Age-discrimination lawsuit rumbles on as IBM accused of ‘trendy’ objectives

In an on-going age-discrimination lawsuit, a former Big Blue executive has suggested the firm fired old-timers in pursuit of a ‘trendy’ and ‘cool’ image, so it could compete with the likes of Google and Amazon.

This saga has been quietly building in the background for quite some time. The first complaints were presented to the courts in 2018 by Shannon Liss-Riordan, with the ex-IBM employees suggesting they were culled for no reason aside from the fact they were too old. This is of course a big no-no.

The latest revelation from the courts is from Alan Wild, the former-VP for Human Resources, Employee Relations and Engagement. According to Bloomberg, Wild is suggesting Big Blue has fired between 50,000 and 100,000 employees over the last five years in the pursuit of creating an image which will attract the younger generations.

This is where IBM has suffered over the last couple of years. It might have been one of the most successful technology companies of the 20th century, but it certainly doesn’t maintain this perception in the 21st. When graduates leave MIT or Stanford, first port-of-call is likely to be firms like Google, Facebook, Tesla, Twitter, Amazon, or a host of other forward-looking technology giants who have dominated headlines.

Big Blue might be on the rise currently, but this was only after 23 consecutive quarters of year-on-year revenue decline. This company went through a very painful process of realigning attention from the unpopular, unprofitable and declining legacy operations, through to its future-proof ‘Strategic Imperatives’ unit.

In Wild’s evidence presented to the courts, which are currently sealed documents, IBM began to correct its ‘seniority mix’ in 2014, firing older employees and hiring millennials. Perhaps part of this was to ensure its employees were suitably tooled to tackle the new challenges presented by the digital economy, but if you believe Wild’s alleged comments, the purpose was to have a compounding effect on attracting more fresh graduates into the midst.

According to an extensive investigation launched by Pro Publica last March, IBM had culled 20,000 US employees aged at least 40. This number represents 60% of the total number of total cuts across the period. Although the claims are unconfirmed to date, IBM allegedly told some staff their skills were no-longer needed, before hiring them back as contractors for less cash, and encouraging the older employees to apply for new roles internally, while secretly telling hiring managers not to hire them.

These are very serios accusations from both Pro Publica and Wild, though there are plenty of other testimonies which back up the claims.

In January, Catherine Rodgers presented her own evidence to a court in New York. Rodgers was previously a VP in the Global Engagement Office, while also serving as the most senior executive in Nevada. Rodgers was dismissed from IBM, after almost 30 years of service, in 2017 aged 62.

In Rodgers affidavit, she claimed she raised concerns to Steve Welsh, IBMs GM of Global Technology Services, that the firm was ‘engaging in systematic age discrimination by utilizing several methods to eliminate thousands of its employees’. As part of her role, Rodgers had access to lists of individuals who were being cut as part of ‘Resource Action’ initiatives in her business group, noting that all were over the age of 50 while the younger employees were not impacted whatsoever.

Having spoken to managers in other groups, many of whom had workforces made up of employees from younger generations, the layoffs were not as serious. Considering Rodgers’ division was exceeding targets and running under budget, the request from more senior executives caught her by surprise.

“IBM’s upper management encouraged us to inform the employees who were being laid off that they should use IBM’s internal hiring platform to apply for other jobs within the company, but at the same time, IBM implemented barriers to those employees actually being hired for openings,” Rodgers said in her affidavit.

“For example, if a manager wanted to hire someone who had been laid off, there was a multi-layer approval process. (This multi-layer approval process would not apply if a manager wanted to hire someone who had applied from outside IBM.) Even as Vice President, I could not make such a hire without approval by the Global Resource Board and IBM’s upper management.”

IBM has consistently denied reports it targeted older employees for lay-offs, pointing towards the number of people it hires each year. This statement does not prove innocence by any stretch of the imagination, it simply confirms the firm has been hiring new employees to replace the culled ones. In fairness to IBM, it is not proven the firm has targeted older employees and embarked on a campaign of age-discrimination.

What is worth noting is that the number of IBM employees globally has been decreasing steadily over the last few years. Statista estimates IBM had 350,600 employees at the end of 2018, down from 366,600 in 2017, 380,300 in 2016 and 377,700 in 2015. In 2012, IBM employed 434,250 people across the world. These numbers do not prove or disprove the allegations but are good to bear in mind.

IBM has managed a significant turnaround over the last few years. From irrelevance to a cloud business which is almost dining at the top table. It is threatening to compete with the likes of Amazon, Microsoft, Google and Alibaba, though it still has a lot of work to do. That said, it is in a much more comfortable position than previous years. The question is whether it has managed the process legitimately.

