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A Centenarian’s Imperfect But Impressive Recall

IBM marked and marketed its centennial last month with a look back at its history that was less than perfect, but more honest and thoughtful than a typical corporate puff piece.

The company, which began life as the Computing-Tabulating-Recording Company in June 1911 and later became International Business Machines, ran a four-page ad for the occasion, filling three of those pages with text.

The ad was presented as words of wisdom from a company that passed the test of time by remembering to balance continuity with innovation. A company must be “prepared to change everything about itself, except its beliefs,” according to a quote from the company’s second CEO, Thomas J. Watson Jr.

IBM says its core belief is a commitment to “make the world work better through information and the tools of thinking.” This mission, according to the ad, was set out by the company’s founder, Thomas J. Watson Sr., and has guided its progress ever since. While the company’s early CEOs would not understand what it meant, for example, to build a computer that could challenge Jeopardy champions and win, they would still understand the underlying goal: “to make the world work better through information and the tools of thinking.”

Throughout, the lessons of the ad are illustrated with examples from the company’s history, covering everything from Watson Sr. to the Jeopardy-playing computer named after him. The ad first caught my eye because it acknowledged, in words and pictures, some of the company’s less-than-successful initiatives. If identity is the key to business longevity, as the ad argues, memory is essential. And memory involves being able to reflect on both the good and the bad.

From its more recent history, IBM addresses the commercial failures of its PCjr computer, first shipped in 1984 and discontinued the following year; its OS/2 operating system, which was intended to revolutionize personal computing but ended up as a niche product used mainly by ATMs; and its Prodigy online service, which the ad says may have been a “good idea” but was “ahead of its time.”

The ad also touches on the more sensitive issue of the company’s treatment of its employees while changing its pension plan in the mid-2000s. In order to reduce its obligations, IBM switched from a defined benefit plan to a cash-balance plan. The ad explains: “By the middle of the last decade our pension obligations were almost as large as our revenues. We had to address this or risk severely impairing IBM’s long-term competitiveness.” Of course, as the ad puts it, “some employees did not welcome the change.” Employees did more than just not welcome the change; they appealed it all the way to the Supreme Court. Employees argued that the switch was discriminatory toward older workers. The Supreme Court refused to hear the case, however, and a decision from the Seventh Circuit Court of Appeals in favor of the company stood.

Yet while IBM was willing to reflect in the ad on these market setbacks and internal conflicts, it was more guarded in telling the story of its role in the century of global history that unfolded at the same time as its own development.

The ad proudly notes IBM’s early support of desegregation in the United States. In 1953, one year before the Supreme Court’s ruling in Brown vs. Board of Education and 11 years before the passage of the Civil Rights Act, IBM issued its Policy Letter No. 4, stating that the company would not base hiring decisions on “race, color or creed.” Then-CEO Watson Jr. stood up to two Southern governors who initially refused to allow IBM to expand manufacturing operations into their states unless it agreed to segregate plants by race. In the face of Watson’s determination, the governors backed down.

However, on another, more recent matter of supporting racial equality, IBM’s actions were less clearly admirable and its account is less comprehensive. The ad says, “In South Africa under apartheid, we tried for several years to work for change from within, including taking a leadership role in drafting the Sullivan Principles.” It continues, “But sometimes the barriers to progress are too steep. And so you leave — hopefully not forever. IBM returned to South Africa once the apartheid regime ended.”

While it is true that IBM was at the forefront when it came to endorsing the Sullivan Principles, it was farther from the vanguard in withdrawing after those principles failed to bring change. By the time IBM officially announced its decision to end operations in South Africa, 31 other American companies had already done so. During the years of apartheid, IBM profited from South Africa’s booming computer sales. The company’s Johannesburg-based subsidiary had sales of $250 million at the time of IBM’s withdrawal from the market.

The darkest chapter in IBM’s history is not mentioned in its centennial ad at all. Germany, both before and during World War II, used IBM punch card equipment to conduct population censuses used to identify many of those later sent to their deaths. The Hollerith machine, manufactured and distributed by IBM’s German subsidiary, Deutsche Hollerith Maschinen Gesellschaft, or Dehomag, made it possible for Germany to conduct in mere days feats of information processing that otherwise might have been impossible.

IBM acquired Dehomag in 1923, when the Nazis’ first attempt to seize power had been squashed and Hitler himself was imprisoned. IBM, therefore, could have had no way of knowing at the time how its machines would be used. However, Watson Sr., still CEO at the time, continued to play an active role in the operations of the subsidiary after the Nazis took control in 1933. Critics, most notably Edwin Black, the author of a book on the subject, have argued that Watson Sr. and others in IBM’s New York headquarters must have known what was happening and knowingly profited from the Nazis’ reign of well-ordered terror.

IBM has responded to accusations by saying that there is no concrete evidence that it was more culpable than any other company doing business with Germany before war broke out. Companies do not have control over how their products are used, defenders of IBM argue. The Nazis wore boots and wool coats, but we do not blame the garment makers. The Luftwaffe flew airplanes, but the Wright brothers were not to blame for the Blitz. Black counters that the IBM products used by the Nazis differed from boots or coats in that they were all custom-designed for their ghoulish purposes. And, while a shoemaker’s connection to a boot ends soon after it leaves the assembly line, Dehomag and IBM’s Polish subsidiary, established after the Germany invaded Poland in 1939, provided ongoing maintenance.

IBM has pleaded a sort of selective institutional amnesia on the subject. A press release claimed that “IBM does not have much information about this period or the operations of Dehomag. Most documents were destroyed or lost during the war.” This is a little odd for a company that prides itself on its sense of identity and makes its money keeping track of information. IBM has promised to release additional documents about its wartime activities should it ever find them.

Regardless of what history has fallen into IBM’s memory gap, those who work at the company now bear no guilt. Most of them were not born at the time, and none of them were working for IBM then.

That does not, however, mean that the company itself is not responsible. It has a moral obligation, if not a legal one, to mitigate any damages it caused to whatever extent it can. By committing to ideals that endure beyond a single human lifetime, as Watson Sr. did, we create entities that carry their own identities and their own burdens. Today’s Germans, like today’s IBM employees, are for the most part people who have no personal memories of the Holocaust and who played no role in it. But, because they are part of a country that does remember those events, German taxpayers continue to fund reparations to the diminishing group of survivors. Americans, likewise, may owe damages or reparations to peoples whose rights the country has infringed.

But while embracing an institutional identity requires accepting some responsibility for the past, it also allows a company to claim credit for its past successes and to preserve the values that make future success possible. IBM’s dealings with South Africa under apartheid and with Germany under the Nazis did not “make the world work better through information and the tools of thinking.” Its role in implementing Social Security during the New Deal did. It is fair to remember all of those actions in thinking about the type of company IBM has been, and what it is today.

Nobody lives a lifetime, especially a 100-year lifetime, without making mistakes. IBM’s autobiography, if imperfect, is more forthright than many corporate histories. Give them credit, because a company that knows where it came from has a better chance of going places in the future.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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