Father, Son & Co.: My Life at IBM and Beyond

Management is no science; it is much too human a process ever to qualify. Since we built such sophisticated business machines, people tended to think of IBM as a model of order and logic—a totally streamlined organization in which we developed plans rationally and carried them out with utter precision. I never thought for a minute that was really the case. While the 1950s was a boom time for such fields as organizational engineering and systems analysis, that was not the kind of leadership the people of IBM expected, or the job for which I’d been trained. Dad had taught me that a good businessman has to be an actor. You have to make a show of getting angry a lot more often than you really lose your temper; you have to look more worried than you really are when trying to stimulate someone to tackle a problem. Dad was a master at hamming it up in this way, and I patterned my actions after him whenever I got the chance.

As IBM became huge and decentralized, the challenge was to find ways of maintaining personal contact with the people of the company, and to motivate other top executives to follow my example. One July an airliner carrying a number of IBM employees turned over taking off from Rochester, New York, in a thunderstorm. Seven people died in the crash, including one IBMer, and eight or nine others from our group were hospitalized. I was at an IBM conference in Vermont when word of the accident came, and I checked quickly to make sure the chiefs of the divisions involved had gone to Rochester to help. But one executive was still in his Westchester office. I got him on the phone and said, “Are you going to go up there and go from bed to bed, or will I?”

“Jeez, Tom, I never thought of it.” He’d been in the business a long time, and I asked how he could possibly have forgotten the example Dad had set after the Port Jervis train wreck in 1939—getting out of bed in the middle of the night and driving to the hospital to see the IBM families involved. “I’m giving you fair warning,” I said. “You’re supposed to run your division as if it were your own company, but if you’re not in Rochester by the end of today, I’m going myself.”

“I’ll call you from the hospital,” he said, and he did about four hours later.

Like Dad, I went to dozens of “family dinners” for IBM employees each year, and paying visits to local offices was standard procedure for me on any business trip. I kept a whole squad of secretaries busy doing things in the same way Dad would have—making sure every letter I received was acknowledged within forty-eight hours, sending flowers to the hospitalized wife of an employee, and making thousands of other small gestures of thoughtfulness. Dad often answered his own phone himself, and so did I whenever I could. If the caller was a customer it was a delightful surprise to reach Watson directly; and if the caller was an IBMer it set a powerful example for him to treat his own callers with equal consideration. Probably an efficiency expert would have condemned these practices as a gargantuan waste of time for a chief executive. But in a service-oriented business like ours, these seemingly minor details of courtesy and style were too important to let slide. If the head man stops taking a proprietary interest in them, pretty soon everybody else stops caring too.

I’d succeeded in changing so much about IBM—the way we were organized, the technology we sold, the actual look of the company—but the hardest task of all was what Williams and I called riding the runaway horse: keeping IBM coherent as it multiplied in size. Eventually I was able to distill into a simple set of precepts the philosophy Dad had followed in managing the business for forty years:

Give full consideration to the individual employee.

Spend a lot of time making customers happy.

Go the last mile to do a thing right.

I thought that to survive and succeed, we had to be willing to change everything about IBM except these basic beliefs. Dad had always conveyed his way of thinking to employees by personal visits, speechmaking, and the sheer force of his personality. Everyone understood his values so well that apart from the old slogans like “A manager is an assistant to his men,” he never got around to codifying them. I felt compelled to change that because IBM was now many times larger than when he was in his prime, and because we were hiring thousands of people every year and large numbers of relatively inexperienced IBMers were being promoted into management jobs.

The most important thing for these young managers to learn was not the professional or technical dimension of their work, but the proper way to treat the people who reported to them. Dad called this day-to-day contact the “man-manager relationship,” and it was as essential to IBM as the family is to society. We depended on this relationship to help safeguard respect for the individual no matter how highly structured the rest of the business became. As long as workers and supervisors understood each other, unions were superfluous at IBM, but if we let that bond erode, sooner or later the business was sure to become a battleground.

Our training methods at that stage were still surprisingly primitive. We had our sales school and machine school, but nothing to teach a person about how to be someone’s boss. A branch manager would call a salesman in and say, “You’re promoted to assistant manager. Be careful with people, don’t swear, and wear a white shirt.” Around the time of the Williamsburg conference I took one of our most gifted sales managers, Tom Clemmons, and put him in charge of executive development. He started a program that was taught at the Sleepy Hollow Country Club. At first he was using cases straight from the Harvard Business School. I took him aside one day and said, in my usual undiplomatic way, that if our company was really going to be unique, we had to teach something unique.

