Shareholders vent their frustration


April 27, 1993

TAMPA, FLA — TAMPA, Fla. -- Angry IBM shareholders unleashed a torrent of pent-up frustration yesterday over the company's decline at new chairman Louis V. Gerstner Jr., who promised to revive the computer maker but asked for patience.

In just his 18th work day at IBM, Mr. Gerstner tried to focus on a broad outline of goals but instead heard impassioned calls, greeted with loud applause, for the ouster of the company's board of directors.

"We're glad to have you on board, but let's go ahead and clean out the rest of the rascals," a 100-share stockholder told Mr. Gerstner during IBM's annual meeting at the Tampa Convention Center.

About 2,300 shareholders, many of them Florida retirees and longtime company employees, attended an unusually contentious meeting that reflected just how far International Business Machines Corp. has fallen.

The meeting capped a remarkable four months at 79-year-old IBM, whose founder's credo -- "Think" -- set a standard of excellence for corporate America. In addition to hiring Mr. Gerstner as its first outsider chairman, IBM has laid off workers for the first time and lost $285 million from January through March.

IBM has lost more than $7 billion in the past two years, cut a quarter of its work force, or more than 100,000 jobs, since 1987, and lost significant market share amid growing competition. The company has sought to reverse its fortunes through restructurings.

Mr. Gerstner, the 51-year-old former RJR Nabisco chairman, took over IBM on April 1 after a closely watched search for a successor to now-maligned former chairman John F. Akers.

In a frank assessment, Mr. Gerstner apologized for the decline and conceded that worker morale was "not very good." He said slow demand and poor economies had reshaped the computer industry, but he defended IBM's technological and market power. To shareholders' approval, Mr. Gerstner didn't try to minimize IBM's problems.

"IBM has changed, but most people would say not fast enough," he said. "This slowness and failure to act quickly is really the root cause of IBM's problems."

Mr. Gerstner listed four priorities for 1993: completing major staff reductions, defining what businesses IBM will pursue, improving customer relations and decentralizing.

"I don't have answers for you yet and we can't expect quick fixes," he said. But he promised: "I can tell you the steps we will take will not be pussyfooting but bold strides."

Wall Street seemed to welcome Mr. Gerstner's comment. IBM stock rose 62.5 cents, to $48.375 a share, on the New York Stock Exchange. That's still well off last summer's peak of $100 a share.

Before the meeting, IBM's board declared a 54-cents-per-share quarterly dividend. In January, IBM cut the dividend for the first time, from $1.21 per share.

the 2 1/2 -hour meeting, shareholders vented anger over IBM's fallen stock price, the rapid and drastic nature of its cuts and a pay package under which Mr. Gerstner can make tens of millions of dollars in stock options if IBM stock rebounds.

Their sharpest criticisms were directed at IBM's board members. The directors were re-elected anyway, but 28 percent of shareholders voted for a proposal to withdraw their generous retirement package, reflecting unusually high dissatisfaction.

"If I were a director I would be embarrassed to even show up here and have my name on a list to be elected," Dr. Gilbert Jannelli, a shareholder from Clearwater, Fla., told Mr. Gerstner. "How can you work with that group of people when their attitudes, their trusted decisions caused this company's demise?"

One shareholder, who identified herself as a 15-year IBM employee, said board member Thomas A. Frist Jr. should be ousted because his company, the Hospital Corp. of America, doesn't use IBM computers.

In a comment so candid it never could have been made at the old IBM, Mr. Gerstner praised longtime rival, Microsoft Corp., and its chairman, Bill Gates. Microsoft dominates a key computer business, operating software, underestimated by IBM in the early 1980s.

"What Bill Gates sold was service, customer service," Mr. Gerstner said. "As a customer, he made it easier for me. As far as I'm concerned, that's what we have to respond to."

As for IBM's stock price -- $175 a share in 1987 -- stockholders blamed directors and Mr. Gerstner's predecessors for the decline, which has wiped out more than $30 billion in market value since last summer.

"IBM's stock no longer provides for your old age," shareholder Bill Steiner told Mr. Gerstner, "but it certainly hastens its arrival."

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