-fo, and unfortuantely it calls the shots.

  • @Dean – very true, but its the short-sightedness that might come back to bite it.

  • Sure, there may be some short-term gains as a result of their “approach”, but they will just have to live with the consequences of their decision in the long run.

    Alan Johnson

  • Dean

    @ Andy – and when it does come back and bite it, Wall Street will just ask for more layoffs 😛

    …The music goes round and round and comes out here… 🙂

  • As I was watching the news about this I was thinking about the negative ramifications about such a decision. Either way, if Yahoo has to lay 2500 employees of to save thousands of other jobs and ultimately the biz than it’s something that has to be done.