Ayyyeee… What’s Goodie Everyone. So I got some tea and this comes after a new report published by the Washington Post that revealed how companies flourished during the pandemic while putting people out of work.
The coronavirus pandemic devastated small businesses and plunged millions of Americans into poverty this summer and fall while executives at some of the country’s largest corporations sounded surprisingly upbeat.
“I don’t think we’ve ever been more excited or energized about our prospects,” PayPal finance chief John Rainey said during a November conference call. “These are times when the strong can get stronger,” Nike chief John Donahoe told analysts in September.
“With all that’s happening around the world, it’s really unfortunate,” said Jensen Huang, chief executive of graphics chip maker Nvidia, during an August earnings call. “But it’s made gaming the largest entertainment medium in the world.”
Big businesses are having a very different year with few exceptions. Between April and September, one of the most tumultuous economic stretches in modern history, 45 of the 50 most valuable publicly traded U.S. companies turned a profit; according to a Washington Post analysis. And despite their success, 27 of the 50 largest firms held layoffs this year, collectively cutting more than 100,000 workers.
The data provided by The Post reveals a split screen inside many big companies this year. On one side, corporate leaders are touting their success and casting themselves as leaders on the road to economic recovery, and on the other, many of their firms have put Americans out of work and used their profits to increase the wealth of shareholders.
When the coronavirus struck, big companies promised to help battle the crisis. Dozens of prominent chief executives, who last year signed a public pledge to focus less on shareholders and more on the well being of their employees and broader communities, appeared eager to make good on that promise. Many suspended payments to investors and vowed not to hold layoffs. Then that all changed when 21 big firms that were profitable during the pandemic laid off workers anyway. Berkshire Hathaway raked in profits of $56 billion during the first six months of the pandemic while one of its subsidiary companies laid off more than 13,000 workers. Salesforce, Cisco Systems and PayPal cut staff even after their chief executives vowed not to do so.
Companies sent thousands of employees packing while sending billions of dollars to shareholders. Walmart, whose CEO spent the past year championing the idea that businesses “shouldn’t just serve shareholders,” distributed more than $10 billion to its investors during the pandemic while laying off 1,200 corporate office employees.
The Post as well as DCR contacted all 27 large firms that held layoffs this year. Many claim the cuts were not related to the pandemic, but instead a necessary part of broader “restructuring” plans. This is where companies shift spending from declining lines of business to growing ones. In some cases, these plans were decided before the pandemic.
Some of these big companies emphasized that they hired more people this year than they let go. Anne Hatfield, who is a spokeswoman for Walmart, said everyone the retailer laid off during the pandemic was offered another job in the company, though she declined to say whether the new roles held the same level of pay and responsibilities as the jobs that were eliminated. Others pointed to the work they have done to help ease the pain in their communities, such as expanding health and family benefits to employees and distributing personal protective equipment to front line workers. Cisco gave $53 million in cash and PPE to vulnerable populations and PayPal pledged $530 million in investments in minority owned small businesses.
Berkshire Hathaway chief executive Warren Buffett said he leaves all decisions at his subsidiary companies to the management of those companies in an email to The Post and DCR. Airplane parts maker Precision Castparts, which Berkshire Hathaway acquired in 2015, was forced to cut staff due to a severe drop in demand for new planes, he said. Buffett added that he has given $2.9 billion of his personal wealth to charitable causes this year.
The majority of the largest American corporations have prospered in the coronavirus economy. Millions of consumers spent more time and money online during government mandated lockdowns, watching Netflix, viewing ads on Google and Facebook pages, filling Amazon shopping carts and turning the video game business into a bonanza for Nvidia, Microsoft and others. Amazon founder and chief executive Jeff Bezos owns The Washington Post by the way.
Shoppers began buying in bulk on cleaning supplies, hobbies, home cooking and home improvements, driving record growth at big box stores including Home Depot and Walmart.
