The Hidden Costs of Cost-savings: Layoffs and Labor Transitions
Gleeson Ryan
In our Force for Good Forecast earlier this year, we identified how layoffs are substantively disrupting the NGO sector. However, widespread workforce reductions are impacting the private sector as well. Companies making cuts are facing both internal disruption and external critique regarding the AI transition, equity and labor issues, and their continued progress on sustainability.
Over 40 major companies laid off employees this year, with no sector exempt: even oil and gas companies benefiting from soaring oil prices cut jobs, as did tech giants like Meta. These corporate layoffs evoke a host of stakeholder concerns. The first is reputational damage, while some stakeholders highlight legal concerns due to discrimination and the ethics of worker transition. Some advocates even warn that widespread layoffs could collapse consumer spending due to mass unemployment.
But the reality is that as public concern over AI and the data center buildout explodes worldwide, major layoffs from any sector face increasing scrutiny. If cuts can be connected to AI implementation within companies (whether real or perceived), the corresponding risk of public backlash over human and labor rights grows as well.
Disney is cutting much of Pixar’s art team to support what they describe as a “a more agile and technologically-enabled workforce.” This kind of “AI-washing” may make it easier for managers to justify cutting employees, but comes with reputational and legal risks. A proposed bill in New York would require employers to track how AI usage affects worker hours and hiring/firing. Similarly, Meta employees are suing the company for allegedly allowing AI to unfairly flag employees on parental leave or with disabilities for layoffs. And momentum is growing. Two hundred economists, tech executives, and researchers recently signed a letter urging tech leaders to “build the incentives, guardrails, and institutions needed to steer AI in a direction that complements humans and benefits society,” including by addressing large-scale job displacement. In the philanthropy space, new programs like AI Dividend, led by labor rights-focused Fund for Guaranteed Incomes and tech worker advocacy group What We Will, are designed to provide support for AI-impacted workers.
Beyond risks due to perceived AI injustice, companies reducing headcount expose themselves to several internal challenges. A recent WEF report calls attention to the loss of institutional knowledge and the immense financial cost of constant reskilling. Loss of morale and productivity are obvious impacts to remaining employees learning to manage without absent colleagues.
Our team at Future 500 has experienced this first-hand as sustainability teams endure cuts and need to lean on us more to fill the gaps. For example, the Chief Sustainability Officer (CSO) role is vanishing from many companies, with the total number of CSOs dropping for the first time in 15 years. Starbucks’s ongoing layoffs will eliminate the CSO and combine the sustainability and social impact teams. Unilever, Nestlé, and Apple are following similar paths. To defend against risks of political and legal reprisal, some companies are combining the CSO’s responsibilities with that of the Chief Legal Officer.
This trend, as well as other shuffling, renaming, dispersal, and downsizing of sustainability teams, reflects greenhushing as a continued strategy by companies to avoid political scrutiny during a time of economic uncertainty (see our Force for Good Forecast article on greenhushing here). Highly visible sustainability roles are being reframed as resilience to drive a clear connection to improving the bottom line. Whatever their final form, these organizational changes ultimately take time to settle, prompting many companies to pause or slow their sustainability activities until new organizational structures solidify.
So what can companies do? Building upon just transition frameworks, some advocates are offering guidance on how to conduct “ethical” layoffs: Jobs for the Future shares tips on conducting “human-centered” layoffs with strategies like building a culture of resilience, addressing the emotional impacts of layoffs, and helping displaced workers position themselves for success elsewhere. Brookings offers AI-focused considerations like reducing vesting requirements for retirement benefits to insulate workers from the new paradigm of changing jobs more frequently.
Companies may also benefit from a long-term view. Emerging data shows an AI boomerang: companies rehiring employees to fill operational gaps after cutting too deep. In this new employment dynamic, careful consideration may be more effective than staying with the pack. The long-term impacts of corporate layoffs on employee morale, public perception, and shareholder value remain to be seen.
Future 500 is a non-profit consultancy that builds trust between companies, advocates, investors, and philanthropists to advance business as a force for good. We specialize in stakeholder engagement, sustainability strategy, and responsible communication. From stakeholder mapping to materiality assessments, partnership development to activist engagement, target setting to CSR reporting strategy, we empower our partners with the skills and relationships needed to systemically tackle today's most pressing environmental, social, and governance (ESG) challenges.
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