Father, Son & Co.

by Thomas J. Watson

  The contrast was enormous between the Business Council and the new committee on labor management policy, which I also worked on. The latter had all the excitement of the Kennedy era and pretty much took over the Business Council’s advisory job. It consisted of nineteen leaders from business, labor, and education—people like Henry Ford II and Joseph Block, George Meany and Walter Reuther—and Kennedy himself came to the meetings. I really felt I was walking with giants, and was amazed at the amount of unanimity we were able to achieve. The president asked us to tackle the issue of joblessness, which was an enormous problem because a recession had pushed the unemployment rate to its highest level since the 1930s. On top of that, everybody was worrying about the baby boom—how to provide jobs for the children we’d all had.

  My specialty on this panel was the relationship between unemployment and automation. At IBM we’d always taken a fairly hard line on that issue—after all, we sold punch-card machines on the basis of how many clerks they’d replace. Dad justified this by pointing out that modern technology improves industrial productivity, which in turn boosts the economy, creates jobs, and raises the standard of living for everyone. But now I became conscious of the workers who get put on the street in the process. What first woke me up was a 1960 television documentary by Edward R. Murrow. I appeared in it to explain the IBM point of view, but it was the show’s opening scene that became indelibly imprinted on my mind. Murrow started with the meat packers. In his clear and forceful way, he laid out the background, and then he interviewed an unemployed man who was just sitting on his stoop. The fellow had worked in a slaughterhouse but his skill had been replaced by a machine. He was only forty-five or fifty, but there was nothing he could reapply himself to, and the disintegration of his morale came through on the screen. I was stunned by the tragedy of an able man sitting there saying he wanted to work but couldn’t get a job because the whole industry had changed.

  Walter Reuther had a tremendous influence on me. Lots of people called Reuther a Communist because he and his brother had worked in a Soviet automobile factory in the early 1930s. He was anything but a Communist; I believe he was one of America’s great men and that his death in a plane crash in 1970 was a tragedy for the country. When it came to my education, Reuther picked up where Murrow had left off. He made me understand that if Buick decides to close an obsolete plant in Detroit, then builds a modern new plant in the South, five thousand people are still thrown out of work; the new jobs in Tennessee don’t mean very much to those workers in Detroit. Conservatives would probably argue that that’s part of the free-enterprise system, and that those families are just the chaff that gets ground out while the mill is working beautifully. But I don’t think that’s right, and the labor management committee studied the methods Europeans use to protect jobs. We talked at length with the Swedes, in particular. They have cooperative programs involving industry, labor, and government to recruit workers from sections of the country where unemployment is high, retrain them, and move them to areas where they are needed. Kennedy was willing to explore any idea for inspiring a similar kind of cooperation in the United States.

  That committee was my first inkling that I eventually might be able to accomplish something significant in government. The labor leaders liked me for my liberal views; the businessmen had respect for my success; and the academics saw me as someone receptive to new ideas. But I was still only a neophyte, and during the first year I learned that I would have to do a lot more homework if I wanted to be taken seriously in Washington. There was an ongoing debate in the committee about how to protect the average American worker from unemployment. Conservatives, taking the usual line, wanted to cut business taxes in order to stimulate the economy and produce more jobs; liberals wanted innovative federal programs such as job insurance. I asked an IBM economist to write a paper reflecting my views and, after talking to me, he rapidly produced a very liberal piece. That was where I went wrong, because instead of carefully reading the draft, I impetuously sent it to all the members of the committee. Labor was delighted and management appalled—what my memo proposed was essentially a return to the New Deal. Henry Ford’s chief financial officer wrote a scathing response that denounced my work as spurious and without merit, and although I thought he was being too harsh, I had to admit that what I’d presented was half-baked.

  Some of us on the committee hoped that if labor and management worked together, America would develop ways to run its economy as rationally as the Swedes ran theirs. Maybe we’d have moved in that direction if Kennedy had survived. But less than a year after he was shot, the United Auto Workers went on strike against General Motors, and the settlement they reached went against the national interest. To get the auto workers back on the job, GM gave them a fat contract, including a pay raise far in excess of the anti-inflation guidelines set by the administration. That was another lesson to me. I saw that even when a major union and a major corporation agree, it’s not necessarily for the best. Only the power of the federal government can protect the common good.

  On the day Kennedy died, I was at lunch with a number of businessmen in New York. Bill Paley, the head of CBS, was called out of the room. He came back and whispered to the host, who rose and said, “The president has just been shot in Dallas. He is seriously injured and may not survive.” We all got up to beat a sober retreat to our offices. I was sitting next to Mac McDonnell, the head of McDonnell Aircraft, who said, “Well, the next thing on my agenda this afternoon is an appointment with you.”

  I said, “Mr. Mac, I’d forgotten that. Let’s see if we can’t figure out a time to meet in a week or two.”

  “No, no, I’m prepared to talk right now!”

  I was too shattered to object. I thought, “What the hell, he wants to talk, so we’ll talk.” I took him up to my office. He was offering to buy our service bureau, a part of IBM that maintained its own computer centers and sold time on the machines to customers. I talked with him in a vague way. In twenty minutes he was through, and I went home. No sooner had I gotten there—the Kennedys were always well organized—than we got a call from one of Bobby’s staff confirming that the president was dead and saying that funeral arrangements were being made. That evening I got out some paper and wrote a letter to Lyndon Johnson. I knew him only from White House functions, but I wanted to tell him I recognized what an awful thing had happened to him and how difficult it was to cope with:

  Dear Mr. President,

  As you embark on the free world’s most difficult and trying job, I want to wish you the great success that I know will be yours.

