[lph]

> Why would I do it?

Because the investors want you to [1]. Companies are using this as an excuse to cut unprofitable projects (e.g., Alexa). They over-hired before interest rates went up, when borrowing money was essentially free.

> This doesn’t really make sense to me from a game theory POV

Assume company leadership only cares about short-term stock price, and recompute your game theory POV. The outcome is exactly what's happening right now.

[1] https://www.ndtv.com/world-news/google-layoffs-investor-told...

[nonethewiser]

First, the article you linked is talking about an investors who called for layoffs but the company didn't respond with layoffs. So it completely undermines your point.

Most importantly, the investors have minority stakes in many of these cases. Facebook, Google, etc. And how do you explain non publicly traded companies like Stripe?

Cheap debt and high margins fueled waste. It's as simple as that.

[djbusby]

Stripe still has investors. And those investors have leverage over the corp-officers.

Cheap money did fuel waste. Investors want to reduce the burn.

[f6v]

> Because the investors want you to [1]. Companies are using this as an excuse to cut unprofitable projects

So it’s not a conspiracy to drive the wages down? Who would have thought.

[danaris]

Nnnno, it just means the investors also want to drive wages down. Because to far too many of them, labor is just a cost center.

[throwaway2037]

You wrote:

    They over-hired before interest rates went up, when borrowing money was essentially free.

I'm confused. As I understand, the wealthiest tech companys do not borrow money. Yes, they all have highly advanced treasuries to manage cashflows (different currencies, etc.), but they do not need to create liabilities (new debt) to run their businesses. They are cashflow positive and highly profitable.

Are you trying to say that as interest rates rise, the consumption part of the economy has slowed, thus profit growth has slowed at Big Tech? If yes, hmm, I half agree to attribute to layoffs. Mostly, I think they are cleaning house. A lot of people are working on projects that have little or no revenue potential. During economic weak periods, it is normal to close those projects.

[polskibus]

The big companies have debt, see https://www.microsoft.com/en-us/Investor/earnings/FY-2022-Q1... . It was often cheap for them to raise it in the past and quickly.

[thworp]

There is also another aspect in addition to sister comment: When interest rates are low, institutions with contractually agreed returns (pension funds and such) have to invest in riskier assets (stock, private equity, corporate bonds, riskier state bonds) to reach those targets.

When interest rates are where they should be they can just buy G8 government bonds. This leads to pretty big outflows from the stock and corporate bond markets.

Incidentally I think there is a huge blindspot (intentional or not) for the amount of economic pain this interest rate normalization will cause. After 10 years of negative real interest rates (central bank rate minus inflation) the economy and all its participants have become junkies. The withdrawal from the free money drug will be painful but neccesary.

[User23]

> Because the investors want you to [1]

Investors don't actually have any market power unless the company in question is doing a stock issue. For example, AMZN doesn't get any extra operating capital no matter how much of their stock any investor buys or sells on the open market. The only way "investors" can control a publicly traded company that isn't dependent on issuing new stock is by depressing the executive comp package's value. From that follows an obvious lesson on corporate governance. The fact that that obvious lesson isn't followed is proof enough that the system doesn't work exactly as advertised.

[derefr]

> The only way "investors" can control a publicly traded company that isn't dependent on issuing new stock is by depressing the executive comp package's value.

Or, y'know, if the Board — which is always composed of shareholders, who are, in public companies, expected to hold the stock value as their primary interest over the internal interests of the company, whether or not they're also officers of the company — operates by firing-and-replacing the CEO whenever the CEO does something the market responds sufficiently-negatively to. Or just makes it clear to the CEO that that's what will happen. (This is, in principle, where the infamous hypothetical "duty to shareholders" is supposed to come from. It's not a law; it's the market's ability to transitively fire the CEO through a share-price-incentivized Board.)

[AlchemistCamp]

At least in the case of Google and Facebook, the owners have a different class of stock that has enough voting power that they cannot be fired by outside shareholders.

[derefr]

In public companies, majority (rather than plurality) shareholders who are also the officers of the company (i.e. where the CEO doesn't have to listen to the Board, because the CEO "is" the Board for all intents and purposes) are the exception, not the norm. Most companies have sold off an internal controlling interest by the time they go public. And, if they survive in the market, most other companies that kept an internal controlling interest initially, end up selling it off once all the founders leave or retire. (In fact, insofar as you can think of a retired founder as now having the interests of an external shareholder, the process is almost a tautology.)

For the relevant example, Nintendo's shareholdership — https://www.nintendo.co.jp/ir/en/stock/information/index.htm... — is composed of "47.43% Foreign Institutions and Individuals" (this category usually meaning "foreign investors"), and "31.07% Japanese Financial Institutions" (i.e. domestic investors.) So, (more than) 78.5% of Nintendo is externally owned. These are not voting shares, but that doesn't matter; they're a majority of shares, so they're controlling shares in practice: even if you can't vote, you can still do a coordinated dump of the company's stock to signal your displeasure. Thus, the institutional shareholders with these shares drive board allocation in a game-theoretic sense, rather than a legal sense.

That's why you see some very mysterious people (https://www.nintendo.co.jp/corporate/en/officer/index.html) on Nintendo's Board, specifically on an "Audit and Supervisory Committee" (a.k.a. "the actual Board; composed of people we didn't pick and don't really want here, but were strong-armed into taking by threats to do things to our share price; who can veto any decision made by the rest of the Board.") These are either large individual shareholders, or are "ambassadors" for the interests of institutional shareholders, or both.

Takuya Yoshimura is "Vice President at Mizuho Securities" — pretty clear why he's there. Asa Shinkawa works for an M&A company. Masao Yamazaki, retired Japanese railway tycoon, is likely there as a representative of his friends' institutional interests (and maybe the interests of some, er, "groups" in Japan); while Katsuhiro Umeyama, accounting-firm CEO, is there in a more formal (but not formalized) capacity to put a literal external auditor / comptroller lens on Nintendo's spending on behalf of whichever companies think that's needed.

Make no mistake — these people on this "Audit and Supervisory Committee" can get a Nintendo CEO or "President" fired, if they don't like their last-quarter decisions and resulting stock performance. That's pretty much all they can do; but in theory it's enough to steer the company, as they can just keep rolling the dice until they get a President whose policies happen to already align with theirs.

[sokoloff]

For companies with high levels of share-based compensation, share price is the denominator for converting grant values to shares, meaning the share price does affect the share pool consumption from any given grant.