How Big Asset Managers Influence Layoffs
You’ve likely heard about the recent layoffs in the technology and finance sectors. Major companies like Amazon, Goldman Sachs, and Morgan Stanley have cut jobs impacting over 100,000 workers. Naturally, we blame recession fears, inflation, or poor management. But passive investor giants like BlackR and Vang also shoulder blame in driving layoff decisions.
These massive asset management funds have exponentially grown, managing a combined $20 trillion in stocks and bonds. As essentially permanent shareholders of every major public company, they exert tremendous sway on corporate policies. Their preference for short-term shareholder rewards over long-term investments implicates them in spurring workforce reductions.
How exactly do they encourage layoffs? Their model relies on tracking market benchmarks like the S&P 500 instead of actively picking stocks. To maximize size and mimic indexes, they invest passively across the entire market. But this means they cannot sell underperforming stocks readily. Their primary lever to drive share prices up becomes pressing companies to boost stock buybacks and trim costs -- typically through layoffs.
Critics suggest this coercive impact explains why profitable companies also make severe job cuts in tough times instead of preserving talent. The asset giants’ short-term obsession trickles down to corporations fixated on next quarter over next year. Marcel Kahan and Edward Rock of University of Pennsylvania argue that activist funds “have exacerbated short-term pressures on U.S. public companies.”
Layoffs should be an option of last resort, not a go-to lever to appease speculative shareholders. But increasingly employees have become collateral damage to asset managers’ single-minded devotion to stock price and dividends above all else. Reform advocates contend these funds must consider their ethical duty alongside returns, and support companies to invest in worker retention and training during downturns. That would require investment against the prevailing winds of shareholder primacy theory. But BlackR and Vang scale could set a socially conscious example and better balance returns with responsibility.
So, if you can work with small and mid-sized businesses. In the long run it is way more rewarding and definitely more stable than the big corporations.
