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for week ending May 4, 2002
This week's news, of course, revolves around the IBM's Meeting of the Stockholders held in Louisville, Kentucky on April 30, 2002. Stockholders meetings provide a unique opportunity for small investors to directly question corporate officers and to experience their behavior up close. We highly recommend you take the opportunity to attend IBM's next Stockholder's meeting. The links in this section point to firsthand experiences of people that attended the meeting in Louisville, as well as articles written by members of the local and national press.
- Linda Guyer, an IBM employee from Endicott comments on her impressions of the meeting: Excerpts: "Gerstner showed his anger and arrogance to the audience about the bonus proposal. (Gerstner, BTW, ran the meeting, and let lap dog Sam answer a few
questions, but only after being challenged by Stockholder Evelyn Davis who asked Gerstner to let Sam speak)." ... "Questions about employee benefits, pension, and working conditions were pretty much dismissed by Gerstner. He repeated a litany of
statistics that said that employees at IBM are truly happy, based on survey results."
- Janet Krueger managed to ask two questions of Mr. Gerstner. The first concerned IBM's marketing of the iSeries computer. The second concerned the Cooper v. IBM class action suit. Read Janet's questions along with her transcript of IBM's answers. Excerpt: "The entire room went completely silent while the executives up in front looked back and forth at each other with their mouths open, trying to decide who had to answer..."
- "sby_willie" provides his impressions of the meeting. Excerpt: "As an IBM employee and stockholder, I was dismayed at the performance, demeanor, and attitude of our Chairman." ... "In summary, it was clearly evident our Chairman does not respect IBM employee and retiree's contributions, more so if they are also stockholders. His condescending, arrogant, callous attitude displayed at this meeting was alarming and appalling."
- Jimmy Leas, author of Stockholder Resolution 4, provides the speech he delivered at the Stockholders' Meeting [PDF--9.0 KB]. Excerpt: "IBM omits mentioning the real reason it slashed pensions, which was to boost executive incentive pay that is linked to reported profit. Here is how the scam works. Under a pension fund accounting rule, IBM can boost the report of IBM profit by slashing pension. Boosting profit may sound good to investors at first, but none of the $1.45 billion accounting rule profit boost actually gets transferred to IBM from the pension fund. It's just an accounting rule treatment. Analysts and institutional investors routinely discount this illusory profit so it did not boost the IBM stock price and there was no advantage to stockholders. Since the Enron scandal, the huge accounting rule profit is more embarrassment than advantage. But the accounting rule boost to profit hiked up executive incentive pay. IBM's five top executives got $17 million in long term executive incentive compensation in part because of the lift given by the pension fund boost to profit-despite the fact that IBM profit from operations fell the last two years in a row. That is 17 million reasons a year why Mr. Gerstner slashed pensions."
- The Journal News (covering Westchester, Rockland and Putnam Counties of New York). IBM faces shareholder dissent at meeting. Excerpt: "When Donald Parry enters the Kentucky International Convention Center in Louisville, for IBM Corp.'s annual meeting this morning, he will be facing hundreds of fellow shareholders. He'll also be facing his onetime student, Samuel Palmisano. Parry helped train the new chief executive when he joined IBM in the 1970s. When Parry was writing his speech for today, he planned to congratulate Palmisano on his promotion, but ultimately decided against it. "Too nice," Parry said. Parry has submitted a proposal that asks the board of directors to trim his former student's pay by omitting pension fund income when deciding executive compensation." If link is broken, view Adobe Acrobat version [PDF-- 95 KB].
- Louisville Courier-Journal: IBM voters turn back shareholder proposals. Excerpts: "Retiree M. Jay Goldstein said after the meeting that he was disappointed with the results of the vote and the way the meeting was conducted. 'They certainly suppressed anyone who had a reasonable question or a reasonable comment to make,' said Goldstein, who recently moved to Louisville after a career that included stints in Washington, Chicago, New York and other IBM offices. 'IBM was a great company to work for for 35 years,' Goldstein said. 'It's not what it used to be.' Parry said before the meeting that he didn't expect his proposal to pass. 'I just want the word to get out,' he said. IBM 'made promises to retirees, and they broke promises to retirees. And as far as shareholders go, I don't think they are doing that good a job on the market.'" If link is broken, view Adobe Acrobat version [PDF--39 KB].