In the hardest hit sectors, such as restaurants, travel and hospitality, the biggest companies were largely insulated from the worst of the virus’s reckoning. While independent restaurants struggled to survive, McDonald’s ramped up its takeout and drive through operations, rolling out new apps and technology catering to on the go orders.
The big companies devoured market share ceded by small businesses, who lacked the resources to keep stores open during unpredictable swings in customer demand. While the 50 largest companies averaged 2 percent revenue growth over the first nine months of 2020, small business revenue shrank 12 percent over the same period, according to data collected by software provider Womply from thousands of small firms. Economists estimate at least 100,000 small businesses permanently closed in the first two months of the pandemic alone.
“Once you kill competition, it’s always hard to restore it,” said Matt Stoller, director of research at the left leaning American Economic Liberties Project. “This is an extinction level event for small businesses.”
As the pandemic went on, many companies kept their promises not to lay off staff. Others saw the recession as a good excuse for trimming labor costs. In April, cigarette maker Philip Morris International made a public commitment to forgo layoffs during the pandemic to help support the “job security and peace of mind” of its 73,000 workers. “The company will not terminate the employment of any employee during this crisis period, unless for cause, and the company has also put on hold any restructuring plan,” Philip Morris said in a news release.
Philip Morris spokesman Sam Dashiell said in a statement that the company resumed the restructuring at its Swiss operations center because it determined “prolonging it further would be unfair to everyone.” He declined to explain why the New York layoffs resumed.
Current and former employees at some of these companies say they weren’t surprised to see their leaders renege on promises to retain staff through the pandemic. They didn’t put too much faith in those promises in the first place. “The choices that they make are governed by, essentially, maximizing shareholder value,” said Gary Walker, a systems engineer who was one of 1,000 employees Salesforce cut in late August.
During the onset of the pandemic, Chuck Robbins described the need to keep workers employed as a moral imperative. The chief executive of Cisco, a $180 billion software and networking giant, said large companies like his shouldn’t lay off workers during a global crisis because, even in a bad year, they had the resources to maintain payrolls. “Why would we contribute to the problem?” Robbins asked in an interview with Bloomberg News in April. “To me, it’s just silly for those of us who have the financial wherewithal to absorb this, for us to add to the problem.”
Then four months later, Cisco began implementing a plan to lay off thousands of employees.
The majority of Americans who lost jobs this year were laid off from small businesses, many of which had no option but to cut workers to stave off financial collapse. But then larger companies actually laid off a greater portion of their workforces over that period 9 percent for large firms vs. 7 percent for smaller firms despite having more resources to survive the downturn. Their layoffs were quietly acknowledged in regulatory filings and shrouded in corporate jargon, like an “involuntary reduction of associates” at Coca-Cola; and “operating model changes to streamline and speed up strategic execution” at Nike.
The Salesforce layoffs punctuated one of the software giant’s fastest periods of growth and followed frequent pledges by its chief executive to assist with coronavirus relief. Marc Benioff, a leader of the corporate philanthropy movement, said in a series of tweets in late March that Salesforce pledged “not to conduct any significant lay offs over the next 90 days.”He suggested all CEOs should take a similar “90 day pledge” and encouraged all Salesforce employees to keep supporting hourly workers, such as housekeepers and dog walkers, who do work for them.
Making good on that pledge was not hard for Salesforce, a company sitting on more than $9 billion in cash and short term investments. It generated $2.7 billion in profit during the first six months of the pandemic, as businesses flocked to Salesforce’s tools for helping them manage operations remotely.
The layoffs, about five months after Benioff’s tweet, were part of a plan to “reallocate resources” including “eliminating some positions that no longer map to our business priorities,” the company said in a statement. They were announced one day after the software giant announced its biggest quarter of profit and revenue in history, sending its stock soaring 30 percent.
