Black and Blue
Dissident stockholders take another swing at IBM
It's a long, slow escalator ride up to the fifth floor of the Rhode Island Convention Center, a cavernous glass and steel structure in downtown Providence, site of the April 27 annual meeting of IBM stockholders. Providence was an unexpected choice of cities for Big Blue, or so I'm told by Ralph Montefusco of Burlington, who's outside the convention center protesting IBM's offshoring of jobs and cuts in employee retirement benefits. This is a fiercely pro-labor city, he points out, and a short drive from five major IBM facilities in New York and New England. As a result, Montefusco is predicting one of the largest demonstrations ever at an IBM stockholder meeting. "Honestly, I don't why they picked Providence," he says. "We kept expecting it to be in Kuala Lumpur or something."
Montefusco spent more than 18 years at the IBM plant in Essex Junction before taking his current job as national organizer for the Alliance@IBM, an Endicott, New York-based union that represents more than 6000 IBM workers nationwide. The Alliance didn't start in Vermont, but Vermonters have taken it to heart. Montefusco and several carloads of other former and current IBMers made the four-hour drive from Burlington. A stockholder meeting is the closest thing corporate America has to Town Meeting, which may explain why Vermont's IMBers aren't shy about standing up and confronting their CEO. In fact, on many of IBM's most controversial issues -- executive compensation, age discrimination, cuts in pensions and retirement benefits, job outsourcing -- those leading the charge for reform at Big Blue are often Vermonters.
Within a minute of entering the convention center, I'm approached by four security guards who advise me that, despite my press credentials, IBM doesn't allow cameras, cell phones or recording devices of any kind inside. As if the verbal warnings and large posted signs weren't clear enough, a muscular man wearing a suit and an earpiece greets me at the top of the escalator. He politely but firmly directs me to a table where I surrender my cell phone and tape recorder. Then I proceed up another escalator and through a metal detector.
I am one of some 700,000 IBM stockholders worldwide. Like most of them, I've never attended a stockholder meeting before. But the tight security isn't surprising. After the company made dramatic changes in its employee pension plan in 1999, several hundred police were called in for the 2000 stockholder meeting in Cleveland, where hundreds of IBM employees demonstrated. "IBM is a control-freak corporation. They don't want to be surprised by anything," says Lee Conrad, national coordinator of the Alliance@IBM.
After clearing the security hurdles, I enter a cathedral-sized conference room that can hold 1800 people. But according to an IBM official, only 354 stockholders have shown up, many of them senior citizens. Bunched near the front of the room, they are bathed in the warm, blue glow of the IBM logo emanating from the two giant video screens that flank the podium. Plain-clothed security personnel are positioned throughout the room, as are four TV cameras and several directional microphones peeking from behind the front curtain. Evidently, recording devices are allowed inside -- provided they're manned by IBM personnel. Later I learn that the only record of this meeting released to stockholders or the press is the CEO's speech.
IBM Chairman and Chief Executive Officer Samuel Palmisano has just begun his opening remarks when he is interrupted by the shouts of several stockholders. They are angry that the agenda shows the question-and-answer period scheduled for after the meeting is adjourned. This prevents the audience from debating the various stockholder proposals -- all of which, incidentally, the board unanimously opposes -- before they're voted upon. It also ensures that the minutes of the meeting won't include those comments. A smattering of voices seconds a motion to move up the Q&A period.
Palmisano ignores the motion, but tells the audience that he is looking forward to an "open discussion" at the "town hall meeting" that will follow this one. He tries to continue but is again interrupted, this time by a short, elderly woman speaking through a microphone in a thick, Eastern European accent. "Sam, I attended my first stockholder meeting back in 1959," begins Evelyn Davis from Washington, D.C. She's a frequent corporate gadfly at stockholder meetings.
"Mrs. Davis, we've missed you," says Palmisano, trying to smooth over the interruption. Undeterred, Davis keeps talking. Someone in the back shouts, "Out of turn! You're speaking out of turn!" and others take up the refrain. Finally, a man yells, "Are you able to control this meeting? Sam, control this meeting!"
Suddenly, there is a whiff of spectacle, as if the day's proceedings might not be as orchestrated as they first appeared. The official business of this multinational corporation, number nine on the Fortune 500 list, has been halted by the owners of a few dozen shares of common stock and a copy of Robert's Rules of Order. They're like angry parents storming a school board meeting to restore funding for the cheerleading squad.
But the fireworks quickly subside. Palmisano allows the elderly stockholder to speak her piece, occasionally engaging her in friendly banter, until an usher cordially escorts her out of the room.
