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Confidential Client Edition

Appendix to the Editorial on CEOs/CFOs... EDS

Missed Opportunities

Getting Too Close to the CFO Can Cost CEO His/Her Job

PHOENIX, June 14 - The following are excerpts from our July 10, 2003 client communication regarding Dick Brown and Jim Daley:


July 10, 2003

Perhaps you've already heard the news... Jim Daley, the former EDS CFO (under Dick Brown), is "retiring" at the end of this month? So what's a big deal?

Well, the first point is obvious... "new broom sweeps clean." After Dick Brown was ousted last March, several other top EDS executives have left the company, the most senior of them being Doug Frederick, the man the most closely associated with the laggard U.S. sales and the U.S. Navy contract. So Daley is just the latest casualty? True.

But was Jim Daley, in my humble opinion, that should have been the first to go. Way back last fall, when he was still the CFO. As the CFO, Daley was the top EDS executive responsible for forecasting and giving guidance to Wall Street about the future results. He failed miserably in that challenge. As late as August, he was hyping up the EDS prospects. And then on Sep 23, all hell broke loose and the stock crashed when the company did turn about face, as Dick and Jim announced they weren't going to meet their own earlier optimistic forecasts.

Being a trooper and a real captain, Dick took it on the chin. He took full responsibility for the bad forecasts. "The buck stops here," read a subsequent TIME magazine headline, quoting the EDS CEO. Ultimately, however, the blow he took knocked him down and out of the company.

In doing such an honorable thing, Brown also shielded the real culprit - Daley. Had Brown fired Daley last fall, chances are he might have been still the EDS CEO.

There is a lot more than that in this story of missed opportunities to make the change that I'd be happy to share with you over the phone, if you wish. But the above should suffice as a heads-up. If you're interested in "the rest of the story," give me a call at my private line.  Thank you.

Best regards,

Bob Dj.



Jim Daley, ex-EDS CFO under Dick Brown, to retire

Wednesday July 9, 6:22 pm ET

PLANO, Texas, July 9 (Reuters) - Electronic Data Systems Corp. (NYSEEDS - News) on Wednesday said Jim Daley, the chief financial officer under former Chief Executive Dick Brown, plans to retire from the computer services company by the end of July.




Also, see my recommendations made on Apr 15 and Jan 15 (in red), the latter following up on verbal and written recommendations made in December 2001. Here's an excerpt from my Jan 15, 2002 e-mail to Brown (the full texts of those e-mails are enclosed below).

December 2001 Warning, Suggestions...

Date Tue, 15 Jan 2002 222825 -0700

To "Brown, Dick"

From Bob Djurdjevic <bobdj@djurdjevic.com>

Subject Personal & Confidential... Re. HEARING FROM A FRIEND


Hi, Dick. Hope the year has started well for you. This time, I am writing to you on a personal and confidential topic - about a possible new form of our relationship.

Ever since our exchange of e-mails last October on the importance of geopolitics in today's global business (enclosed below), about which we have both agreed, I have been thinking about how I could best put my knowledge of foreign affairs and occasional prescience at your service. Dealing with that topic at our Dec. 18 workshop was one way. But since our war against terrorism is here to stay for at least 5-6 years (according to the Pentagon), a one-time shot like that is really only paying lip service to this important challenge.

So I have another idea... I feel that every company with a global reach, like EDS, needs to have a State Department of its own. That should be a corporate diplomatic function that will communicate and coordinate its corporate mission and goals with those of its employees in various countries, and the various governments to which these employees are supposed to be loyal. You know that especially at a time like this (war), the two loyalties - to the company and to the country (not to mention other, higher, moral issues) - can be conflicting. Plus you have potential conflicts of interests with your corporate customers, who may also be dancing to different national drummers.

