Tech companies coddled their employees. Now they’re firing them

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(May 13): Two weeks or so before Elon Musk prevailed in his attempt to strike a deal to buy Twitter, the Silicon Valley venture capitalist and entrepreneur Keith Rabois tweeted a story from Musk’s start-up days. Once, at Space Exploration Technologies Corp (SpaceX), Musk had noticed a group of interns milling around while they waited in a line for coffee.

To a normal chief executive officer (CEO), such a scene might have seemed, well, normal. But to Musk, it was an affront to productivity. According to Rabois, who knows Musk from their days at PayPal, Musk responded by threatening to fire all the interns if it happened again, and had security cameras installed, so that the company could monitor compliance.

Rabois used this to make a prediction: “The Twitter woke employees are in for a rude awakening.”

The story is impressive, I suppose, in a “coffee is for closers” sort of way, but it’s probably worth pointing out that Musk had other options besides threatening to fire everybody. He could have let these coffee breaks slide — a reasonable accommodation considering that SpaceX interns have joked about working 80 hours a week for their boss — or (and I don’t have all the details here) he could have bought another coffee machine.

But that’s not Musk — a famously demanding CEO who has been known to sleep under his desk during production pushes and who liberally deploys threats of dismissal at anyone who dissents — nor is it Silicon Valley at the moment. After a boom that has lasted for nearly 15 years, the tech industry is in retrenchment mode. The share prices of newly public tech companies, as tracked by the Renaissance IPO (initial public offering) index, have lost roughly 60% of their value since October, and tech investors have begun to fret about zombie unicorns or high-valuation start-ups that are unable to raise additional capital and thus must drastically cut costs.

Facebook parent Meta Platforms Inc slowed its hiring pace in an effort to cut costs earlier this month, and Twitter Inc announced a hiring freeze on Thursday (May 12). Even Uber, a company famous for losing huge sums in the name of growth, is now issuing sober memos about “unit economics”. Several high-profile companies have already announced lay-offs in recent weeks, and an investor class that until recently was all about “building” is suddenly thrilling to the prospect of lay-offs. “The good big companies are overstaffed by two times,” tweeted Marc Andreesen, the venture capitalist whose firm is contributing US$400 million (about RM1.76 billion) to Musk’s buyout. “The bad big companies are overstaffed by four times or more.”

It’s difficult to overstate how dramatic this shift is, both in substance and in tone. Overpaying, and even coddling, talented engineers have, for years, been seen as a point of pride among tech’s leadership class. In his 2014 management book, How Google Works, Eric Schmidt, the company’s former CEO, boasted of his efforts to retain “divas”, arguing that bosses should defer to “smart creatives”, even when they were difficult. Facebook, where Andreessen has long sat on the board, touts its Recharge programme, in which workers are encouraged to take a 30-day sabbatical every five years. During the Covid-19 pandemic, Twitter added company-wide mental health breaks called “days of rest” on top of already-generous leave policies.

Such perks are now the subject of derision. Tech employees who were once encouraged to bring their whole selves to work are publicly mocked as woke crybabies by venture capitalists who see Musk as the leader of a righteous cleanse. Days after the Musk buyout was announced, David Sacks, a tech investor and a long-time friend of the entrepreneur, compared Musk’s takeover of Twitter to the fall of the Berlin Wall. (Not unlike the slow easing of Soviet-era borders, Musk’s acquisition is coming in fits in starts. He said on Friday morning that the deal is “temporarily on hold” over concerns about fake accounts but that he’s still committed to buying the company.) Sacks also suggested that Twitter’s failings were not caused by its former CEO Jack Dorsey, but by Dorsey’s overly coddled employees.

“It felt like the staff of Twitter really got to run the show,” Sacks told Will Cain, a podcaster and the co-host of the weekend edition of Fox & Friends. He warned that CEOs were being “pushed around and bullied by employees”. The answer, he said, was a purge: “Twitter’s got something like 8,000 employees, and nobody knows what they all do.” He suggested that Musk might fire as many as 6,000 of them.

Comments like this don’t seem especially productive or realistic. It’s also telling that the plans Musk is actually proposing seem to be much more modest than the fantasies that his friends and backers have proffered: A leaked presentation to investors suggested that he would dismiss fewer than 1,000 employees before eventually hiring thousands more, a far cry from the notion of 75% staff cuts pushed by Sacks and Andreessen.

Moreover, while tech valuations are way down, it’s not at all clear that employees have lost their leverage. The labour market remains extremely tight, and with stock prices depressed, big companies have been forced to compromise on planned office reopenings, allowing employees to work from home indefinitely while agreeing to big salary increases. Just three months ago, with its stock sliding, Amazon.com Inc doubled its maximum base pay. It may be these developments, as much as complaints about “woke employees”, that have gotten Silicon Valley’s investor class into austerity mode.

It’s become commonplace to attribute the provocations of tech venture capitalists, especially those egging on Musk, to a sense of misplaced self-pity. That may be part of it, of course, but their hostility to workers also reflects that their portfolio companies are in the midst of a high-stakes negotiation with their own employees — one that, as Fortune’s Jacob Carpenter recently pointed out, the companies have been losing. With growth prospects limited and employee pay showing no sign of slowing down, buyouts like the one Musk is promising — even without a full blown ideological purge — make a certain financial sense. Venture capitalists love to frame what they do in grandiose cultural terms but, usually, it’s about the money. 

Read also:
Musk shelves US$44 billion Twitter deal ‘temporarily’; shares slump 

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