After the Bell: Spotify’s mass retrenchment and being the most thoughtful dung beetle you can be

We are learning more about how big companies retrench staff because we are becoming privy to more CEO layoff letters made public. Yet another mass retrenchment in the tech industry took place this week and there followed a great Wall Street Journal piece analysing the letter that Daniel Ek, the CEO of Spotify, sent after the company announced it intended to cut headcount by more than 1,500 people, around 17% of the workforce. 

Allow me to digress: Oddly enough — or perhaps not oddly — I’m something of an aficionado of the retrenchment process as an employee of the media industry, particularly the newspaper version of that industry. Newspapers, as we all know, have endured the toughest body blow from the digitisation process and consequently, I have been through five downsizings in a long career in the printed press. Actually, six, if you count the one I was responsible for myself. 

The approach of management in each of these downsizing efforts was very different: sometimes the execs took charge of the process themselves, and sometimes the hot potato was palmed off to the HR department. But more often, it was left to the newspaper editors to sit across the desk from staff members to tell them their careers were just about to take a huge hit. 

In my case, I was told shortly after becoming the editor of Business Day, that “we” — because from the moment the process starts, the retrenchers are “we” and the retrenchees are “they” — had to reduce headcount by 20%. Remarkably, the imminent retrenchment process didn’t warrant a mention during my job interview to become the editor which had taken place just a few weeks before. To make things worse, the terms of the layoffs became increasingly less generous each year until my turn came. What management gave me to offer to staff was, as it happens, the statutory minimum. 

After a brief announcement by the powers that be in which details were left deliberately vague, I decided one dark evening to take charge of the process as much as I could. I decided I would be the one to deliver the bad news and I would do it in person in every single case. You might as well own it, I thought.  

Well, I shouldn’t have worried. The day after the announcement, there was a queue outside my office. The whole process was finished in a week. It’s different for every business, but generally, people know when the ship is sinking and are very happy to jump into the life rafts, particularly if their own circumstances suit a change. People often know when their careers are not panning out and when provided with the opportunity to change they are inclined to take it. 

I also think managers massively overestimate the sense of loyalty towards the company that employees feel. Most mid-tier workers tolerate their jobs rather than love them, except in job interviews when they swoon at the prospect of doing said job. It’s a deal: I pretend to work for you and you pretend to pay me. For executives and senior managers, their whole lives and identities are wrapped up in the company and they tend to imagine general employees think the same way. They don’t. 

Managers often dread the idea of retrenchments, only partly, I suspect, because they empathise with departing staff. They hate the idea because — and maybe I’m just ascribing this to them — they know that in the end, the fault is theirs. The bad decisions executives make hurt general employees much more than executives and I suspect executives know where they went wrong. In their hearts, they feel guilty for how those decisions are hurting employees and not them — or at least I hope that’s the way they feel.

I suspect managers also dread retrenchments because they know they are weakening the company and the products the company makes and it’s going to be more difficult once the process is completed. Often, too, staff dismissals don’t fix anything; they make things worse. They are just a leading indicator that the business is in a downward spiral. Or at least that’s how it has panned out in the newspaper industry. But given the huge change in the operational circumstances of that industry, perhaps that was always inevitable.

I had one good moment during the retrenchment process: a friend of mine told me the following: “Tim, I’m now going to pay you a big compliment: you are much more of an arsehole than you think you are.” If there is anything that generates dark humour, it’s giving people the heave-ho.

Anyway, the crucial part of Ek’s letter was the following: “To align Spotify with our future goals and ensure we are right-sized for the challenges ahead, I have made the difficult decision to reduce our total headcount by approximately 17% across the company.”

I can’t help finding this darkly amusing too. The key phrase is “right-sized”. What he means is downsized, of course, because what he is doing is decreasing the headcount. Obvs. But the art of the CEO retrenchment letter is that management, otherwise known as “we”, has seen the light and recognised precisely the right size of the staff complement (them) for the business. Sadly they didn’t realise the “right size” before, but now, joyfully, they do. Excellent! Well done!

So, why is he going to all this trouble to phrase things so carefully? Because the art of downsizing means playing to two separate audiences: the staff that will remain and the shareholders you want to remain. So what ends up happening is that you have to be the most empathetic, thoughtful dung beetle that you can be. And it’s important to be both, because as half of you is appealing to staff, the other half is appealing to shareholders, who are quietly applauding your ruthlessness in the background. This is why these letters are immediately leaked to the press.

It’s — how does one put this? — tricky. So, as in any tricky situation from here on out, I asked ChatGPT to write a sympathetic retrenchment announcement on behalf of the CEO of Spotify. At one point, the letter said: “I want to express my deepest gratitude to each member of our team. Your dedication, passion, and creativity have been the bedrock of our success.” 

That reminded me of something. Oh yes. It was when Ek said in his letter: “For those leaving, we’re a better company because of your dedication and hard work. Thank you for sharing your talents with us.” 

By the way, Spotify’s share price is up 7.5% over the past week. DM