It advertises some of its real estate as "The Happiest Place on Earth." But apparently the same can't be said for some of its corporate offices.
According to media reports, Disney's (NYSE:DIS) ABC TV unit last month notified 30 to 35 application developers in its New York and Burbank, Calif., offices that they were being terminated.
Their replacements were to be sourced from an agency that supplies lower-priced skilled foreign workers. Several of those losing their positions were apparently required to train their replacements. But it seems Disney reversed course last week, canceling the plan, which was the only sensible move to make given the ensuing bad press.
With its employee replacement plans, Disney threw itself into the middle of an intensifying debate about American jobs. Specifically, about jobs that companies fill with H1-B visa holders. This is a work visa granted to non-Americans possessing at least a bachelor's degree and job skills in sectors that have a shortage of talent. The government doesn't hand out too many H1-Bs; the current annual base limit total is 65,000.
In theory, the program is a practical way to expand the pool of potential workers in industries that suffer a chronic shortage -- most notably, tech. Critics say that in practice, however, unscrupulous employers use it to staff up with people willing to work for much less money than the position would normally pay.
This is because there's a large, and easily exploitable, loophole in the program. A company is strictly prohibited from displacing U.S. workers with H1-B holders. However, if it hires a third party -- say, an agency specialized in foreign outsourcing -- technically it isn't the entity hiring the new employees. Instead, it is merely engaging the services of another firm.
Disney's latest plan looked very much like this. It was apparently to engage a company called Cognizant Technology Solutions for its replacement workers. Cognizant is known to draw heavily from low-wage India for its pool of tech specialists.
Disney likely felt that the move wouldn't stir up as much controversy as it did. After all, the company made a similar overhaul last October when it eliminated about 250 tech positions in its theme parks, replacing them with 320 new jobs.
Several people involved in the October reshuffle, it seems, were not only to forfeit their jobs -- they were also required to train their replacements as a condition of receiving severance payments.
Disney is not alone in making such moves. For example, last summer, Edison International's Southern California Edison launched a program to replace several hundreds of its tech employees with H1-B holders from abroad. These are being sourced by a pair of India-based skilled labor agencies, Tata Consultancy Services and Infosys.
An increasingly vocal chorus of aggrieved workers, labor activists, and politicians are speaking out against this exploitation of the H1-B program. They argue that greedy companies jumping through the program's loopholes are replacing specialist workers with cheaper nondomestic personnel.
The feds have taken notice. The New York Times reported earlier this month that the Department of Labor has launched an investigation into potential visa violations in Tata's and Infosys' Southern California Edison project.
Disney should know better than to court this kind of controversy. It is one of the most image-conscious companies on the planet, and has spent many years, billions of dollars, and untold resources on being a purveyor of family entertainment. It's supposed to be the clean, happy, shiny face of corporate America.
The company is also far from desperate to rein in costs. Last year, it posted all-time records for annual revenue (up 8% on a year-over-year basis to $49 billion), and net profit (up 22% to $7.5 billion). It can well afford to keep those small clutches of techies employed; heck, it could probably hire an army of them without hurting the bottom line much.
So Disney damaged its all-important reputation for potential savings that would not have affected it significantly. Our otherwise clever Mouse shouldn't have put itself in that position to begin with, and shareholders should be glad that it changed its mind.
Eric Volkman owns shares of Walt Disney. The Motley Fool both recommends and owns shares of Cognizant Technology Solutions and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.