He said, “I thought you wanted them educated to be good managers!”

“You don’t understand,” I said. “I want them to be educated in IBM management: communications, supreme sales and service efforts, going to a guy’s house if his wife is ill and seeing if you can help out, making post-death calls.” You couldn’t read that in anybody else’s manual. They were the practices we’d built up over the years, and new IBM managers had to know them in addition to the technology. So Clemmons changed direction, and the training system became so good that eventually we made a rule that people could not manage anything in IBM unless they had been to management school. The courses lasted from two to six weeks, and I made sure that I or another top executive visited each group of trainees that went through, because it was crucial for them to see who they were working for.

I never thought the proper place for a senior executive was sitting behind a bare desk looking at the ceiling, dreaming up great deeds for the future, and drawing new lines on the organization chart. I spent the equivalent of at least one day per week on employee complaints or walking through plants, talking to salesmen, and chatting with customers. I asked what was right and, more important, what was wrong. You don’t hear things that are bad about your company unless you ask. It is easy to hear good tidings, but you have to scratch to get the bad news. Working in this way, I uncovered shoddy and seamy things in IBM that we were able to fix before they became very serious.

In 1964, for example, one of our branch managers staged a burlesque show at a sales conference in the Midwest. The skit was too vulgar to believe—about an Indian village, starring the manager himself as the chief and some scantily clad models as squaws. They even had live chickens running around on the stage. At the end of the skit the manager disappeared with one of these models into a tepee, and as he turned to go into the tent, the audience saw a sign on his back that said something like “Branch Manager: I do all things for all people.” Then he and the girl pulled the tepee flap closed behind them. There were families present, and somebody who witnessed the show wrote me a letter saying, “Is this what you call IBM dignity?” So I started a big inquiry. The manager in question was a top performer, one of IBM’s best men, but it was our policy to run a clean show, and I said he should be fired. His bosses tried everything to keep him, and even tried hiding him from me by transferring him to the West Coast. But finally he left the company because everybody knew that whenever his name came up I was going to raise hell.

Any time I intervened in a matter of personnel policy, or spotted something I didn’t like at a branch office or plant, I’d write it down in the “THINK” notebook I carried in my pocket. Often I’d use it as raw material for a type of memorandum called a Management Briefing that was sent to every manager right down to the foremen on the factory floor. I put as much energy into writing those memos as Dad put into his editorials in Think magazine. When you are coping with a business full of new managers you learn to take nothing for granted. For example, one of my memos was a primer on how to hold a meeting without wasting time. (My advice was to keep it as small as possible, short, and to the point.)

I wrote nearly a hundred of those memos, trying to teach how to handle everyday problems in an IBM way. For example, there was the issue of employee transfers. Being transferred was a standard part of white-collar life in the 1950s, but when people started joking that IBM stood for “I’ve Been Moved,” I realized our transfers must be getting out of hand. We looked into how we moved people around, and found that many transfers were being made solely for the convenience of IBM without regard for the employee whose family was being uprooted. That violated one of the basic tenets of IBM philosophy—consideration for the individual. So I wrote to our managers that no one should be offered a transfer without a substantial increase in pay and responsibility, and the number of transfers dropped right away. Another case typical of the time was the employee who got fired for refusing to shave off his beard; his manager told him his appearance did not fit in with the decor or with IBM’s corporate image. Many of the scientists and mathematicians we were hiring off the campuses were bringing their beards and informal wardrobes with them. I wanted IBM people to be well groomed, but I thought informality was fine in the research labs. So I insisted that we offer the man his job back, and sent out a briefing explaining that IBM’s corporate design program applied to products, buildings, and decor, but not people.

Of course it’s true a conservative appearance had always been the custom at IBM. A whole folklore grew up about IBM conformity—the white shirts and dark suits. But there was a reason for it. In one way or another we were all salesmen in IBM, individually and collectively, and nothing distracts from a sale like an outlandish appearance. Conservative dress made sense as a marketing tool, just like a plant tour, an education program for customers, or a reputation for excellence. It showed we took our work seriously.

