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    Highlights for week ending August 24, 2002
  • New Jersey Star-Ledger: Shipped out. The story of how AT&T moved 3,500 workers to a new 'career' at IBM -- knowing it wouldn't last. Excerpts: "In his short, unhappy career at IBM Corp., James Fusco never imagined anything could be worse than the day this spring when he learned he was being laid off. Then his boss asked him to work weekends during his final month on the payroll." ... "The workers were a key part of a $4 billion deal in which IBM would handle systems supporting AT&T's business customers, such as billing and data processing, and AT&T would manage Big Blue's phone systems. The 3,500 software developers were told they would keep their seniority. They would have roughly the same benefits. Many would work in the same offices. The change would amount to little more than jumping from AT&T's payroll to IBM's, a swap of employee ID cards between two of the most important companies in the world." ... "AT&T programmers said they were left in the dark about one of the most important details of the plan: from the start, the two companies planned to farm out much of their work to Canada and India. And when push came to shove, they said, the deal provided perfect cover to dispatch them quietly. Or, as Fusco put it: 'AT&T essentially hired IBM to be the hit man so they would be the bad guys.'" If link is broken, view Adobe Acrobat version [PDF--29 KB].

  • Poughkeepsie Journal: 15 more file age-bias claims against IBM. Vermont looking into worker firings. Excerpt: "''I don't think (IBM spokesman) Mr. Couture or anyone could argue that these numbers do not represent a prima facie case of an appearance of age discrimination,'' Hayes (Vermont Attorney General's assistant for civil rights) said. Her agency will, in each individual complainant's case, ask IBM to 'demonstrate that there was a proper nondiscriminatory reason.'"

  • Dallas/Fort Worth Star-Telegram: New gray area. Displaced older workers find age bias a formidable hurdle. Excerpt: "Despite a decades-old law that prohibits age discrimination, older workers routinely find it more difficult than their young counterparts to land new jobs. And the economic slump and widespread layoffs of the past year have worsened their predicament."

  • Cincinnati Business Courier: GEAE workers file class-action suit. Excerpt: "A group of General Electric Aircraft Engines workers have filed a proposed class-action lawsuit against the company alleging violations of federal and state labor laws." ... "The suit claims that employees must record any tardiness and full- or part-day absences for apparent 'record-keeping purposes,' but the company's computer system automatically deducts the time from vacation time or salary. The suit states that the deductions are reimbursed only after employees bring the matter to the company's attention. In addition, the suit alleges that employees are expected to work overtime hours, but GEAE does not compensate them because it says they are exempt employees."

  • Linda Guyer speculates on why Hitachi can probably make the disk drive business it bought from IBM profitable. Excerpts: "I would guess there are less than 11 layers of managers between the workers and the CEO." ... "Lou's contract guarantees him use of the corporate jet for the next 10 years, plus a consulting salary, plus his $1.1 million/year pension (like he really needs that), and probably his personal chef, too. Gotta pay for that overhead."
    • "survivor_too" comments further. Excerpt: "Steve's got it right! The question should not be what technologies IBM didn't invest in and hence missed opportunities, but what the company did with the cash they had to invest. Try $45B in stock buybacks in the last 5 years - most of the buybacks when the stock was near a peak. I guess there wasn't any technology worth buying at that time, huh?"

  • "ibmresearch" suggests that IBM was deeply involved with "services" long before Lou Gerstner came on the scene. Excerpt: "All Gerstner did was change the direction from segmenting and selling the divisions off to one of bring them all together. The public excuse was to protect the brand, but the real reason was in accounting, asset conversion to revenue (a la JDSU) overfunded pension exploitation and credit line development. All this was necessary to save the investors and pay off the tax bills due in the UK (see the POK Journal and WSJ), and keep the illusion of massive growth where there really was very little. The problem is once you start down that path, the ball (lie) gets bigger and bigger. So big that the sale of IGN to AT&T only satisfied the growing revenue monster for a year or so. The job of Gerstner was to save the then large investors, not to save the company. That was his specialty. AMEX and RJR Nabisco performance post Gerstner are the pre-IBM historical record. The key to IBM surviving like AMEX did is a matter of luck and a good brand that wasn't too damaged with Abby/Gerstner projects like the Amex Optima Card and Nabisco Planters."

