A Thumbs Down on IBM's 21st Century Performance
Decision: Manage the Stock or Manage the Business
If you want me to come in here and operate this business for the benefit of the business, I'll do it, but I will not have anything to do with the operation of it from a stock standpoint.
Thomas J. Watson Sr. to C-T-R Board of Directors, The Lengthening Shadow
No (Artificial) Intelligence Required: The Data Is Clear
In the mid-’60s, IBM invested 12 times its 1964 net income ($5 billion) to deliver the mainframe. During this time, Watson Jr. prioritized hiring and retaining the best people, building new communication processes, and pushing individuals to their inventive and innovative limits. In contrast, the first three chief executives of this century have prioritized paper over people, processes and products. They have invested 14 times IBM’s 2016 net income ($166 billion) in its own stock.
The following table contrasts two sixteen-year periods from these times of major transition for the company. It depicts the results of one chief executive officer who managed the business with three consecutive chief executives who chose to manage their corporation’s stock.
The Results of Managing the Stock Instead of the Business
As covered in THINK Again: IBM Can Maximize Shareholder Value, IBM managed its business from 1960 to 1976 through an immutable belief system based on respect for the individual, service to the customer, and the pursuit of excellence; from 1999 to 2015, IBM managed its stock price through two immutable, five-year plans (earnings-per-share roadmaps). The contrasting results of these two strategies highlight the wisdom of Watson Sr.’s gut-level response to his prospective board of directors about his priority: he would always manage the business, as would his son.
Not one of IBM’s stakeholders has profited from IBM’s twenty-first-century management of the corporation’s stock price. IBM’s shareholder-first and -foremost strategy is a dismal failure and the direction must change. Hopefully, IBM’s Board of Directors will act to avoid the looming failure of an iconic company that, at one time, represented all that was great about the American form of capitalism
To find prosperity in its second century, the board will need to find a new leader who will execute a business-first strategy that returns value to all the corporation’s stakeholders.
Peter E. Greulich is an author, publisher and public speaker.
He has written three books on IBM and three essays on Thomas J. Watson Sr.’s leadership during the Great Depression. His latest book, Think Again!: IBM CAN Maximize Shareholder Value is a sweeping historical look at IBM and its nine chief executives. It puts a spotlight on IBM's current human resource practices in light of IBM’s time-tested, human-relationship achievements.
Think Again! is a different perspective from Louis V. Gerstner’s Who Says Elephants Can’t Dance. Pete's thoughts are always a view from beneath—the perspective of an IBM employee-owner. IBMers with stories to share can reach Pete at IBMers @ mbiconcepts.com.