Folks,
Here is the text of my speech to the IBM stockholders' meeting
yesterday in Providence, Rhode Island in support of Resolution 6,
the "proposal on pension and retirement medical." It got 14% of the
vote. Don Parry's Resolution 7, on not including vapor profit in
determining executive compensation got 37.5%. Remarkably, the
building trades union's Resolution 8, on expensing stock options got
53.6%. Janet Kruger's Resolution 9, on disclosing all executive
compensation got 15.7%, the teamster's union Resolution 10, on
political contributions got 11%, and Jim Mangi's Resolution 12, on
offshoring and reviewing executive compensation policies got 11%.
The rally after the meeting drew over 100 people. National media
covered the event, included CNN, CNBC, ABC, the Wall Street Journal,
and Businessweek. IBM employees and former employees participated
heavily in the meeting. IBM set up a separate meeting after
adjurnment so IBM executives Nick Dinofrio and Randy McDonald could
listen to about 100 IBM employees and retirees present their
concerns, mostly about retirement medical.
Jimmy
The Federal Court Declared Gerstner and Palmisano Guilty
Mr. Palmisano, members of the board, especially Mr. Vest, president
of my alma matar. I was an IBM engineer for twenty years during which
IBM patented over 30 of my inventions. For the last 9 years of my
career I worked in IBM's patent law department. I am presently a
patent lawyer in private practice in Vermont.
On July 31, 2003, in the class action case of Kathy Cooper v. IBM, a
federal court in Illinois declared that IBM had violated federal
discrimination law. But IBM stockholders were not convicted. Nor were
IBM customers or employees found guilty. Mr. Palmisano, you and your
predecessor, Lou Gerstner were responsible for making and maintaining
the decisions, and the federal court essentially convicted both of
you.
The court rejected IBM's excuses that the law changed and that
IBM did not know the law. From IBM's own documents Judge G.
Patrick Murphy stated that "IBM was aware of the age
discrimination issues that would come with the new cash
balance formula." The court said that indeed the plan's
actuaries told IBM of two separate ways that the cash
balance formula violated the law. Thus, from IBM's own
documents Judge Murphy concluded that "IBM . . . proceeded
[with the cash balance plan] with open eyes and was fully
informed of the consequences of the litigation that was sure
to come."
Mr. Palmisano, the court found that you and Mr. Gerstner knew you
were engaged in illegal action. While IBM's liability has now
been established, the judge has yet to rule on the remedy, which IBM
said could cost it $6 billion.
When you and Mr. Gerstner slashed long promised retirement pay and
retirement medical in 1999, you created an unprecedented groundswell
of protest among tens of thousands of IBM employees who were outraged
that IBM was stealing earned compensation from them when they were
old and most in need. Employees moved into action because IBM broke
its often repeated promises that retirement pay and retirement
medical insurance were a secure part of their earned compensation.
Covered by national media, massive employee meetings around the
country that summer led to a Senate hearing chaired by Vermont
Senator James Jeffords, stockholder resolutions, union organizing,
the class action law suit that employees won, and then a historic
vote in the US Congress last September.
The national protest campaign quickly had its first success. Days
before the Senate hearing on September 20, 1999, you and Mr. Gerstner
partially backed down, allowing about 35,000 additional employees to
choose between the pension plans. But even those 35,000 were not
satisfied because 60,000 of their colleagues continued to be forced
into the cash balance plan that halved their promised retirement pay.
IBM employees protested long and hard, not just for themselves and
their coworkers, but to protect the company, its values, its
customers, its stockholders, and to protect IBM from following the
path forged by other companies whose executives were engaged in
illegal action. IBM employees have a strong interest and a strong
desire to help IBM succeed. They put their heart and soul into their
work, and they have a wonderful tradition of helping each other. But
Mr. Gerstner and Mr. Palmisano had a different agenda, a personal
agenda, and Gerstner took out more than half a billion dollars for
himself even though in his last seven years there was no revenue or
profit growth to show for it.
It wasn't just employees who revolted in massive numbers. Within
six weeks of the court ruling last July, Congress overwhelmingly
passed an amendment introduced by Vermont Congressman Bernie Sanders
to prevent federal funds from being used to overturn this ruling, as
the Bush administration was then threatening.
You might think that as shareholders we would benefit from slashing
retirement pay. But what if no company money was saved? What if the
$70 billion pension trust fund already had a $17 billion surplus at
the time? What if the pension trust fund was earning interest faster
than it was paying out benefits to retirees, so IBM was paying
nothing each year for the pensions of its retirees and the pension
trust fund was growing? What if the real purpose of slashing pensions
was to use what was then a little known accounting rule treatment of
pension money to inflate IBM's profit report with "vapor
profit" from the pension fund and boost executive pay? The vapor
profit did not help stockholders because no money could be
transferred from the pension fund. It was just an accounting rule
gimmick. So only the executives gained, and their personal gain was
the underlying reason for the illegal action.
Previous IBM executives, to their credit, had done the opposite. They
had established and built this pension trust fund that enabled IBM to
provide a very valuable benefit to every IBM employee and retiree at
no cost to IBM and at no cost to shareholders. The pension provided
enormous competitive advantage in attracting and retaining the most
talented employees in the industry, and building loyalty and
dedication. When you and Mr. Gerstner reneged on that promised
pension and retirement medical, you blew that competitive advantage,
you blew that loyalty, and you blew that trust. And when IBM
employees found that Gerstner had made the decision and Palmisano
maintained the decision for totally self serving reasons many
talented IBMers, including many inventors left to join the
competition.
As an in-house IBM patent agent, I personally watched dozens of
talented and dedicated IBM inventors leave IBM to join competitors in
1999, making our competitors more competitive and IBM less. IBM paid
a heavy price to help enrich Mr. Gerstner and Mr. Palmisano. Reneging
on promised retirement pay is a good part of why IBM missed deadlines
and why sales stagnated and profits declined these past four years.
To get IBM back on track much work is needed by an honest executive
leadership. For starters, IBM should end age discrimination by
providing all employees with the choice of pension and retirement
medical plans. It should also permit independent investors to run
against the current board members to help restore IBM's dignity
and values. Only then can IBM truthfully declare itself to be an
equal opportunity employer and restore trust that its promises will
at last be kept. Thank you very much.