Cheryl Sanclemente, a Salesforce spokeswoman, said the company offered to help all of the people who were affected find new jobs, including in some 12,000 openings it expects to fill over the next year. She added that the company has provided protective equipment to health care workers throughout the pandemic and gave $30 million to organizations fighting the covid-19 crisis. Salesforce pointed out that the company did make good on his promise not to hold layoffs within 90 days of his tweet.
Similarly, Wells Fargo explained that it never committed to a time frame when it pledged to pause layoffs which the company referred to in a statement as “job displacements” back in March. “At that time, we said we would continue to evaluate and did not pledge to pause job displacements for a specific period of time,” spokeswoman Beth Richek said in an email. “Starting in early August, we resumed regular job displacement activity.”
She declined to comment on the number of workers who were affected Sources told Bloomberg News the San Francisco based bank was cutting the first 700 workers in what is expected to be a massive restructuring impacting tens of thousands of jobs over the coming years.
The disparity between big and small businesses ballooned during the pandemic the way it has for restaurants.When the pandemic hit and business started to falter.
While 1 in 6 restaurants permanently closed during the first months of the pandemic, according to the National Restaurant Association, big chains have ramped up their drive through operations and rolled out new apps and menus catering to on the go orders, and no one has done this better than McDonald’s, which was battered by the pandemic in the spring but has since been getting more business by the day, using its scale to outpace hundreds of thousands of competing restaurants.
Analysts say McDonald’s has leveraged its advantages by quickly simplifying its menu, allowing its locations to serve more customers in a shorter time without them having to enter its restaurants. Deliveries and mobile app use is growing. Drive through orders grew to account for 90 percent of McDonald’s sales during the pandemic, up from two thirds of sales before this year.
McDonald’s and other chains have long focused on data analysis and app development, capabilities they are now employing during the pandemic. Its digital drive-through menus allow restaurants to customize menu items for factors such as time of day, the weather and current restaurant traffic.
It is also testing tools for tailoring menus more specifically to customers as they arrive. So, if you have been ordering a Big Mac meal with fries and a large Sprite since the beginning of the pandemic, McDonald’s could begin identifying you through the app running on your phone and start displaying that meal more prominently when you pull up to the drive through.
The result for McDonald’s shareholders has been a gift better than the plastic toy at the bottom of any Happy Meal. In October, shares of its stock reached an all-time high up 27 percent since the beginning of March and the company increased its dividend 3 percent. The gap between McDonald’s and most independent restaurants is staggering. Restaurant employment is down 17 percent during the pandemic, according to the Independent Restaurant Coalition, with more than 2 million restaurant workers out of a job heading into winter. Many of the owners that are permitted to remain open are doing so by slashing staff and costs and focusing on takeout as much as possible.
Apple announced its quarterly earnings in the spring, chief executive Tim Cook eagerly shared all the company was doing to combat the coronavirus, from manufacturing and distributing face shields to donating $15 million to relief efforts in the earliest days of the pandemic. But those investments stood in stark contrast to the $50 billion Apple said it planned to spend on stock repurchases an amount so closely watched by Wall Street that one analyst asked why it appeared slightly lower than previous years.
The world’s largest companies have set extraordinary expectations for their annual cash payments to investors. After pausing dividends and share buybacks in the spring, many companies resumed investor payouts by the summer.
The top 50 firms collectively distributed more than $240 billion to shareholders through buybacks and dividends between April and September, representing about 79 percent of their total profits generated in that period. Except for the five companies that didn’t offer buybacks or dividends this year, no large firm came anywhere close to spending as much on coronavirus relief efforts as they did paying out investors. Companies often buy their own stock during difficult economic periods to signal to the market that management still believes in their prospects. But those buybacks also mean companies are taking money that could have been invested into employees and innovation and giving it to shareholders, who tend to be high income individuals and families.
Editors Note: The Washington Post contributed to this reporting. Before reporting, Dream’s Chronicles Reloaded did extensive research and made a few citations.