BT to close 90% of UK office locations

BT’s cost-efficiency strategy has managed to avoid the headlines in recent months, but today it has announced it will be shutting down 270 of its 300 office locations around the UK.

Unions have been very vocal opponents of the strategy, suggesting it is the telco’s way of spring cleaning, taking the opportunity to shepherd out old bodies. This announcement might be one of the first steps in the consolidation plan, as new CEO Philip Jansen looks to shore up the spreadsheets and finally realise the potential of the £12.5 billion acquisition of EE.

Snuck in with an announcement about modernising eight offices, BT will close 270 of its 300 office locations around the UK in pursuit of a more attractive profit column. If it is any consolation for the members of staff involved in the re-shuffle, these eight refurbed offices will have 5G connectivity.

Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Ipswich, London and Manchester have been identified as key locations for the business moving forward. In some cases, the same office will be used, though details have not emerged on which staff will be moving into a new space.

“The Better Workplace Programme is about bringing our people together in brilliant spaces, and transforming the way we work,” said Jansen.

“Revealing these eight locations is just the first step; we have dedicated teams working on identifying the best buildings to move into and which ones to redesign for the future. As a result of this programme, BT people will be housed in inspiring offices that are better for our business and better for our customers.”

In all honesty, this is a process which BT has been forced into more than making a choice. The telcos is one of the least profitable in the larger segment, while difficulties in managing the relationship with regulators.

Redundancies and restructuring strategies are never pleasant topics to discuss, however BT does need to ensure it is a business built for the next generation of connectivity. The world has changed dramatically and at an astonishing pace over the last decade, forcing telcos to make some difficult decisions.

13,000 redundancies were announced in May last year, and there have been rumours Jansen might be preparing for another announcement in the future. The last financial results passed without any new cuts, but that is not to say there won’t be more in the future. Most of these cuts will be made in the back-office and middle-management functions, with the UK workforce taking the sharpest part of the blade.

Closing offices and consolidating operations is a sensible business decision, few companies will be blamed for making such financial decisions, though it seems to be more of a material development here. The restructuring strategy of BT is becoming very real.

Telstra confirms 6000 jobs to be cut by the end of this year

Australian telco Telstra has announced steady progress for its T22 restructuring plan, allowing it to retire AUS$500 million of legacy IT equipment and bring forward 6,000 job cuts to 2019.

The restructuring plan, T22, was introduced during June 2018 in an effort to simply the structure of the business and improve profitability. The plan is to remove 8,000 roles in total from the business, through replacing legacy systems, digitising certain processes and simplifying the management structure of the business.

According to Telstra executives, who’s jobs are seemingly secure, the firm had become a burdensome beast and needed streamlining. This plan was set in motion not only to reduce the complexity of the organization, but also deliver AUS$2.5 billion in cost efficiencies by 2022.

In today’s announcement, 6,000 of the planned redundancies have been brought forward from 2020 to 2019, increasing the restructuring costs for this financial year by AUS$200 million and introducing a AUS$500 million write down of the value of its legacy IT assets. Investors might not have expected such a hit in 2019, but the news should not have come as a surprise.

“We understand the significant impact on our people and the uncertainty created by these changes,” said CEO Andrew Penn. “We are doing everything we can to support our people through the change and this includes the up to $50 million we have committed to a Transition program that provides a range of services to help people move into a new role. We expect to have announced or completed approximately 75 percent of our direct workforce role reductions by the end of FY19.”

According to Penn, plans are on track and the majority of the work is behind the team. Employees are yet to discover their fate, however the consultation is expected to finish in mid-June

Headcount FY 2018 total revenue Revenue per employee
Telstra 32,293 $20.05 billion $620,877
BT 94,800 $30.01 billion $316,561
Telefonica 120,138 $54.33 billion $452,229
Verizon 144,000 $130.863 billion $908,770

All figures in US Dollars

While Telstra executives might not like the balance of the spreadsheets as it stands, you can clearly see from the table above it is not in the worst position worldwide. Restructuring plans are certainly having more of an impact at some telcos, take BT for example, though some might be aggrieved when being forced into redundancy.

That said, NPAT (net profit after tax) for 2018 was AUS$1.2 billion, 4.1% of total revenues. When compared to Verizon, where profits represented 8.1% of total revenues, or Telefonica where it was 7.4% for 2018, you can begin to see why the management team is under pressure to find efficiencies across the business.

Redundancies, while never pleasant to talk about, are commonplace in the telco industry and will continue to be so. As businesses evolve, more processes become automated and more technology becomes redundant. This will have an impact on any workforce, but when you consider the complexities of managing a network or securing the digital lives of customers, the demand of digitisation becomes more apparent for the telcos.

