Monday evening, the credit-rating agency announced that it put the municipality, home to IBM's sprawling microchip plant and high-tech research center, on a negative outlook for its bonds. Moody's cited the potential departure of IBM, the town's largest taxpayer, as one of the reasons for the negative outlook. Moody's did not change the municipality's current credit rating, Aa2, even though it put it on a negative future outlook. ...
IBM has no comment. A call to East Fishkill Town Supervisor John Hickman Jr. was not immediately returned. IBM spokesman Doug Shelton said in an email that the company does not have a comment on Moody's valuation. Regarding a possible sale, Shelton said IBM does not comment on "rumor and/or speculation."
While IBM's role as a chipmaker is debated inside and outside the company, all sides agree on one thing: For decades the company has been a leader in semiconductors, developing technologies that gave it an edge and pushed the industry forward.
Despite its technical prowess, IBM should go fabless, some argue, claiming the company has under-invested in its two fabs for several years. The chip business hasn't fit IBM's corporate business model for years, they say.
On a human level, employees in IBM's chip division say they are shell-shocked by multiple rounds of layoffs. They see a sale as a possible resolution after living under a cloud for years.
"Layoffs came in waves and there are rumors they are still coming -- I lived through so many of them," says a former IBMer laid off in July 2013. "It's a tough environment where people are always nervous about what's coming next. It's not fun anymore."
A current employee recalls how one colleague used a forced unpaid week off in 2013 to work on his résumé and ultimately left for Qualcomm. "We've lost a lot of people to Qualcomm," says the IBM veteran who asked not to be named.
A former employee reports some IBMers have gone to support Intel's growing foundry business; another said many former colleagues are now at AMD and Freescale. GlobalFoundries recently said it has hired on a temporary basis "200 experienced engineers and managers to support its current Fab 8 ramp" in upstate New York from May to December 2014.
Another former employee laid off in July shared two common complaints: IBM has not spent the money to keep its fabs up to date; and it has done a poor job communicating its plans to staff.
"They really are not transparent down to the trenches as they used to be," he told us. The Burlington fab "has been treated as a cash cow with minimal investments and maximal extraction."
"They just haven't invested [in the fabs] to the point where now they have to sell them or exit the business," another former employee says.
That’s the big news coming out of a recent report from the Aspen Institute which convened a cross-section of business thought leaders, including both executives and academics. The report’s most important finding is that majority of the thought leaders who participated in the study, particularly corporate executives, agreed that “the primary purpose of the corporation is to serve customers’ interests.” In effect, the best way to serve shareholders’ interests is to deliver value to customers. ...
Instead the report celebrates the “common ground among all participants,” both those who support shareholder primacy and those who reject it. The common ground is said to be that “short-term decision making is the bane of American business and requires remediation to mitigate its most pernicious effects.” ...
In fact, when self-interested shareholder-value thinking is applied in a long-term plan to maximize earnings per share, as in IBM’s Roadmap 2015, it is even more self-destructive than shareholder value operating short-term, quarter by quarter, as explained in my article, Why IBM Is In Decline. ...
It allows the supporters of shareholder value to claim that it has been good for business and society without ever being asked how that squares with the known problems of the shareholder value doctrine, namely:
If you are wondering why so many bright highly educated people have gone along with such a bad idea for so long, you could be cynical and say, “Follow the money.” You could note that in the period 1978 to 2013, while the rates of return on assets and invested capital in US firms declined by around 75 percent, CEO compensation increased by an astonishing 937 percent, while the typical worker’s compensation grew by a meager 10 percent. As Upton Sinclair noted long ago, “It is hard to get a man to understand something when he is being paid not to understand it.” ...
“If [corporations] make it their purpose to maximize shareholder value, shareholders are likely to suffer because that cravenness turns off customers, employees, and the world in general. If they make it their purpose to serve customers brilliantly, be a fabulous place to work, and contribute meaningfully to the communities in which they operate, chances are their shareholders will be very happy.” The key is to see that it’s not a tradeoff. ...
The fundamental flaw in this argument is brought out by the example of IBM, which no one can accuse of being short-term in its focus on shareholder value. For almost ten years, IBM has, through Roadmap 2010 and Roadmap 2015, been relentlessly focused on increasing earnings per share and so increasing its stock price, by whatever means necessary.
The result? Relentless cost-cutting, automatic culling of more costly experienced staff and a resort to cheaper expertise, declining technical competence, stifling bureaucracy and increased rigidity caused by the effort to make fixed earnings targets no matter what, an inability to innovate and a consequent reliance on acquisitions rather than innovation, resort to financial incentives to induce performance, plummeting staff morale, an imploding business model and a broken future strategy.
As revenues fall, IBM’s higher earnings targets are met through relentless cost cutting, tax reduction gadgets and share buybacks funded by borrowing. While IBM’s share price soars, as the top managers and big investors extract cash from it in a weird kind of reverse-Ponzi-scheme, IBM steadily becomes an increasingly unproductive shell, a mere shadow of its once truly-innovative self. As a triumph of financial engineering, IBM “makes money from money,” while its future is being systematically destroyed. How many more of such disasters will we have to witness before the shareholder primacy idea finally dies?
Selected reader comments follow:
The Watsons@IBM focused primarily on the Customer/Product/Employee and shareholder value resulted because of it. The cart was not before the horse as it is today. The customer focus and focus on service gave birth to the saying “You cannot be fired for selecting IBM.” Today, after many public IBM customer failures such as the PA UCC debacle: Pennsylvania Won’t Renew IBM's Contract for Botched Project.