Palmisano moves on to the other stockholders' proposals. He introduces James Leas, a South Burlington patent lawyer who worked as an IBM engineer for 20 years before he was laid off in August 2002. Leas' proposal demands that the company end its retirement policy and allow IBM employees to choose among the pension and retirement packages that were in effect prior to changes made in 1995 and 1999. Leas cites a July 2003 federal court ruling that those changes violated federal age-discrimination laws and could cost the company as much as $6 billion.
"Mr. Palmisano, the court found that you and [former IBM CEO] Lou Gerstner knew you were engaged in illegal action," Leas says. Those cuts, which affected tens of thousands of IBM retirees, weren't made to save the company money or to benefit stockholders, Leas contends. "What if the real purpose of slashing pensions was to use what was then a little-known accounting rule... to inflate IBM's profits with 'vapor profits' from the pension fund and boost executive pay?" he asks. "That is stealing. That is illegal. And that should be stopped."
Leas' comments draw applause, but Palmisano responds with only cursory answers. This was a civil case, not a criminal one, he reminds the Vermont attorney, and no one was convicted of any criminal wrongdoing. Moreover, Palmisano notes that he was never personally mentioned in that lawsuit, and won't comment further on pending litigation. Later, we learn that Leas' proposal garnered more than 141 million votes in stockholder proxies. But since most are submitted in advance and the board of directors recommended against the proposal, it is defeated by an almost eight-to-one margin.
As other stockholders take the microphone to explain their proposals, I thumb through the IBM annual report, which I received in the mail a month ago. Its glossy pages feature the smiling faces of corporate executives and satisfied IBM customers who are "extending the boundaries of the IT industry" and pushing the company's per-share earnings ever higher. But the portrait of IBM being painted by its owners in the room seems a paler shade of blue.
One stockholder proposal is calling on the company to protect the human rights of IBM employees in China and to guarantee that the company doesn't employ children, prisoners or slave labor. It demands that IBM prohibit the use of physical, sexual or verbal harassment and abide by environmentally responsible means of production.
Another resolution asks the board to "provide full and transparent disclosure" of all forms of executive compensation, including future stock options, bonuses, retirement benefits and other perks that remains hidden from all but the most astute decipherers of financial documents.
Yet another demands that IBM report all contributions the company makes to political candidates, parties, election committees or other campaign-fundraising entities. A political scandal now brewing in the British press involves allegations that an IBM subsidiary installed software for Britain's Labour Party at a highly reduced price.
In all, eight resolutions are introduced. All of them were unanimously opposed by the board. After little discussion and no debate, ushers dutifully collect ballots from around the room. All but one proposal -- about expensive stock options -- are defeated. Despite the impassioned speeches of stockholders, some of whom have traveled thousands of miles to be here, there is a sense that the outcome was determined months ago.
Next, Palmisano launches into his report on the health and vitality of IBM. The rosy picture he paints is peppered with statistics showing vigorous cash flows, double-digit increases in revenues and earnings, and blue-sky economic forecasts for 2004 and beyond. There are a few oblique references to the issues that have protesters marching outside, but topics like job outsourcing, rising health-care costs and cuts in retirement benefits are largely glossed over.
"I think you would agree," Palmisano tells the audience, "that IBM today is not the same company it was just a couple of years ago." A woman wearing an IBM employee badge shakes her head and mutters, "You got that right."
The presentation ends with a video featuring some of IBM's 320,000 employees in 160 countries. The lights dim and a voice asks, "What is the value of a company?" What follows is a global cross-section of IBM workers, shot with quick, MTV-style edits and rapid dissolve focuses. An African-American man appears on screen, followed by a French woman, then a dark-skinned Indian man. A Chinese woman comments on juggling family and career and gushes about how IBM is "helping China become more competitive." "To ask me why I love this company -- and I do -- is a rhetorical question," she says.
Interspersed among the globetrotting interviews are shots of computer-chip manufacturing lines and black-and-white footage of 1960s-era computers -- this is the 40th anniversary of the first IBM mainframe. It's a slick production, set to an upbeat soundtrack.
But even before it's over, several folks wearing IBM-employee badges slip out the door and head downstairs to the rally. One of them is Sharon Stevens of Burlington, a 19-year IBM veteran. She says she couldn't watch any more. "That's just too much syrup for me."
Stevens is one of the Vermont IBMers who, in 1999, lost part of her pension and all of her retirement medical coverage. "It's been a struggle to stay with them for the last three years, realizing how little they value their employees," she says. "At the old IBM, you knew you were taken care of. There were family events, and your time at work was valued. Not anymore."
Outside, a picket line has formed in front of the convention center, where some 50 people carry signs that read, "All that harms labor is treason," and "Betraying America isn't personal, it's just business. End job exports, IBM." Someone with a bullhorn is leading a chant of, "Outsource the CEO! Outsource the CEO!" These aren't young agitators -- many of the protesters are in their sixties, seventies or older.