Unfortunately for Telstra, it also happens to operate in an environment which makes delivering connectivity incredibly challenging and expensive (i.e. the scale of Australia and the geographical isolation of some communities). Add in the fact it will now longer be able to work with Huawei or ZTE, the vendor pool becomes smaller, adding more financial risk to the procurement channels. All of these factors add up to more financial outlay when it comes to the business of delivering connectivity, and pressure to improve operational efficiencies.

Trade union slams BT restructuring plans

Trade union Prospect has hit out at BT’s drawn out plans to cut 13,000 staff as part of a restructuring plans to cut £1.5 billion a year from the spreadsheets.

Holding an open ballot to measure the reception of BT’s ‘People Framework’, the proposed organizational structure following the restructure, BT employees represented by Prospect have overwhelmingly rejected the proposal. 96.3% voted against the proposal.

While former CEO Gavin Patterson spent years forking out cash on various schemes, including rights for English Premier League and European Champions League football, his last actions were at the polar opposite end of the scale.

Announced in May 2018, the wide-ranging restructuring plan was to create a new BT business, one which is designed for the digital era. Alongside trimming the workforce by 13,000, the team would also overhaul its supply-chain and relocate from its central London HQ. BT claims many of the cuts would be sourced from back office and middle-management roles, supposedly protecting the workforce which will perform network maintenance and upgrades.

Over the last couple of days, new rumours have emerged out of the BT office suggesting new CEO Philip Jansen and his team are considering 25,000 cuts on top of the aforementioned redundancies. Should the rumours turn out to be true, BT’s workforce would be trimmed down to roughly 75,000.

In reaction to the original cuts, Prospect conducted an open ballot on BT’s ‘People Framework’, the new internal pay and grading structures. This framework is designed to create fewer management roles, each with more accountability, and de-layering the management organization.

“The rejection of the ballot by BT members gives a clear message to CEO Philip Jansen that he is not bringing his staff along with him in his future vision for BT,” said Prospect National Secretary Noel McClean.

“Good companies are built from the inside and organisational change on this scale is rarely successful when it is imposed on people. These changes will not just see the knowledge, skills and legacy of BT vastly reduced, but will severely impact local jobs and grassroots technology industries supporting local economies.”

While redundancies are certainly far from an ideal situation, BT does need to do something. The telco is currently bloated, representing one of the worst revenue returns per employee across Europe. These are the figures which shareholders would have been looking at when Jansen entered as CEO and you can guarantee he was given a mandate to improve this aspect of the business.

BT currently generates £254,200 per employee per annum, and though this compares to £275,900 at Orange, £327,100 at Telecom Italia, £350,800 at Deutsche Telekom and £405,300 at Telefonica. When you look at the value of assets per employee, the numbers are equally as unattractive. BT clearly needs to do something to alter these numbers.

Prospect has suggested the new system would create a less transparent pay review system to workers across all levels and divisions. It has also questioned whether the telco would be fit to serve the wider digital ambitions of the UK as a result.

Jansen might have been able to keep himself out of the media spotlight so far into his reign, but with his first earnings call only a couple of weeks away, the new CEO might well be called into the limelight to address this conflict. The initial announcement certainly attracted political attention, and we suspect this ballot might well do the same.

Ericsson calls BS on its full-stack BSS

Kit vendor Ericsson has started the year by writing down almost $700 million to account for the fact that its latest BSS efforts have turned out to be a non-starter.

Its Q4 numbers will feature costs of around SEK 6.1 billion related to the ‘reshaping’ of its BSS (Business Support System) business, half of which will be customer compensations and write-downs, and half of which will be restructuring charges. It looks like Ericsson has concluded this is the only way to get its struggling Digital Services division back on track.

“The company’s past BSS strategy included pursuing large transformation projects based on pre-integrated solutions, including development of a next generation BSS platform, the full-stack Revenue Manager,” said the announcement. “The strategy has not been successful and to date the full-stack Revenue Manager has not generated any revenues.

“The anticipated customer demand for a full-stack pre-integrated BSS solution has not materialized. Delays in product and feature development has also made the full-stack Revenue Manager less competitive. R&D resources in BSS have been focused on full-stack Revenue Manager, causing further delays in product releases of the established platform. In addition, certain complex transformation projects experienced delays and cost overruns.”

No revenues at all? Damn! You have to question the due diligence that ‘anticipated customer demand for a full-stack pre-integrated BSS solution,’ when none whatsoever materialised. Furthermore another SEK 1.5 billion will need to be accounted for over the course of this year, taking the total bill to around $860 billion. Ericsson does still see value in its established platform, Ericsson Digital BSS, which apparently has a decent installed base, so it’s not pulling out of BSS entirely.

