Offshoring foes protest at IBM annual meeting

Sporadic chants of "Offshore the CEO!" punctuated a gray Tuesday morning in Providence, Rhode Island, as about two dozen picketers representing a group of current and former IBM Corp. employees welcomed attendees to the company's annual meeting.

Bearing signs that read, "America's future is not offshore," "Retrain for What?" and "Offshore CEO Sam Palmisano," the demonstrators raised notice that the politically controversial issue of offshoring would be on the table at the meeting, where several shareholder proposals centered on employee discontents with IBM's labor and executive compensation practices.

Chairman, President and Chief Executive Sam Palmisano was able to launch the event at the Rhode Island Convention Center on a positive note, telling the approximately 350 attendees that the board of directors had approved a 12.5 percent dividend increase, to a regular quarterly cash dividend of US$0.18 per common share. But Palmisano was also compelled during the meeting to defend the company's strategy on outsourcing, which has gained a high profile after reports surfaced that executives discussed moving a large number of jobs out of the U.S. to countries such as India.

Palmisano stressed the importance of IBM being a global company with very strong businesses internationally, not just in the U.S., and said it needs to "look at a global skill pool around the world." He pointed to $25 million the company has set aside for the Human Capital Alliance, a skills retraining program, although he acknowledged that the effort is just beginning.

However, it was apparent from the chairman's remarks extolling the benefits of open markets and global free trade that IBM is not turning back from offshoring. "Most people recognize that you can't lock down jobs, businesses and skills, and you can't lock down nations," Palmisano said. And he warned that in managing an enterprise such as IBM, there can be "no emotional attachment to the things that don't represent your future."

That lack of emotional attachment, to employees in particular, rankles with long-time IBMers who said they have seen a shift in the corporate culture.

Michael Saville, a former IBM employee who spent 32 years with the company, traveled from his home in Salt Lake City to protest what he sees as a fundamental shift in how the company treats its employees -- "Like commodities, not like assets," he said. It can take 18 months to two years to retrain IBM employees whose skillset is in very proprietary technology, he said. "IBM tends to say all jobs are equal, but the new jobs available are at lower salaries and fewer benefits."

A current IBM employee, Bill Costine, was also part of the pre-meeting demonstration out of concern over offshoring. Costine does AIX support at Fishkill, New York, and said that he feels his job is relatively safe for the time being because it requires face-to-face interaction with U.S.-based hardware engineers. However, the same cannot be said for many other positions. "Any help desk job, any programming job, any software design or development job, anything that doesn't involve face-to-face transactions with your customer" is vulnerable, he said.

A thread that ran through shareholder proposals presented at the meeting was the contention that executive compensation rewards short-term thinking that boosts the company's stock price at the expense of its long-term health.

One proposal, defeated at the meeting, would have prevented top executives from being rewarded for income gains that derive from the company's pension funds. Some speakers charged that changes to the pension plan that have hurt older workers and retirees were driven by the management's desire to boost financial results via the pension fund, a charge the company denied in its proxy statement.

James Marc Leas of South Burlington, Vermont, worked for IBM for 20 years and was laid off in 2002. Formerly a physicist in microelectronics at IBM who moved into patent law at the company, he presented a proposal demanding that employees be allowed to choose pension and medical insurance under the terms in effect before IBM made changes in 1995 and later.

"Executive pay is tied to short-term gains, and executives are milking the company for personal gain," Leas said in an interview prior to the meeting. "Twenty years ago we admired the executives at all levels -- the top executives were great. Now that's totally changed. We see executives making decisions that are helping them personally, and that has depressed the performance of the company."

The one shareholder proposal that did prevail against the recommendations of the board of directors called for IBM to begin expensing stock options. It is unclear how the proposal, which passed with 53 percent of the vote, will be implemented. In its written statement, IBM said it will comply with new Financial Accounting Standards Board rules on expensing stock options beginning in 2005, and that using current rules for expensing options for 2004 and then switching to the new rules will confuse users of its financial statements.