Reuters: IBM's Palmisano Makes Debut at Meeting. Excerpts: " While Gerstner shared the stage with Palmisano, IBM's former boss was still at center stage, maintaining his place at the podium while Palmisano sat with other executives. Gerstner led the meeting and Palmisano gave an overview of IBM's products and strategy." ... "Shareholders, many of them retirees or current employees at IBM, were concerned about pension plan changes made in 1999. A small group of employees and retirees protested in front of they meeting, saying they want the company to change its pension fund and executive compensation policy. They held placards reading: 'Is the new chief the same as the old thief?' and 'IBM Respect Employees Now' as about 400 shareholders gathered in the Kentucky International Convention Center. 'I'm hoping that he restores a lot of the traditional values that made IBM historically successful over the years,' Leas said.
- Mike Cericola, an IBM retiree that attended the Louisville meeting, articulates that "IBM no longer exerts industry leadership." Excerpt: "...just about every eyebrow-raising move by IBM's executive management, including stock options, plant closures, firing of benchwarmers, hastily formed 'alliances', virtual elimination of dividends, freezing of middle-management salaries (in favor of variable pay and stock options), retirement plan shrinkage, and the
hiring of young folks while older ones with a retraining need are
dumped, - can be traced to this 'check - raise' strategy that IBM now
follows, - and MUST follow, given its abandonment of marketplace leadership."
- CNN's Lou Dobb's Moneyline featured a video interview with Linda Guyer along with video shots of demonstrators and their signs at the rally following the meeting. A transcript of the interview is available. We hope to provide a video outtake of the interview in next week's report. Excerpt (a quote from Linda): "Last year, the CEO of IBM took home over $200 million worth of stock options, in spite of the fact that the business was slowing down, in spite of the fact that there were thousands of layoffs. So what we want is not greed. What we want is something that's fair to everybody all around."
- Reuters: Evelyn Davis: corporate gadfly and CEO groupie. Excerpt: 'When are you going to start building revenues?' the shareholder activist asked the chief executive of the world's No. 1 computer company, Louis Gerstner. 'Instead of big blue, it has been a little bit of pale blue recently,' the corporate gadfly said, playing on the computer giant's nickname. She did not cede the floor gracefully -- Davis is renown for many things but retreating is not one of them -- and chided Gerstner for not allowing newly appointed chief executive Sam Palmisano to speak. 'He's young and handsome. Have him answer my questions,' she remonstrated with Gerstner, who for the most part parried good-naturedly with Davis as she dominated the meeting."
- "lou_shadow" comments on Lee Conrad (of the Alliance@IBM) and "his colleagues". Excerpt: "I'm not into shooting old (>35) people. I'm
not into depriving them of medical care and provision for old age.
I'm not into conning the markets that everything at the ranch is
rosy when its crap and I'm not into taking an obscene bundle for no
net personal contribution. I prefer the company of those who do a
fiar (sic) days work for a fair days pay, and better still if they have the
courage to stand up and dissent when necessary. In fact I'm
privileged to have had that company."
- Annex Bulletin: An Analysis of IBM Global Services 2001 Business Results. Tough Times, Soft Deals. "Swiss Cheese Backlog;" "Crown Jewels"; Bulk vs. Bottom Line. Excerpt: "Well, youve seen us scratching our heads for several quarters now trying to explain an apparent dichotomy. IGS keeps announcing record new contract signings, yet its revenues have declined for two quarters in a row now!"
- "blueinsider2002" comments on how IBM "down sizes" employees out of the company. Excerpt: "Its just another company now, and, being the morally bankrupt
corporation it is now, will continue to operate just within the letter
of the law in its downsizing activities. Managers are beaten up by
their management line to make PBC ratings fit some artificial split;
managers are measured to make sure they have a percentage of 4
performers in their team, so when the need for involuntary redundancy
comes, they have documentation to back up their (nearly illegal)
- The Register (United Kingdom): IBM wants UK workers to walk the plank.
Excerpt: "IBM is asking an unspecified number of UK employees to accept a voluntary redundancy package."
- "techinvestigator" comments on the rumor of upcoming large layoffs at IBM.