A big part of Börje Ekholm’s strategy since he took over has been to dial back some of the over-reach that characterised the Vestberg era. “Ericsson is applying a selective approach to large transformation projects focusing on projects based on available products,” said the latest announcement, and it’s clear that Revenue Manager was just such a project. Ekholm deserves some credit for continuing to look facts in the face and take decisive action.

T-Systems joins the job-slashing brigade with 10k cuts

Deutsche Telekom is the next telco to axe employees, with its T-Systems division set to reduce its headcount by as much as 10,000, almost a quarter of employees.

According to Bloomberg, 10,000 jobs will be cut over the next three years, 6,000 of which will be in Germany, as the struggling unit redirects focus onto more lucrative segments such as cloud, cyber security and IoT. The headcount reduction is aimed at saving the telco roughly €600 million by 2021.

While job losses are never a pleasant topic of discussion, it is becoming much more common. BT hit headlines in recent months with plans to slim down the workforce by 13,000, while Vodafone decided to cut jobs but maintain executive bonuses and earlier this week, Telstra announced it was axing 8,000 as part of its Telstra2022 strategy.

In each of the above examples, the message has been simple; jobs from underperforming or soon to be redundant business units are being removed. There might be some additional hires as the telcos pivot to new areas, though the facts are plain; the telcos more jobs are being lost than created. This is another example of the times; telcos are generally not ready for the digital economy and restructuring initiatives to future-proof the business are something we should get used to.

At T-Systems, CEO Adel Al-Saleh seems to be living up to his reputation as a man who can turn around troubled business units. The T-Systems business has long been viewed as the problem child of the Deutsche Telekom family, consistently losing business to the likes of AWS and Microsoft who can offer faster and cheaper IT services through the cloud, and now the Al-Saleh effect seems to be coming into the equation. Having joined the business in January, Al-Saleh is now focusing on more profitable contracts, quality over quantity, as well as more lucrative ventures, such as cloud, cyber security and IoT. Such a shift in business priorities does not come without repercussions however.

Looking at the financials for the first quarter, total revenues at T-Systems declined 2.3% year-on-year to €1.704 billion, with EBITDA shrinking 40% to €57 million. It does seem DT has realised it cannot compete with the more agile cloud players, and has finished throwing good money after bad, instead focusing on areas where it can be more influential.

Elliott looks to chase Vivendi out of Italy

Vivendi’s influence over TIM despite not owning the company is remarkably strange and it seems activist hedge fund Elliott has finally had enough of it.

According to the FT, the hedge fund is looking to shake things up at TIM by trying to run Vivendi CEO Arnaud de Puyfontaine, who also acts as TIM’s Executive Chairman, as well as four other Vivendi ‘friendlies’ out of the board room. The showdown is set to take place during the annual general meeting next month, but Elliott is wasting no time in vocalising its distaste for the situation. The issue is a simple one; Elliott thinks the share price should be higher and it wants to make changes to ensure it does go upwards.

The last couple of months have been quite incredibly when it comes to the balance of power. Despite only owned 24% of the telco, Vivendi seems to be in an incredible position of power to influence activities at TIM, which did raise some voices of concern from the Italian government. Spinning off the fixed infrastructure business into an independent, but still wholly owned, business does seemed to have appeased the government, but Elliott is still standing defiantly.

Elliott has told TIM it wants to remove de Puyfontaine from his position, as well as four others who have strong links to the French media business. To replace the five, Elliott has put forward its own preferences, all of which have weighty reputations in the Italian business world. The suggested replacements are as follows: Fulvio Conti, Massimo Ferrari, Paola Giannotti De Ponti, Luigi Gubitosi, Dante Roscini and Rocco Sabelli.

This is of course not the first time Elliott has been hitting the headlines for making noise. In 2015 the hedge fund was incredibly vocal in trying to stop dodgy dealings regarding the acquisition of Samsung’s construction business by another part of the family for an incredibly low price. It might have failed to get its way in this example, but this is the only example of failure in the 50-odd activist campaigns it has launched over the last five years. Usually when Elliott starts making noise, people listen.

It isn’t tough to see why either. Elliott is regularly ranked in the top 10 hedge funds worldwide, with roughly $34 billion of assets under management. Its known for seeking out distressed organizations which are underperforming and helping formulate a turnaround. It has a rather unpleasant nickname of being a ‘vulture fund’, but it is generally successful at what it does.

And it does appear that the message has been received by Vivendi. The French media giant has released a statement in which it confirms it has heard the concerns and like Elliott has an interest in raising the share price of TIM. de Puyfontaine is even considering suspending his executive functions at TIM as a means to disarm the situation.

With the Vivendi push for power, the revolving door of executives, government involvement, spinning off of assets and now the intrusion of an activist shareholder, TIM is proving to be one of the most interesting companies in the telco space right now!