Most companies I know have not even considered this problem on a systemic basis, let alone done something about it. No wonder that every so often there is Iran, or Yugoslavia, or Iraq, or Argentina, or Indonesia, or Soviet Union... etc. that implodes and blows up in their faces. What Ross Perot and his "Sunshine Boys" did in Iran, for example, was admirable. But prevention is often more effective than heroism. And far cheaper, too.

If we are successful in defining the rules of corporate diplomacy and executing an EDS foreign relations policy (rather than have every company's interests dictated by those of oil companies and defense contractors who are wagging the U.S. State Dept.'s tail), other multinational companies are likely to follow suit. And you, Dick, could become one of corporate America's visionaries - over an above your already formidable achievements as an outstanding manager.

In short, Dick, what I am saying is... how would you like to consider hiring me to form and run your own State Department for EDS in the above context?

If you think my idea is "off the wall," don't hesitate to tell me that (what are friends for if we can't be blunt with each other?). We'll just go on with our current relationship on a "business as usual" basis. But if you find my notion of a corporate State Dept. appealing, maybe we should meet to flesh out the meat in it? -) [double pun intended].

FYI - I plan to arrive for your Feb. 11 analyst event around noon (Dallas time) on Sunday, Feb. 10. So a meeting that afternoon before the cocktail party is a possibility based on my schedule. Or sooner, if you wish. Let me know what you think.

Warm regards,

Bob Dj.


From "Brown, Dick"

To "'Bob Djurdjevic'" <bobdj@djurdjevic.com>

Date Tue, 16 Oct 2001 153353 -0500


Thanks for commenting on the WSJ article today. You're absolutely right that managing an enterprise today is more and more about being global, being international, and all the diplomacy that glues it together.

Ehud Barak is a terrific advisor to EDS and will help us on many fronts as we pursue business. Of course, we have other advisors. But, it's always the case that when you get one high profile advisor you always have to look on the other side of the fence - exactly as you pointed out.

By the way ... I remember clearly your visit to Belgrade and parts of Serbia after we met back in 1999. I think we're cut from the same cloth!

Take care, my friend, and stay in touch. We'll be talking with you next week as we announce earnings.

All the best,


-----Original Message-----

From Bob Djurdjevic [mailto: bobdj@djurdjevic.com]

Sent Tuesday, October 16, 2001 1233 PM

To Brown, Dick


Hi, Dick. Myrna has forwarded to me the WSJ article on your recent trip to the Middle East. Way to set an example of leadership by example! Well done.

I don't know if I had mentioned this to you before or not, but immediately after we first met face-to-face at your office in April 1999, I flew into Belgrade and other parts of Serbia to investigate the progress of the then bombing of that country. While it was happening, of course. And before that, I had done the same in Bosnia. So I guess I have some appreciation of what you've been through, I guess.

Had not heard of the Barak appointment before, either. Guess you may have to get someone now from the other camp, too, huh?

International business is becoming more and more like diplomacy backed by a military. And how many executives have we trained to be diplomats or soldiers? (With some notable exceptions, of course. I suspect that EDS probably has a higher percentage of the latter than most companies of comparable size and reach).

Bob Dj.



Brown passed on the Jan 15-one to Daley, who turned it down.

Brown himself pretty well ignored the Apr 15-suggestions related to managing Wall Street's expectations. Here are excerpts from that correspondence...

April 2002 Warning, Suggestions...

From:  Bob Djurdjevic [mailto: bobdj@djurdjevic.com]

Sent: Saturday, April 13, 2002 1042 PM

To: Dick Brown

Subject: Re Electronic Data Systems Buy or Bye-Bye?


Hi, Dick. A friend of mine has just forwarded the enclosed story to me. I am passing it along in case you have not seen it.

Now growing faster than your peers is a sin (!?) on Wall Street! See what I mean about Wall Street perversions?

BTW re, "New studies by two independent and two brokerage-based researchers raise concerns about EDS on three fronts" - which ones are there four firms?

"Gray areas in accounting rules?" What are they talking about?

