Great Skier Theory

How important is an individual manager?

Source: Sports Illustrated

Tom Watson, Jr. liked to ski. He was also chief executive of IBM during a critical period of the company’s history. By all accounts he was quite successful, growing revenues over 15% per year during his 17 years at the helm from 1954 to 1971. He also directed IBM’s investment in a production facility in Essex Junction, Vermont, beginning in 1958. Over time the Essex facility grew from 500 to 8000 employees, and now directly or indirectly affects 10 to 20% of Vermont’s economy.

Watson also became personally involved in the development of the Smuggler’s Notch ski area, at one time directing the siting of a ski lift so that they could claim to have the world’s longest bottom-drive chair-lift. It was said that because Watson liked skiing so much, IBM would never close its unprofitable Essex plant. Smuggs is now one of eight major ski-areas in Vermont

But times change. After Watson retired, computing underwent a revolution. IBM shifted from making mainframes to personal computers to providing computer services to providing cloud-based computing. Computer chips—while critical to IBM’s products—are no longer at the core of its mission. So IBM has been under pressure to close or sell that part of its business.

Now it has—agreeing to pay the private, Abu Dhabi-owned, California-based firm GlobalFoundries $1.5 billion to take the chip-making business off its books. GlobalFoundries has been investing billions in chip-production, building a plant in Malta, New York, near Albany. It’s unusual to pay someone to take an asset off your hands, but IBM apparently wants to maintain control of chip-design, and the process currently costs them around $1.5 billion per year. GlobalFoundries wants access to IBM’s engineers and intellectual property, not the production facilities.

What this means for Vermont is unclear. IBM has a huge impact on Vermont’s economy—the smallest in the country. Because of IBM, Vermont has the highest ratio of patents to population, a figure which perhaps overstates how tech-oriented the state is. Could Watson’s love for snow sports—and subsequent expansion of the Essex plant—turn into a regional depression in the 2010s? Or will “a thousand flowers bloom” as newly liberated workers create opportunities outside the Mother Ship? In either case, it’s striking that one executive’s personal love of skiing in the 1950s still affects people 60 years later.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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By |2017-07-17T12:23:16-04:00October 20th, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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