You could be fired as a matter of principle, for selecting IBM. The wealth extraction in IBM seems to have created huge disinvestment in product and employees that in turn will create further disengagement. Disinvestment in the employee and the constant layoffs will, in my opinion, create rapid turnover that created the PA UCC/IBM disaster.
Jack Welch’s “dumb idea” has, I believe created a zombie state within companies, that are functioning but may have died many years ago as it relates to passion, innovation, employee loyalty and creating future pipelines of revenue. Jack Welch’s push for share holder value has created a situation that corporations like IBM are not only killing the goose that lays the golden egg (future pipelines), but have proceeded to to sodomize it first.
When the idea that a company’s function was nothing more than returning the highest amount of dollars they could to shareholders they lost site of the other things needed to be successful. In itself maximizing shareholder value is not counter to the idea that a company must meets the customers needs. What made it detrimental was these same people said the only way to accomplish maximizing shareholder value was to align executive pay with those of the shareholders. The result was stock based compensation which shifted a company’s need to look long term to a short term income view of the executives. Making a little less today for much more in 5 or 10 years would no longer be done because the executive was more interested in maximizing his stock options than the long term health of the business.
It is good to see folks are starting to look business ideas that we once had but unless they reform the compensation policies to go with it we will still have short term perspectives that gut companies until the y are no longer viable.
But new survey data from WorldAtWork, a nonprofit association for human resources professionals, offers promising news for workers looking to pull down more cash. According to the report, companies are implementing bonus programs in 2014 more frequently than they were in 2010, the last time the organization surveyed employers about this topic. ...
It seems likely that there are two key reasons why employers are upping their investment in bonus programs. As the national economy improves, companies have renewed confidence that they’re on safe enough financial footing to offer this perk. And it’s also likely a sign that the competition for top talent is intensifying as workers, too, feel more confident about the job market and are willing to jump ship to other opportunities.
The most profitable things you have to have for large market share are either disruptive to incumbents – new and fresh [ideas] – or you have to have built some form of significant market share and just look to extend your lead.
I’ve come into different organizations at different life cycles. And a friend of mine at VMware told me, ”Culture eats strategy for breakfast.” Culture in a company is formed early on, and it’s difficult to take a bad culture and turn it into good, but it can be easy to take good culture and move it into a company that is not as innovative.
We’ve thought about it very carefully and the employees come first. If you do that, customers will have a wonderful experience. Happy employees create happy customers. And ultimately you will have happy shareholders. We try to tell people not to focus on the stock price. If you continue to innovate and improve performance, the share price will ultimately take care of itself.
Alliance reply: Endicott is also heavily affected by the pollution or "plume" of toxic chemical waste (TCE) that lurks under nearly 300 acres of the Village of Endicott. Most of it is IBM's waste from 40+ years of releasing, dumping and spilling the waste; either accidentally or otherwise. The clean-up of the former IBM Endicott facility has been underway since 1979—and it's still going on. In spite of that 24/7/365 activity, there is still a significant amount of toxic waste to be cleaned up. The Federal government assigned this site as a Superfund Class 2 situation, in 2004.
The question that should be asked by the East Fishkill community is: What kind of pollution is IBM leaving behind there?
Of course IBM will deny it as "without merit".
BTW: IBM was asking Dutchess County to reduce the price it paid per gallon of water delivered to EFK by the pipeline under the Dutchess Poughkeepsie Railroad rail trail since it contained to much urea (a nature waste product produced by mammals (i.e. humans) and IBM contended it was "too contaminated" to be used in EFK even though the urea level was well within environmental limits. Reckon IBM wanted the water for about free...as "settlement" of tax on the water supply. -Pok'edEFK-
We only have history to show from the PC sale. However, there is a huge difference. Lenovo had a complete PC division already and wanted the name and sales channels. It is different with the x86 business. They have almost no footprint and duplication of work. All I know is that we are leaving a terminally cancerous company to a company that is greeting us with open arms and potential. -Off-to-Lenovo-
After they have the IP and know-how the agenda will quickly become "how fast can we move x,y,z to China for cost savings". Think TSTL history on a grander scale.
Are you paid at market value? I'm not. And people are supposed to be happy with a "comparable offer"? What is the incentive to transfer, continued employment and a shiny new cubicle? ror Lenovo and IBM appear to have the arrogance of thinking they have the employment market cornered. And I wonder why the CFIUS approval hasn't been granted yet; hmm. Just like Uncle Sam very well may do, I think I'll pass. -GutterOil-
What else can they take away besides 401k match, pensions, LTD, STD, vacation, bonuses, promotions, future health account, US Jobs, and increased cost for LTD, STD, health, dental and other standards. Join the union now before it's too late. -Anonymous-
Alliance Reply: It has been verified through health studies by the National Institute of Occupational Safety and Health (NIOSH) and the NYS Dept. of Health that the cancer rate for Endicott village residents and IBM workers is 2 to 3 times the rate compared to a general population not living or working in that area. However unfortunately, it cannot be scientifically proven that the cancers are directly caused by the toxic waste.
There is a $100 million lawsuit pending and investigations of the site for persistent contamination is on-going (which began with a clean-up of a chemical spill in 1979). There are citizen groups and government agencies still involved in the clean-up and the recovery of this Class II designated Superfund site.
For more information, please visit this Facebook page: https://www.facebook.com/WBESCoalition and our health & safety page here: http://www.endicottalliance.org/ultimatetakeaway.htm
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