"Investors have already taken note of these issues and hammered EDS' stock down 30% in the past five months, driving it to about $51 on Monday from its November high of $72." Your share were up to $66 in mid-March. So wonder why the writer brings up November as comparison? (except to try to make the "facts" fit his opinion).

As for "...cash flow has been steadily declining," wasn't that in part due to acquisitions?

"...insider trading is overwhelming on the sell side." Hm...?

Anyway, I'll stop here. You can take the article apart yourself. Just thought I'd let you know what I saw and share it with you.


Bob Dj.

P.S. As you may have seen from our "Sir Lou OutLayed Lay!" article, the Street.com pegged Enron's demise and insider trading almost five months before the bankruptcy filing (http://www.thestreet.com/funds/chrisedmonds/1496696.html). But that story was written by a different writer.


At 0900 PM 4/13/2002 -0400, you wrote

Bob - fyi - in case you missed it... http://www.thestreet.com/funds/supermodels/10016974.html 

Electronic Data Systems Buy or Bye-Bye?

By Jon D. Markman

Managing Editor, MSN MoneyCentral

04/12/2002 0629 AM EDT

Not too long ago, Wall Street applauded companies that grew faster than their peers. Now it places them under suspicion. In the case of Electronic Data Systems (EDSNYSE - news - commentary - research - analysis), an information technology giant accused of deteriorating earnings quality and business conditions, the market equivalent of house arrest might well come next.


At the time of publication, Jon Markman owned or controlled shares in none of the equities mentioned in this column.


At 0305 PM 4/15/2002 -0500, you wrote


Thanks for the email. I had seen the article as did Myrna, Jim Daley, and a few others of us, and we just keep shaking our heads wondering what in the world this writer is talking about. Thank you for being supportive, and we will not let you down for doing so, I promise you.

First of all, you're right ... it seems as though when you lead the industry in growth nowadays there's something wrong with you. Doesn't this just beat all?? But, we're not going to apologize for being the fastest horse on a muddy track. We are gaining market share and will continue to do so.

Secondly, I don't know what in the world they're talking about in terms of gray areas in accounting rules. Beats me??

Thirdly, you're absolutely right ... our stock is now trading at a 16 P/E - the lowest in the industry, and when you take a look at what EDS has announced ... then with no growth and, in fact, a decline in revenue and a major decline in earnings and all the other things that have been talked about relative to IBM, to be down not much more than EDS year-to-date is simply incredible. But, we are continuing to focus on our business and executing well, and I have to believe over time "the jungle will have justice administered."

As for cash flow - you're absolutely right again ... it has been steadily declining and it is in fact, in a substantial way, because of the many acquisitions we undertook last year. By the way, this is not going to be the case this year.

On insider trading, what this writer did is take one insider purchase of 500 shares and then compare that against 140,000 of insider trading that was sold. What I'm going to announce shortly is what isn't mentioned ... which is the fact that the top five executives in the proxy over the last 12 months have purchased more than a million shares. Furthermore, if you add in what the Board has purchased against what they've sold, it's overwhelmingly accumulating vs. selling. There's no lack of confidence here in EDS - in fact, quite the contrary. It's just amazing how people can pick one fact, forget the rest of what's relevant, and try to make a point. I guess it really tests our patience at times like this, Bob. But, EDS has a great franchise and we continue - as we've always said we would - executing our playbook.

I look forward to hearing you on the call a week from today and seeing you one of these days soon.

All the best, my friend.




Date Mon, 15 Apr 2002 143018 -0700

To "Brown, Dick"

From Bob Djurdjevic <bobdj@djurdjevic.com>


Thanks for getting back to me with your thorough explanation, Dick. Glad to see that what you've said matches up with my own assessment of the situation.

You said at the end of your memo, "I guess it really tests our patience at times like this, Bob."