- In an interesting series of message board postings, the "carolina_puerto_rican" team of middle level managers comes out of a long period of silence to comment on the situation at IBM today. Although their views are controversial, they're well worth reading for getting a taste of what's going on behind the scenes at IBM:
- CPR's opening volley. Excerpts: "The internal resistance is growing daily. As the company begins to
falter, this is a serious problem for the senior management. They are
counting using on your emotions, ethics and morals right up to the
end. They will break the law, but they can count on you to not.
Condemned prisoners don't hurry to their cells...why should condemned employees. Take a lesson from the next generation. Give up
on loyalty and you'll feel a lot better. Slow down projects, don't
help colleagues with a "sense of urgency". "Sense of Urgency"....now
where did that phrase first show up at IBM? Every task you do at IBM
should be prefaced by: "What's in it for me? Will this help me AFTER
I leave IBM?" If not, then it should go to the bottom of the to do
list." ... "The next 30-60 days will show there is no conscience left at IBM. It
will also show that Palmisano is a figurehead leader, desperate to
wrest control from Gerstner. He's nothing but a high-priced 'gofer' and fall man for Gerstner right now." ... "Work every day at IBM as if it will be your last day there. We hear
that'll be the case for about 47,000 shortly."
- In a second message, CPR comments on the difficulty of being an IBM manager in today's environment.
- Janet Krueger reacts to CPR's comments about being an IBM manager. Excerpt: "Somehow, I don't see much to be gained from holding a pity party... When good people are laid off, when IBM retirees are forced to pass
on disease treatments because they can't afford the medications or
the insurance costs, when more and more of the IBM work is done by
contractors with no benefits, when people come back from medical
leave to be told they no longer have a job, or when employees are
told there is no time in the schedule to let them go to a class and
improve their skills, only to be told later that their job has been
eliminated because their skills are no longer current, I don't see
any point to holding 'who has it the worst" debates.'"
- "wylie_quixote" comments on an "implied passive resistance to
capture of 'Intellectual Capital' from employees. Excerpt: "This collection of
good work experiences and skills expression documentation was/is a
pet project for a subspecies within the company who serve
management's lust for an employee-less operation, or at least a
logical extension of the less-is-better-when-it-comes-to-headcount
school. Those in consulting work are familiar with these collection
tools. New hires desperately study this database of seasoned veteran work
product in order to more quickly understand what customers expect,
however, two other purposes are met in these databases."
- Lee Conrad comments. Full excerpt: "I would suggest that IBM employees are at a crisis point more serious
than when the pension change took place. Wholesale firings are
rumored (and have already happened), the selling off of business
units, and the paralyzing affect it is having on employees needs a
collective response similar to 1999. How long can employees be pushed
against the wall before something breaks? Where is the lower level
management revolt and leadership? Where is the outrage at billions in
stock buybacks as employees and their communities get trashed?"
- CPR comments on "wylie_quiote's" message about Intellectual Capital. Excerpt: "Patents and disclosures for
engineers and programmers, methodologies for consultants and the
signature selling process for sales. All have one objective: to
collect what's in your brains, package what sets you apart from a
cheap 22 year old straight off the H1B Visa line, ship or college.
Once that's done, you're dead meat, as you aptly stated." ... "Well, we hear the riders of the apocalypse riding into RTP. Time to
go home now and sharpen our scythes. The work of the grim reaper's
unwilling assistants is never done. Does anyone have Schindler's (oops I meant Palmisano's) list of those who will be spared?"
Public Broadcasting System, I Cringely, the Pulpit: Fixing IBM. Big Blue has big problems. Excerpt: "I don't know Sam Palmisano and I don't know what are his two techniques for managing a turnaround, but I have a fairly good idea of what needs turning. Just the little billion dollar mistakes that Gerstner never got to or, more likely, didn't even know were there."
- New York Times: I.B.M. Chairman Lines Up a Book Deal for Himself. Excerpt: "Louis V. Gerstner Jr., the chairman and former chief executive of I.B.M., has discreetly negotiated a deal to publish a book about his tenure at the company, and, unlike most executive-authors, he has already quietly written much of it by himself." If link is broken, read Yahoo! message board version.
- CNET News: Laughing all the way to the bank. Excerpt: "Tough times have fallen on the tech world, but you might think it's still 1999 judging by the size of the executive compensation packages being bestowed on top management."