The quality I looked for in a manager, and valued above practically everything else, was common sense. Dad put less emphasis on it—maybe because he had so much of it himself and what he mainly needed from employees was enthusiasm. But now that we were a huge corporation doing business with thousands of smaller companies, too much zeal could cause harm. For instance, we had a contractor who sold us milk for the company cafeteria in Poughkeepsie. The local IBM controller was trying to save some money, and he threatened to take this guy’s contract away unless he dropped his price. There’s a level below which you can’t sell milk without going broke, and we had that guy almost at that level. He finally wrote to me and said, “You are using your economic power here to kill me.” I went to Poughkeepsie and talked to the controller and found out it was true, and I got terribly mad that any IBM employee could be that dumb.

I could set up all the guidelines in the world to try to avoid such situations, but I sometimes found that temper was the best way to get a management lesson across. In the fall of 1956 I learned of two young men who came to IBM headquarters to apply for jobs, got snubbed, and left with the impression it was because they were Jewish. One of them sent me a complaint, and after checking I found out that they hadn’t even been granted an interview. Instead somebody had labeled them “Obviously not the IBM type.” The more I thought about this, the angrier I felt, because IBM had a clear rule against discrimination in hiring. I’d written that rule myself in 1953 during the early stages of the civil rights movement. I brought the job applicant’s letter with me to the Williamsburg conference and interrupted the proceedings to read it out loud. “How do you expect me to represent IBM to the world outside when this sort of thing goes on inside?” I hollered to the executives gathered there. Then, I’m told, I pointed at Jack Bricker, our brand-new personnel chief who was sitting in one of the front rows, and ordered him to clean up the matter and discipline whoever had mishandled it. It was theatrical but I made a crucial point: I didn’t want there to be any difference between what IBM said and what IBM did.

As time passed, I became increasingly intolerant of executives or managers who broke rules of integrity. A business is a sort of dictatorship. The antitrust laws tell you what you can do, and you don’t need anyone to tell you that you shouldn’t be a thief, but within those boundaries the top man has wide discretion. He can give unfair bonuses, he can suggest policies that are not right, he can run airplanes to golf resorts. I never criticized my contemporaries publicly, but there are a lot of things that IBM did differently from other businesses during my watch. I thought that the head of a business had responsibilities almost like the head of a government, without a supreme court and without checks and balances, except those that the marketplace and the annual report impose on his operation. One of the worst mistakes he can make is to apply a double standard to managers and employees. If a manager does something unethical, he should be fired just as surely as a factory worker. This is the wholesome use of the boss’s power.

When we first decentralized IBM, I simply assumed that all of our executives would apply the same high standards of conduct automatically. It took me a number of years to realize that a chief executive has to spot-check decisions made by his subordinates. On one occasion some managers in one of our plants started a chain letter involving U.S. savings bonds. The idea was that one manager would write to five other managers, and each of those would write to five more, who would each send some bonds back to the first guy and write to five more, and so on. Pretty soon they ran out of managers and got down to employees. It ended up that the employees felt pressure to join the chain letter and pay off the managers. I got a complaint about this and brought it to the attention of the head of the division. I expected him to say, at a minimum, “We’ve got to fire a couple of guys. I’ll handle it.” Instead he simply said, “Well, it was a mistake.” I couldn’t convince him to fire anybody. Now, you could admire him for defending his team, but I think there is a time when integrity should take the rudder from team loyalty. All the same, I didn’t pursue the matter any further, and my failure to act came back to haunt me.

A couple of years later in that same division, a manager fired a low-level employee who had been stealing engineering diagrams and selling them to a competitor. Firing him would have been fine, except that the manager handled it in a brutal way. The employee in question had one thing in his life that he was proud of—his commission in the U.S. Army Reserve, where he held the rank of major. Instead of simply going to the man’s house and telling him, “You swiped the drawings and we’re going to fire you,” the manager picked a week when the fellow was in military camp to lower the boom. Somehow the military authorities got involved as well and the man was stripped of his commission. The humiliation caused him to become insanely angry, and for the next few years he devoted himself to making me uncomfortable. He sent pictures of Tom Watson Jr. behind bars to his senators and his congressman and to every justice of the Supreme Court. And he kept harking back to that chain letter, because he knew we had tolerated the men responsible for it. Eventually he simmered down, but the incident really taught me a lesson. After that I simply fired managers when they broke rules of integrity. I did it in perhaps a dozen cases, including a couple involving senior executives. I had to overrule a lot of people each time, who would argue that we should merely demote the man, or transfer him, or that the business would fall apart without him. But the company was invariably better off for the decision and the example.

