In Poughkeepsie, a Bitter Family Breakup

Cover Story

After paternalism and prosperity come lawsuits and vandalism

Evan I. Schwartz
Business Week

April 5, 1993

Driving north on Route 9 through the rolling hills of New York State's Hudson River Valley, you can see IBM's influence everywhere, especially as you approach Poughkeepsie. On the right is the IBM credit union, where workers get their mortgages. A bit farther up is the IBM Conference Center, a country club for IBM employees. Then, along the river, the old clock tower of the IBM plant peers through the trees. This is where for decades IBM has built its mainframes, possibly the greatest cash-spinning machines in American business history. This was the heart of the old IBM.

In 1941, IBM came to this 19th century mill town to build munitions for World War II. In 1948, it opened a plant to make calculating machines. At the opening ceremony, General Dwight D. Eisenhower said: ''We are dedicating this magnificent building to the future of America.'' In 1964, the plant got the call to build System/360 mainframes. As those machines helped make Big Blue the dominant computer maker in the world, Poughkeepsie prospered, too.

An IBM job meant good pay, lush benefits, and security. ''My wife said: 'we're not going to have any babies until you get into IBM,' '' recalls James J. Reed, a 30-year veteran. Other old mill towns died, but IBM rained wealth and benefits on Poughkeepsie, including a new school district to accommodate IBM offspring. ''IBM was like a family,'' says Ted Wolf, a 25-year IBM veteran.

Now, the family is breaking up. Wolf, 52, a software manager, is taking early retirement. Reed, 56, was forced to leave his job as finance analyst last May. ''I was told that I wasn't going to be able to keep up with the times,'' he says. ''It hit me like a sledgehammer.''

They're the lucky ones. They'll retire with pensions and, in Reed's case, a year's salary. On Apr. 30, early-retirement incentives will expire. IBM will start laying off ''surplused'' workers. The buzz in town is that the new CEO may cut the work force to less than 6,000, down from 8,000 now and 10,000 in 1990.

IBM's paternalism -- the company songs, the company clubs, the no-layoff custom -- might have seemed like a quaint anachronism to other companies. Here, it was the fabric of the community. IBM's founder, Thomas J. Watson Sr., said that ''respect for the individual'' was the cornerstone of the company. According to local legend, when Watson was touring the Poughkeepsie plant in 1953, he stopped to aid a worker who had cut his finger on a machine. ''The Watsons had a certain philosophy,'' says Reed. ''That is gone.''

'NO MORALE'

Workers here know that business is lousy and changes are needed. But many say they're bitter because IBM hasn't leveled with them. For two years, executives repeatedly assured employees that the problem was just a temporary dip in mainframe sales -- not the changeover to cheaper technology the company now acknowledges. ''People lost all respect because IBM is not being up front,'' says Bruce Donegan, 44, a member of a task force formed to help cut plant jobs, including his own.

As the rumors of layoffs escalate, there have been sporadic reports of vandalism at the plant and lawsuits by employees seeking better termination agreements. ''There is no morale,'' says a 38-year-old machine operator who is shopping for a new job, without luck.

The outlook for the entire region has dimmed. Because of IBM plants in Poughkeepsie, East Fishkill, and Kingston, unemployment in the mid-Hudson Valley stayed below 3% through most of the 1980s. Now, it's nearly 7% and rising. IBM says 6,000 of the 20,000 jobs in the three plants will be eliminated. Most folks think it will be more. Real estate is collapsing. So is the quality of life. IBM, long the biggest donor to local nonprofit groups, is suddenly invisible.

At a packed Poughkeepsie Area Chamber of Commerce breakfast, a minister gives the invocation, asking the Almighty ''to guide IBM toward just actions and the right decisions.'' The guest speaker is IBM Senior Vice-President Nicholas M. Donofrio, who started in Poughkeepsie in 1967. He assures the crowd that IBM cares and that Watson's values will endure. Yet, he warns: ''We are not an altruistic society.''

Afterward, the audience breaks into groups to discuss economic revival. So far, the best hope is tourism, but that's too iffy for many residents. ''People are heading out,'' says Reed. He knows. These days, he's making change at a toll booth on the Newburgh-Beacon Bridge, south of Poughkeepsie. He says he doesn't miss Big Blue, though. ''At IBM, you always had to impress somebody,'' he says. ''But out here, I'm on my own.''

GRAPHIC: Photograph, FORCED RETIREMENT FROM IBM HIT REED ''LIKE A SLEDGEHAMMER'' LARRY FORD