  • New York Post: Pension Blowup is Next. Excerpts: "Here's what happened: Companies were just as stupid as everyone else during the stock market bubble and they became dependent on abnormally large investment gains to keep pension tills full. But that trick isn't working anymore. And, according to an important new Merrill Lynch & Co. report, of the 346 companies in the S&P 500 index that have old-fashioned retirement plans, 82 percent were overfunded by just $1.1 billion at the end of last year. That's an incredible drop from the $215 billion overfunding level at the end of 2000." ... "Merrill Lynch says the companies with the greatest underfunding when health care costs were included are General Motors, Ford, Exxon Mobil, Delphi Automotive Systems, DuPont, SBC Communications, Boeing IBM, Philip Morris and AMR Corp."

  • Reuters Market News: Pension payment seen as a drag on S&P500 '03 earns. Excerpt: "Investors concerned about how corporate accounting for stock options will hit profits have a new worry about bottom-line subtraction -- pension fund accounting. 'Stock options is very popular now, but pension accounting will be the next very big topic out there,' Howard Silverblatt of Standard & Poor's quantitative research group said. 'It'll be even bigger than options next year as we'll start to see more companies putting cash into their (currently under-funded) pension funds. That will hurt companies.'" ... "S&P 500 companies whose earnings last year were boosted more than 10 percent with pension income include BellSouth, Boeing, IBM , Marsh & McLennan, SBC Communications and Con Edison , according to Merrill Lynch."

  • Dow Jones Newswire: Getting Personal: Retirees Struggle With Pension Payouts. Excerpt: "When it comes to your defined-benefit pension plan, your toughest decision may be in how to tap that nest egg. In the past, employees had little choice but to take the money in regular installments. But as early as 1997, about one in four employees could grab the money in one lump sum, according to the Bureau of Labor Statistics. This has people wondering if they should take the money in one shot and, if so, how to invest it. The growing array of investment opportunities - from annuities to IRAs - can make the process feel overwhelming. Adding to the confusion, employees can face tremendous pressure from commission-hungry financial firms to invest that money in stocks, bonds or insurance. As a result, it has become more important than ever for investors to do their homework, and to understand the guidelines recommended by experts."

  • Barrons: The Pension Situation May Hamper Market. Excerpt: "There's a hidden problem for investors lurking in the nation's pension plans -- specifically the old style plans that promise to pay a retiree a regular amount such as $700 a month for life. Despite all the focus on self-driven plans such as 401(k)s, workers at a lot of big companies still rely on the older, 'defined benefit' pension plans. And here's the rub: When these companies sit down to decide if their pension funds hold enough money to meet current and future obligations, many are still assuming they can get double-digit annual gains as they did when the bull market held sway, according to Michael Hirsch, a principal at Lynnvest, a division of Advest, a Hartford, Conn., financial-services firm."

  • The United Kingdom "IBM C-Planners' Web Site has a new name and a new URL. It's now The Association of Members of IBM UK Pension Plans (AMIPP). An excerpt from the site's home page follows: "IBM's pensions in payment (PIP) practice has been the worst of all comparable companies. It turns out that this is not due to affordability, but to a mechanical rule for degrading the value of pensions, irrespective of economic conditions or what other companies did. This transition from 'One of the Best', in practice and predicted, to actually 'One of the Worst' took place after many people had retired. In the midst of this, an extreme action of totally changing the nature of the pension plans was made, perhaps illegally, without as much as advising the scheme members about how it would be funded. The manner in which these changes were put through the Pension Trust board, with U.S. headquarters monitoring that U.K. board and appointing U.S. executives to it, so that the changes reflected U.S. requirements rather than English notions of 'fair play', was exceptional.

 

Articles about corporate governance:

  • Associated Press: Ex-Enron Executives Seek Extra Pay. Excerpt: "Among a group of laid-off Enron workers who are asking a bankruptcy court for extra pay are five insiders who reaped $7 million in the year before the company's collapse. They include the wife of former chief executive Jeffrey Skilling."

  • New York Times: The Outrage Constraint, By Paul Krugman. Excerpt: "The high pay of America's C.E.O.'s reflects intense competition among companies for the best managerial talent. Stock options and other typical forms of executive compensation are designed to provide incentives for performance. These incentives align the personal interests of managers with those of shareholders. Nothing in the preceding paragraph is true. That's the message of an extraordinary research paper circulated by the National Bureau of Economic Research, an economics think tank. The paper is must reading for anyone trying to understand what's really going on in our economy."
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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