I knew exactly the attitude I wanted to cultivate in ordinary IBM employees: I wanted them to feel a proprietary interest, and to have some knowledge of each other’s problems and goals. I also wanted them to feel that they had access to top management and that no one was so far down the chain of command that he couldn’t be kept aware of where the business was heading. As the hierarchy grew to include five, six, and seven layers of command, this became a huge challenge. I was constantly looking for ways to maintain what I called a small-company attitude. One of the surprising things we learned was that to overcome the problems of change, we had to increase communication within IBM far out of proportion to our growth rate. We used a variety of channels for listening to our employees, including surveys, suggestion programs, and even a question-and-answer program—called “Speak Up!”—that incorporated bureaucratic procedures to shield the identity of the questioner from top management.

Our most unusual method for shortening the distance between the salesman or factory man and top management was the Open Door, a practice of Dad’s that traced back to the early 1920s. This was primarily a system of justice, but it also gave me a measure of IBM’s health that I could not have gotten any other way. Disgruntled employees at IBM were first expected to take up their gripes with their managers. But if they got no satisfaction, they had the right to come directly to me. Nine out of ten such cases involved matters that should have been resolved further down, or where lower management had already made the right decision—but I listened anyway. I learned an awful lot about the problems of the working man, and I gained a visceral sense about IBM that enabled me to hear a complaint and say, “Something’s wrong here.”

On at least one occasion, a single protest led to a substantial change in the way we did business. A machinist who was about to be fired from the Poughkeepsie plant came to see me. He said, “They’re not treating people fairly. I’m making more pieces than anyone in that shop, and I get the lowest pay.”

“I don’t see how that can be true,” I told him. But I called the plant manager and told him what the man had said.

“Well, you know, he is a very uncooperative employee. He doesn’t belong to the IBM club, he doesn’t participate in outside activities, and sometimes he doesn’t even dress neatly when he comes to work.”

That wasn’t the question I was asking. I called the man’s foreman and said, “Does he make more pieces and get less pay?”

“He doesn’t reflect well on the company. He has a couple of wrecked cars in the yard in front of his house, and he doesn’t take care of his children.”

The machinist was up against what I called the IBM Protective Association, where local managers close ranks to cover up rough treatment of employees who may be totally blameless. Finally the managers admitted that the man was telling the truth. We gave him a raise, disciplined the managers involved, and then we went through every one of our U.S. plants and tied pay to productivity. This caused quite a commotion, because putting in a system that rewarded the best producers meant partly undoing my father’s decision twenty years earlier to abolish piecework.

Many employees did not want to take a complaint all the way to me, but the very existence of the Open Door was a morale builder. It made them feel free to approach a personnel manager or the man running the plant when they had a problem. As IBM grew, we tried to take care of more and more Open Door cases at the division-chief level, with only charges of serious mismanagement that might reflect unfavorably on IBM coming to my office. But even so my office handled two or three hundred cases each year, with each case typically taking several days to resolve. The bulk of this work fell to my administrative assistants, who were chosen from among our most promising young managers. This was the best apprenticeship an IBM executive could have, because it tested his or her ability to handle highly sensitive matters, and required full comprehension of the company philosophy. Periodically I’d see complainants myself, so that word would get around that the head man was indeed available.

My father had always felt a direct connection with the working man, because with his humble roots he had known hard times, hard work, and unemployment. As a result, he tried to blur the distinction between white-collar and blue-collar workers. Not only did he provide secure jobs and good pay for the people in our plants, but the fact that for many years IBM’s pensions were based solely on length of service, not salary or position, stood my father in good stead. During the period in the 1930s and 1940s when there was a lot of labor unrest in America, organizers were hitting pretty hard at the lush retirement plans some companies offered their executives. I don’t think his primary motive was to keep the unions out, but that was one effect.

While the factories had always been more closely associated with Dad than with me, I looked for a way to extend Dad’s philosophy even further. In 1957 Jack Bricker, the personnel director, came back to me with a radical proposal: that we abolish the hourly wage and shift all of our employees onto salaries. This would eliminate the last difference between factory and office work and put all of our people on an equal status. It was a daring plan, affecting about twenty thousand of our sixty thousand U.S. employees, and Bricker had the details so well worked out that all I had to do was approve it.

