IBM Layoffs Started Last Week; Time for a New Kind of Corporation

January 26, 2009 Timothy Prickett Morgan

Two weeks ago, we told you about the rumors running around that IBM would cut somewhere from 10,000 to 16,000 of its worldwide workforce, which numbers some 400,000 people, so it could keep its profits growing in the double digits even as its revenues are expected to drop in the first half of 2009. Those layoffs have, according to reports from IBMers, began.

IBM has not confirmed that there are layoffs, except to note in its financial reports last week that it is continually rebalancing its workforce, which means firing people where business is slack or projects are not panning out and hiring where there are new opportunities. Increasingly, this has meant getting rid of operations and employees in the United States, where IBM benefits most assuredly from all kinds of assistance from local, state, and Federal government contracts and subsidies, and hiring overseas where labor is cheaper. What was especially annoying, disappointing, and some might even say disgusting to IBM employees is that they are being thrown out of the Big Blue life raft as IBM is reporting record earnings for 2008. (You can read all about IBM’s finances for the final quarter of 2008 and the full year at this link.)

Now, I have been thinking about this issue for a long time, first as an employee who has been thrown out of the lifeboat in recessions and then as an employer who made a raft to try to save people from the choppy and cold economic waters. I have run my tiny company with the goal of employing as many people as possible given our revenue stream, and profits have happened some years and not at all in others. Never anything on the order of what IBM engineers to bring to the bottom line, even when we do profit. I do this because, as I have said before, I believe that those who can work, must work; and those who can employ, must employ.

I wish now that I had tuned a little more for profits, just to save up for rainy days and to expand the business, but that is all water underneath the bridge. What I think capitalism ought to mean is this: you profit when you can, and you save up for rainy days, just like real people are supposed to and can’t afford to. The savings that corporations have accumulated in the good years are therefore used to keep people employed in the bad years, to cope with the downturn and to adjust products and prices and so forth.

So how would you affect such a policy? Maybe revenue should be taxed at a much lower rate than profits are today, and profits should not taxed at all. This would encourage companies to save, and to save more than they might otherwise. Now add this twist: corporations should be allowed a tax-free saving fund for rainy days as we are having now, which is pulled out of profits. (This is just like the tax-free college savings funds I use for my kids.) And then this other twist: every dollar that is used to buy back shares from Wall Street is taxed like revenue; money should be used to invest in the business, not engineer earnings per share growth that is complete hoo-haa.

All I know is that it is nuts to layoff so many people in the economy at one time because that only makes the economy spiral down further and faster. You cut pay, maybe. You cut travel and other ancillary expenses. But you do everything you can to keep people in jobs. A corporation’s charter ought to reflect its commitment to its community and to creating jobs, not just raking in profits for shareholders. You profit when you can, and you use those profits to roll through the tough times. In essence, I would tune corporation tax policy to optimize for the economy, not for the shareholder. We have had 30 years of that nonsense, and it has not helped.

Anyway, IBM isn’t saying how many people have been let go, or will be let go over the course of 2009, but Mark Loughridge, the company’s chief financial officer, said that in a typical year IBM has charges of between $300 million and $400 million to cover its workload rebalancings; he added that IBM did a little more than $700 million in charges relating to layoffs in 2008, and it is tough to believe 2009 won’t see the same level. Loughridge did not specify IBM’s plan, but did say that workload rebalancing–oh, for heaven’s sake IBM, just admit it and say layoffs–would be heavier in the early part of this year. If the restructuring charges are about the same as last year, then this should be about 7,000 layoffs if it costs around $100,000 to get rid of an employee. It might be that the 10,000 to 16,000 layoff number that has been buzzing around since the end of 2008 is not yet happening.

The folks at Alliance@IBM, the local of the Communications Workers of America union that represents IBM workers here in the States, is reporting that Software Group has cut 1,419 jobs and the Sales and Distribution organization has cut 1,449 people. You can read the full thread of comments by IBMers concerning the layoffs at this link.

As we learn more, we’ll let you know, particularly as it concerns IBM’s systems.

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