What has IBM Wrought?


The CWA’s (Communication Workers of America union) Alliance@IBM Employees jobs cuts website has an interesting view of what’s going on inside IBM from its union employees in lieu of all the constant layoffs that are going on despite record quarterly profits.

Seems like no matter how good the quarterly numbers come in, more employee layoffs result in the U.S. and the number of employees increase in India and China.

In 2000, IBM had a U.S. workforce of 153,587; in 2014, it’s an estimated 83,000.

Lately, it looks like IBM HR is manipulating annual employee performance review scores as a way to cut workers and then skip paying full severance to those they  lay off.  This was GE CEO Jack Welch’s favorite way to keep employees on edge and goose up earnings.

It’s been a mess over at IBM since back in 1993 when Lou Gerstner was hired by the Board to run IBM.  One of his first actions was to cut 60,000 jobs to the tune of $8.9 billion in write-offs.

There continued to be layoffs throughout his tenure, but IBM kept numbers low enough to stay off the news programs and out of the main news pages; at one point IBM estimated that keeping layoff numbers just under 7000 per month would avoid excessive scrutiny and bad press for a company that was allegedly rebounding.

Gerstner was strictly a numbers guy.  He went to Harvard and came to IBM via McKinsey & Company management consultants, American Express, and RJR Nabisco. KKR (Kravis Kohlberg Roberts &Co.) is the notorious leveraged buyout firm who acquired RJR Nabisco  and installed Gerstner as its CEO.  The RJR Nabisco takeover inspired the book and movie “Barbarians at the Gate: The Fall of RJR Nabisco“, an ode to corporate greed and stupidity.  After the acquisition was completed, RJR Nabisco was broken up and sold off piece-by-piece until it stopped operating as a single entity in 1999.

While he was at IBM, Gerstner implemented a lot of gimmicks to increase the stock price and company valuation including enacting stock buybacks when the stock price was at its highest, which is a very stupid use of money, unless of course it’s being done to increase one’s own bonus.

In one of his numerous grabs for taxpayer dollars for corporate welfare, there was Gerstner was on-stage with Bush collecting a huge government handout (well over $1 billion) for “business interruption” compensation resulting from the 9/11 attacks.  IBM increased the amount of local, state, and federal tax breaks and subsidies it collected during Gerstner’s term.  Some states found out too late that IBM would grab the money and then close their facilities at a later date leaving people unemployed and taxpayers holding the bag.

In another Gerstner move, employees were classified as management (staff) in order to avoid paying overtime; most employees regularly put in between 50-60 hours per week for 40 hours pay.

One of his final acts was to convert pension plans from traditional defined benefit pensions to 401Ks. They did this over a weekend to attract as little attention as possible from employees.

That change resulted in long-time employees losing substantial amounts of their pensions and benefits.  It then resulted in a lawsuit filed by employees against the company, which IBM lost.  Some of the employees didn’t fare very well in the final settlement as they received pennies on the dollar in payouts.

But Gerstner made out like a bandit  because the Board awarded him $1 million a year for life in addition to his extravagant $190 million retirement package.

After the pension plan change, Gerstner “retired” in 2002.

As Ellen E. Schultz documented in her book “Retirement Heist“, one of the greatest hidden costs that doesn’t show up on balance sheets are executive management pensions.  These pensions in particular result in employee benefits being reduced or eliminated completely. Recently, some IBM retirees received notices that they are no longer covered by the company health insurance plan, and now they get to use the marketplace with its higher rates and prescription prices.

This is business in America today.  It’s all about maximizing “shareholder” value.

Except that in this case “shareholder” is not the people who hold common stock; it’s the executives with stock options.  They like to think of themselves as the “owners” of the company.

Subsequent IBM CEOs Sam Palmisano (2002-12), and now Ginni Rometty (2012-present), have continued with the slash and burn approach Gerstner started.  Palmisano retired in 2012 with a lavish retirement package estimated at $271 million.

IBM has become a dysfunctional shadow of it’s former self, and its misplaced priorities are killing its reputation (which it spent decades building) along with its’ culture and the company itself.  The employees are bearing the brunt of this for years of bad management decisions that, in effect, seem designed to position IBM for eventual breakup, sale, and closure, thereby reaping the most money for the players involved.

Today, it’s not uncommon to see a report about IBM and shoddy work for a customer.  That’s what happens when experienced people are cut, and shortcuts are used with inexperienced people and outsourced work. Quality suffers and customer satisfaction declines.

Back in the 1930s during the Great Depression, the founder of IBM Thomas J. Watson, Sr. would not lay people off despite the horrendous economy back then. Eventually, he convinced the U.S. Government to let IBM process Social Security payments, which started the growth of IBM.  Out of FDR’s New Deal approach of government investment, IBM found a way to survive and grew from that.

It shows us all today how different current business leaders are from their predecessors. It also shows how short-sighted today’s leaders are and how devoid they are of the skills and thinking needed to run a business for the long term.


Note: Lou Gerstner became Chairman of The Carlyle Group from 2003-2008, and remains a well-paid senior advisor.  As you may know, The Carlyle Group became well-known for its ties to the Bush family.