Dick, there is no need to sit back and take it, hoping the leopard (Wall St., business media) will change its spots. It won't happen. Trust me on that. I've been a part of that crowd for a quarter century now. So maybe it's time now for YOU to take a proactive role...

Perhaps you remember that after our August 2000 Executive Workshop I proposed to you and to Don Uzzi a marketing program which would encompass a series of executive workshops that EDS would organize, and at which I would be the keynote speaker. Don basically said "thanks but no thanks" at the time.

What do you say we revisit the idea now, and even expand it to include not just your top customers, but also your top institutional investors? (as separate sessions, of course).

As you know, I normally charge $15,000 plus expenses for a keynote lecture, so even if we were run a dozen or more of them around the world over the rest of the year, you won't be breaking the bank, will you? Especially compared to the $10 billion market cap differential that a stock price drop from $70 to $50 represents.

You also said, "Thank you for being supportive, and we will not let you down for doing so, I promise you." I know you won't, Dick. Which is why I am trying to be proactive with you, too.

Bob Dj.


Date Wed, 17 Apr 2002 110519 -0700

To "Brown, Dick" 

From Bob Djurdjevic <bobdj@djurdjevic.com>


Hi, Dick. Myrna and I talked yesterday about this idea in my participating in the program for 10,000 EDS leaders. I am now awaiting additional details from her. I think that's a good idea.

But as I said to Myrna that, if EDS is to repair some of the damage ignorance has done to your market cap, it's important to take the fight to get the truth out about the industry, IBM and EDS to both internal and EXTERNAL audiences. What Myrna is addressing is an internal EDS audience, as I understand it. What I was writing to you about on Monday, referring to my proposal from September 2000, was a marketing program... aimed at top customer executives and EDS investors. I am enclosing below (in red) copies of our September 2000 correspondence with Don Uzzi from 2000 about it.

Let me know what you think.

Bob Dj.


June 2002 Warning, Suggestions...

From "Brown, Dick" <dick.brown@eds.com>

To "'Bob Djurdjevic'" <bobdj@djurdjevic.com>


Date Sun, 16 Jun 2002 200046 -0500


Thanks for the continued support you give us. These rumors that some mischief makers spread are just frustrating. We've got in mind your idea about the outside world and the kind of help you might be able to give us.

We're talking about a timing and a sensitivity issue at the moment and, right now, I like the fact that Myrna and Jim Daley have got you dealing directly with our senior leaders helping them better understand the kinds of messages you bring us.

All the best,


-----Original Message-----

From Bob Djurdjevic [mailto: bobdj@djurdjevic.com]

Sent Friday, June 14, 2002 213 PM

To Brown, Dick

Subject Re I'M FINE

Hi, Dick. Glad to hear all is well with you, except for the usual hassles of travel.  I've just spoken to a CBS Market Watch reporter about the general stockmarket trends, and pointed out your company's stock as an example of one that should be up based on business fundamentals, but isn't, based on rumors and other "intangibles."

If you ever want to revisit my ideas on how to help boost the stock, as outlined to you in late March/early April, let me know. Meanwhile, happy travels and safe landings!

Bob Dj.


At 1039 AM 6/14/2002 -0500, you wrote


Great hearing from you... With regard to the stock price dropping, I can only tell you, Bob, there is nothing to this and it is as frustrating to us as it certainly is to you. Myrna tells me there are some people playing games out there, and it seems to be there's a rumor a day about EDS. 

First, the rumor was that the Navy contract is being cancelled. Then, that S&P and Moody's are going to downgrade our debt. Followed by that I was leaving to go to Tyco. The most recent rumor is that we're under investigation by the SEC. There appears to be a systematic and relentless effort by some unknown sources to make mischief and misrepresent the strong condition we have at EDS. 

Of course, one reason I sleep well at night is none of this is true. 