In January 1958, I announced this change in a nationwide telephone broadcast to the factories. Although the shift to salaries came off well, a number of our managers predicted that many workers would take advantage of the policy and skip work whenever they felt like it. The joke went around that on the first day of hunting season no one would show up for work at our Rochester, Minnesota, plant. As far as I know, we were the first major industrial company to put its whole population on salary. It was a small contribution to U.S. labor history, due solely to Jack Bricker, and I was very proud of it. A few months later, at a meeting in Washington, Walter Reuther, the great United Auto Workers leader, couldn’t resist needling me. “What are you trying to do?” he said. “Make us look bad?”

I considered taking even more radical steps to increase IBM’s commitment to its employees. When I talked to my wife at night, I would speak of various ways of sharing our success more broadly. Those at the top were doing fantastically well on stock options—despite the fact that Williams and I stopped taking options in 1958, after Williams said, “We don’t want to look like pigs.” While IBM’s workers were making good money, they couldn’t look forward to the rich capital gains that executives with options had. In my own case, for example, I had stock options worth about five times my salary, or close to $2 million. From that investment I knew that I was going to make tens of millions of dollars if IBM kept doing as well as it always had. I asked myself, “How much more am I worth to IBM than that guy down at the bottom of the pay scale? Twice as much? Sure. Ten times as much? Maybe. Twenty times as much? Probably not.” I became more and more puzzled at the idea of rewarding executives at a rate wholly different from the people down the line.

So I began to think about ways of sharing the fruits of IBM’s success. My first idea was to distribute the company profits right down to the office boy. When I mentioned this to Williams, he was horrified. “That would put us out of business!” he said. He showed how, if we reckoned what our stock options would likely be worth and averaged them out over our careers, they probably tripled our annual pay. “If we turned around and tripled the whole payroll,” he said, “we’d be giving away the entire profit. Nothing would be left for the shareholders.” That made me think even harder.

I began asking myself whether our present form of capitalism is the best way to support American democracy in the long term. It didn’t seem that way to me. I thought that the model corporation of the future should be largely owned by the people who work for it, not by banks or mutual funds or shareholders who might have inherited the stock from their parents and done nothing to earn it. Entrepreneurs and capitalists would always have a key place—if you risk your money by putting it behind Henry Ford you certainly ought to be able to enjoy the fruits of your investment. But there is enormous strength in proprietorship—people develop strong attachments to the things they own, especially if they can influence whether those things succeed or fail—and it seemed imprudent to let the ownership of a business rest with people and institutions that are not directly involved. Remedying this situation would have to be an evolutionary process, but as I imagined it, gradually, over two or three generations, a business would, by law, shift into the hands of employees.

Though I never found a practical way to achieve it on a meaningful scale, I began looking for ways to increase employee ownership of IBM. In 1958 we established a stock purchase plan, whereby any employee could allot up to ten percent of his salary and acquire IBM shares at 85 percent of their market value. This was a step beyond what my father had been willing to do. Even though he encouraged employees to buy the stock, he stopped short of setting up a formal program because he didn’t want those who couldn’t afford losses to take undue risks. He never forgot his own close scrape with creditors when the bottom dropped out of the stock, in the 1930s.

If everybody in IBM had started buying stock when the purchase plan started, and held onto it, the company would belong to the employees by now, and there would be IBM millionaires by the thousand. But that is not how it worked out. Instead, many people bought the stock, but very few stayed with it. Most people would get a 25 percent increase in their investment and sell out. We also found that the plan hurt morale whenever the stock value declined. I did everything I could to encourage them to hold on, short of personally touting the stock—every year, for example, we published figures showing how wealthy people became by owning IBM over a long period. But people never used the plan to the extent I envisioned.

Did this mean the average guy on the factory line was stupid? I don’t think so. I figured their reluctance to stay with the stock was mainly due to economic circumstances. Most likely a man was selling out because he’d rather have the mortgage on his house reduced than keep his money at risk in the stock. If you looked at the median IBM salary, although it was above the national average, it didn’t leave much latitude for fiddling around with investment risks. We decided we could do the best for our employees by developing benefits such as major medical coverage, scholarships and college-tuition loans, and matching grants for charities and schools. I wanted IBM to be recognized as one of the most generous employers in America.