Annex Research Activism: Letters to Editors

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Feb 25, 2004

To: The New York Times

Some Fallacies About IBM Under Gerstner

Re. "IBM to Alter How It Pays Officials" (2/25/04)



Steve Lohr, Senior Writer


New York, NY

Subject: Your IBM story (Feb 25, 2004)

Hey, Steve, what is going on between you and Gerstner?  Is he the reason you have not called me about IBM in years, including about your today's stock option story, even though you used to do it almost weekly before 1997?
Why am I asking you this now?  Because what you wrote about him and his legacy in your today's story about IBM stock options is not just a strange collection of YOUR OPINIONS that should have no place in a NEWS story, but it's factually unsupportable.  You wrote...
[...] In the 1990's, under Mr. Palmisano's predecessor, Louis V. Gerstner Jr., there were occasional questions raised about how aggressively earnings were managed to meet quarterly goals. But even Mr. Gerstner's critics did not suggest that he was cashing out his shares. Nor has there been any doubt about the turnaround under Mr. Gerstner or the health of the company he passed onto Mr. Palmisano, who became chief executive in March 2002. [...]
Of course, some "Gerstner critics" not only suggested that he and others were "cashing out his shares," but "they" did it contemporaneously (all through the 1997-2002 period).  If you go to the Annex Research web site and search is using "Gerstner stock options greed insider trading" as keywords, you will find at least 10 articles that dealt with that issue - see below).
Steve, you were also wrong when you alleged in your story quoting a source that, "The plain vanilla stock option - granted at the market price - is out, and pay-for-performance is in."  Gerstner never got a "plain vanilla stock option granted at the market price."  The price of his stock options was discounted 84% on average (i.e., his costs was about $16 when the average IBM market price was about $100 - see Sir Lou OutLayed Lay!", Apr 1, 2002).  Prices of most other IBM executives' stock options were also discounted, though not as much as Gerstner's (average cost $26; average price $111).
Your third allegation, that there was supposedly "no doubt about the turnaround under Mr. Gerstner..." is also strange, and just as easily disprovable.  When the market started peeling the Big Blue onion following the announcement of his departure (in Jan 2002), and saw the Armonk sand castle he had built on greed and consumption, the IBM stock dropped like a stone - from $126 in Jan 2002, to $55 in Oct 2002).  THAT was the market reaction to the "Gerstner turnaround" in hindsight, without Gerstner's PR armor and his stock buyback bribery. 
Steve, I am copying your business editors on this message in the hope that they would want to correct the inaccuracies in your story voluntarily.  But if you or they do not do it promptly, I may be compelled to write a letter to the NYT editor about them, in addition to any articles that I may write on the subject myself.
Meanwhile, I'd be interested in learning just what had transpired between Gerstner (or his PR flunkies) and you in the last seven years to have made you such a Gerstner fan?


t regards,

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Bob Djurdjevic

 Some articles referenced above...


"Sir Lou OutLayed Lay!" (Apr 1, 2002)


Also check out..."IBM Argentina Bribe Scandal""Let the Bombing Begin?  Not!" , "What's Good for the Goose..."  and "Journal's Rotten Apples" (Wall Street Journal); and "Stock buybacks: Wall St.'s duping of Main St.", Business Week).