While the turnout isn't as large as organizers predicted, the press coverage is considerable. CNN has set up a satellite truck down the street, and several print and TV reporters are interviewing the marchers, many of whom are from Burlington.
Among them is Pat Jocelyn, secretary and director of communications for BenefitsRestoration@IBM, a Burlington-based nonprofit organization that is fighting to reinstate lost pensions and retirement benefits. The group formed last December following Rep. Bernie Sanders' Essex Junction town meeting which drew more than 200 Vermonters. Already, the group has some 2000 members in 42 states and three countries -- including 500 members in the Burlington area alone.
Jocelyn cites the example of one retiree in California who left IBM five years ago. After 40 years with the company, he earned a monthly pension of $1250. But ever since IBM upped the cost of his medical benefits, he's been getting less than $200 per month. And his isn't the worst case, Jocelyn notes. She has heard from other IBM retirees whose medical costs are so high that they now receive a bill from IBM in place of a pension check. Earlier this morning, Jocelyn stood up at the shareholder meeting and asked the CEO if IBM has implemented an accounting system that bills its retirees. She never got an answer.
"The kinds of things that are happening at IBM are not just happening at IBM. It's a symptom of what's happening across the United States," Jocelyn says. "We can try to take IBM to court and win through litigation, and maybe that will work, but it'll take years. However, we think it's going to be much more effective if we work through litigation and change the laws."
Other Burlington IBMers have similar stories to tell. Earl Mon-geon has worked at IBM Burlington for 25 years and also belongs to the Alliance@IBM. He works with a man who has seven children and would be paying more than $800 each month for their insurance coverage. But as the family's only breadwinner, he can only afford to carry his wife and oldest child on his policy. As a result, the rest of his kids get their health insurance through Vermont's Dr. Dynasaur program.
Mongeon says this is his fifth trip to a stockholder meeting since IBM cut its pension benefits in 1999. I ask if it's hard for him to confront his company's top bosses. Mongeon admits he's not comfortable speaking in front of large groups, and was too intimidated at his first stockholder meeting in 2000 to get up and speak. But the following year, in Savannah, Georgia, he challenged then-CEO Lou Gerstner on his executive retirement package.
"I said to him, 'You'll be getting over $1 billion from the company, you've got 100 percent medical coverage for yourself and your family, and a $1.1 million pension,'" Mongeon recalls. "As soon as I made that statement, my microphone was shut off. You want to talk intimidation? I was just shaking." These days, Mongeon feels differently. "You got something to say, you just say it."
Protesting alongside Mongeon is Al Maitner, who worked at IBM for 33 years. A Williston resident and a member of the Alliance@IBM steering committee, Maitner says he is more fortunate than many retirees because he got out in 1993, before the retirement package was changed. Maitner, who worked under every IBM CEO but one, says he's troubled by the changes in the way the company treats its workers.
"The quality of the company from a sensitive, people-oriented standpoint, which once said, 'You treat us right, we'll treat you right, work hard and you'll be rewarded,' that's all gone now, and it's heartbreaking," he says. "In Burlington, the morale is terrible. People are just hoping and wishing they can make it to their retirement."
After a handful of speeches, the rally breaks up and the news crews drift off. I follow a group of Vermonters who are making their way to a downtown pub for lunch before driving home. Among them is Glenn Taulton of Burlington; the 52-year-old lab technician has been with IBM for 16 years. He explains that his job is failure analysis -- examining faulty computer chips at a microscopic level to figure out what went wrong. "It saves the company millions of dollars and helps them put out new products," he says, with obvious pride.
I ask him if morale is really as bad as others have suggested. It is, Taulton says. "I know people who have 20, 25 years at the plant who took jobs driving taxicabs, or they're working part-time jobs at Home Depot or Wal-Mart," he tells me. "I'm talking about technicians and engineers. It's sad." Others, he notes, have had to commit to working 60 to 70 hours per week. "And if they refused to do it, they no longer had a job," he says. "I don't like that kind of commitment."
Like Mongeon, Taulton was intimidated at first about speaking out against IBM's corporate policies. It's particularly true for him as an African-American, he says. Many minorities are afraid of rocking the boat. "Sure, I was concerned about my job. I was concerned about them back-dooring me and firing me," he says. "But at the same time, I wasn't concerned enough not to do it. In my case, I made a decision that I would be one of the people who spoke up for other workers."
This is a common theme among Vermont IBMers. Although they feel angry and betrayed by the company that once promised to protect them like family, they also have a strong sense of pride in their work. Vermont's IBMers, as CEO Palmisano said during the meeting, are "the superstars" of the company, the ones who have solved tough technological problems when others in the company could not. A stockholder meeting may be little more than a well-choreographed play whose ending is all but predetermined, but some IBMers, at least, are trying to rewrite the script.