But, we keep our heads up and keep moving forward. I've been deeply involved in a number of operating reviews these last few weeks, and I can tell you this business is solid. The industry is strengthening. And, while it's slow going now, as I've said publicly many times, the opportunity bubble of pipeline and future business continues to build. I remain confident in our business and proud of EDS' achievements and where I know we will be.

Thanks for being a supportive friend, Bob. And, by the way, we really appreciate the special help you've given us and look forward to you addressing our senior leaders.

All the best,


-----Original Message-----

From Bob Djurdjevic [mailto: bobdj@djurdjevic.com]

Sent Friday, June 14, 2002 1257 AM

To Dick Brown

Subject Are you okay?

Hope you're okay, Dick? Haven't had your replies to my last couple of e-mails...

I was wondering why the EDS stock has been dropping so much this week? Don't see anything in the public news domain that would help explain it. But I see the trading volumes are pretty hefty, so something must be going on.

Bob Dj.


Date: Tue, 09 Jul 2002 170210 -0700

To: "Brown, Dick" 

From: Bob Djurdjevic <bobdj@djurdjevic.com>

Subject Re

At 0412 PM 7/9/2002 -0500, you wrote

Bob, I always value your recommendations. We're going to continue to look for ways to leverage the capabilities you bring us. What you have is important to us, and we will continue to partner with you. The internal staff is looking forward to the October Leaders to Leaders broadcast and believe this will be another step in building the knowledge base of the company.

My calendar is pretty booked for the next 90 days, as I'm sure yours is as well. I don't want to do anything differently right now given where we are, but clearly I want to revisit our plan with you going forward and will do this sometime later in the year. Myrna, Jim, and I will continue to talk and we'll see how this unfolds.


To: "Brown, Dick" 

From: Bob Djurdjevic <bobdj@djurdjevic.com>

Hi, Dick. Glad to hear you're recovering from the kidney stones scare.

Thank you for getting back to me with your thoughts on my suggestions. I understand exactly where you stand on this right now. Will post-date a tickler to early October to check back with you on that.

Meanwhile, I wish both your kidneys and the EDS stock a full and quick recovery! :-)

Bob Dj.


The planned October 2002 TV "Leaders to Leaders" broadcast never took place.  It was preempted by calamitous events that followed the Sep. 18, 2002 EDS stock plunge.  It was the beginning of the end for Dick Brown.  

The "EDS Story" is a textbook example of a CEO who didn't have the courage to cut the chord that tied him to a CFO who did not know how to manage Wall Street's expectations.  Ultimately, the CFO's ineptness cost them both their jobs.

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2004 IBM/IGS: Going Retro with Mainframes (Apr 8);  IBM: Five-year Forecast (Apr 8);  Mainframe at 40! (Apr 2);  "Crown Jewel" Restored? (Mar 2004);  IBM: Greed De-clawed? (Feb 2004); Hype Exceeds Results (Jan 2004); "Five Most and Least Likely Forecasts for 2004" (Jan 2004)

2004 IT Services: EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

2003 EDS: “Biggest Feather in Cap’s Cap,” (Dec 2003); "Pain without Gain" (Oct 2003), "EDS CEO Replaced" (Mar 2003);  Rebuilding Trust and Confidence (Feb 2003)

2002 EDS: Wall Street Legal Vultures Descend Upon EDS (Sep 27, 2002),  EDS Issues Earnings Warning (Sep 18, 2002),  Wall Street-Main Street Chasm Widens (July 3, 2002),  Analysis of EDS 4Q01 Results (Feb 8, 2002)

A selection from prior years: Annex Research Analysis of EDS 4Q00 Results (Feb 7, 2001),  EDS Takes Over US Navy (Oct. 10, 2000),  EDS Second Quarter Results (July 28, 2000),  Annex Bulletin - 2000-02 (EDS' e-Price Clubs).

Or just click on and use "financial engineering" or similar  keywords.

Volume XX, Annex Newsflash 2004-13
June 14, 2004

Bob Djurdjevic, Editor
(c) Copyright 2004 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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