- The May 6 issue of Business Week featured several articles as part of a special report titled "The Crisis in Corporate Governance," all of which are worth reading. They include:
- How to Fix Corporate Governance. Excessive pay, corrupt analysts, auditing games: It all adds up to capitalism's biggest crisis since the trustbuster era. Excerpt: "In many ways, Enron and its dealings with Arthur Andersen are an anomaly, a perfect storm where greed, lax oversight, and outright fraud combined to unravel two of the nation's largest companies. But a certain moral laxity has come to pervade even the bluest of the blue chips. When IBM (IBM ) used $290 million from the sale of a business three days before the end of its fourth quarter last year to help it beat Wall Street's profit forecast, it did what was perfectly legal--and yet entirely misleading. That one-time undisclosed gain, used to lower operating costs, had nothing to do with the company's underlying operating performance. Such distortions have become commonplace, as companies strive to hit a target even at the cost of clarity and fairness." If link is broken, view Adobe Acrobat version [PDF--31 KB].
- Executive Pay. As the market cratered, executives went right on raking in the dough--as nearly 200 companies swapped or repriced their stock options. Excerpts: "CEOs of large corporations last year made 411 times as much as the average factory worker. In the past decade, as rank-and-file wages increased 36%, CEO pay climbed 340%, to $11 million. "It's just way off the charts," says Jennifer Ladd, a shareholder who is fighting for lower executive pay at companies in her portfolio. "A certain amount of wealth is ridiculous after a while."... "When CEOs can clear $1 billion during their tenures, executive pay is clearly too high." If link is broken, view Adobe Acrobat version [PDF--23 KB].
- The Board. A ban on stock sales by directors for the duration of their terms would encourage them to blow the whistle on management when necessary. If link is broken, view Adobe Acrobat version [PDF--23 KB].
Accounting. "When the SEC and the Justice Dept. get their act together and start sending some CFOs and CEOs to jail, you'll see a real wake-up call". If link is broken, view Adobe Acrobat version [PDF--22 KB].
- Analysts. Most stock-rating terms are part of an elaborate web of euphemisms. "Neutral," for example, means "dump this loser and run for your life". If link is broken, view Adobe Acrobat version [PDF--24 KB].
- Regulators. More transparency in decision-making could help restore credibility at an agency like the SEC. If link is broken, view Adobe Acrobat version [PDF--22 KB].
- Leadership. In the future, a CEO must set the company's moral tone--by being forthright, for starters, and by taking responsibility for any shortcomings. Excerpt: "While Enron's culture emphasized risk-taking and entrepreneurial thinking, it also valued personal ambition over teamwork, youth over wisdom, and earnings growth at any cost. What's more, the very ideas Enron embraced were corrupted in their execution. Risk-taking without oversight resulted in failures. Youth without supervision resulted in chaos. And an almost unrelenting emphasis on earnings, without a system of checks and balances, resulted in ethical lapses that ultimately led to the company's downfall. While Enron is the extreme case, many other companies show the same symptoms." If link is broken, view Adobe Acrobat version [PDF--23 KB].
- The Corporate Cleanup Goes Global. But not all reforms will follow the U.S. model. Excerpt: "For decades, U.S. executives and powerful fund managers have lectured the Europeans and Japanese about the need to run their corporations according to the transparent U.S. model. Now come the Enron and Arthur Andersen scandals, together with less sordid disclosures about questionable accounting practices at dot-coms, telecoms, and even blue chips such as General Electric and IBM." If link is broken, view Adobe Acrobat version [PDF--24 KB].
- ABC News: The Tarnished Years. Most Americans Will See Financial Shortfall in Their Retirement. Excerpts "An especially alarming finding in the study is that Americans' nest eggs shrunk even during the stock market boom. Between 1983 and 1998, when the Dow Jones industrials rose 777 percent, the median retirement wealth of Americans fell 11 percent, from $197,000 to $175,000." ... "The bottom line, according to the study, is that the shift away from company-managed pension plan to self-managed 401(k)'s has hurt many people. Explains Christian Weller of the Economic Policy Institute, which published the study: "The traditional benefit plans are safer in terms of retirement savings because
the individual will get a monthly benefit that is guaranteed by the employer, whereas with a 401(k) plan the individual is basically by himself."