  It has been my great privilege to know you over the past two and a half years, and that relationship has given me profound respect for your abilities and admiration for your tact and diplomacy. The United States is fortunate to have you as its new President and the Free World to have you as its leader, particularly during these difficult days of challenge.

  Please don’t hesitate to call on me if I can be of help. I am with you every step of the way.

  Sincerely,

  Tom Watson Jr.

  I arranged for this to be hand-delivered to the gate of the White House the following morning. I knew a letter like that, even if it is just a small thing, can mean a great deal to the man who is on the spot. Around noon came another call, one of the Kennedy staff asking Olive and me to come to view the body with the senators and the Supreme Court. Everybody remembers particular scenes from those days of mourning. The one that sticks in my mind is Bobby Kennedy standing at a turn in the White House stairs near the East Room, consoling people who had just walked past his brother’s bier. It was a sympathetic gesture that nobody expected from a man under that kind of strain. Bobby shook my hand and held Olive in a long embrace, and both of them were crying.

  Johnson took over, and a number of people told me that he’d shown them my letter. He carried it in his pocket for weeks. I guess it was important to him because it proved he was getting the support even of Kennedy loyalists. But it a
lso expressed the way I felt about him. Because of differences in our personalities, I didn’t think I could work for Johnson—he later asked me to be his secretary of commerce and I turned him down—yet I knew he would try to push through much of the legislation that Kennedy had initiated, and I wanted to support him in any way I could.

  I had a ritual I used to follow on the anniversary of my father’s death. I would spend a quiet evening taking stock of what IBM had accomplished in his absence, and then say to Olive, “That’s another year I’ve made it alone.” The last time I did this was on the fifth anniversary, in 1961. By then IBM was two and a half times as big as when Dad left it—over two billion dollars a year in sales, counting the results of World Trade—and the value of our stock had quintupled. Of the six thousand computers in operation in the United States when 1961 began, well over four thousand were ours, and the rental revenues from computers had grown until they were about to surpass the revenues from Dad’s beloved punch-card machines.

  For those five years I hadn’t let anybody share the spotlight with me. Inside and outside the company I wanted to establish that Tom Watson Jr. meant IBM, and I guarded my power carefully. But in 1961, I decided to make room for Al Williams by moving myself up to chairman, remaining chief executive, and making him president. The years had deepened our friendship to the point where I couldn’t imagine ever being alienated from Al, despite the fact that I was still bothered by Dad’s long-ago warning. In early 1962 someone from IBM brought a draft of our annual report for me to sign while I was in Washington for a meeting, and I saw that Al’s signature was already on it. I hadn’t told him to sign the annual report, and what I’d had in mind was for him to serve a full year as president before he did. After all, Dad had made me wait three years when I became president in the early ’50s. I saw Al’s action as a possible challenge to my power, and I didn’t want to let it pass for fear that it might snowball. In retrospect I wonder if it was really his doing at all: probably one of the people preparing the annual report had put in Al’s name, not realizing the sensitivity of the matter. But I called Al and said, “Look here. Your signature is on this annual report.”

  “Well, I’m president. It ought to be there.”

  “That’s for me to decide. I’m sure I’ll agree at some point. But it’s one of those things that’s very personal.”

  That made Al mad. “I don’t think there’s anything to decide at all!”

  We’d had many business disagreements over the years, but this was the first time I felt we were seriously at odds. So I said, “Fine. If you want to pursue this, assemble the board of directors for a meeting at five-thirty this afternoon. I’ll come back to New York and see you there.”

  Al was quiet and then said, “Let me have fifteen minutes to think about this.” A little later he called back and said, “Tom, it isn’t worth fighting about. I’ll sign the annual report when you think it’s right.”

  That was the end of it. Al knew how to pick his fights, and he understood I could beat him in a boardroom showdown. I had him sign the annual report with me the following year, and we became even closer.

  I would gladly have run IBM in tandem with Williams until it was time for us both to retire. But I wasn’t that lucky. Al was four years older than I, and he’d made it clear all along that he was going to retire early, when he reached fifty-five. “I’ve worked hard all my life, and I want to have time to enjoy what I’ve earned,” he said. I didn’t entirely believe he’d go through with it, but I knew that, come 1966, I had to be ready to name another president.

  The most obvious candidate was my brother. Although Dad had never said so explicitly, I had always understood it was his wish that Dick should run IBM after me. He was five years my junior, so if I brought him in to succeed Al as president, and then stepped aside myself at a reasonable age, he’d have five or ten years at the top. Dick was in total command of IBM World Trade and had built it into a phenomenal success. By 1960 it had become a $350 million-a-year business—bigger than IBM Domestic when I took over as president—and he was making it grow at double the domestic rate. Thanks to his hard work and Dad’s foresight, we were one of the few American companies in a position to cash in on the European economic miracle. Between 1959 and 1962, Williams and I provided Dick with tens of millions of dollars of extra capital to finance World Trade’s growth. Al used to chuckle about the impact this would eventually have on our U.S. competitors: “They’re fighting us so hard here that they’re not even thinking about overseas. Wait until they find out how thoroughly World Trade has gotten itself entrenched.”

  Just as Dad envisioned, my brother’s charm and skill as a diplomat served IBM well abroad. Dick was a merry fellow who made friends effortlessly. He far outshone me in ease and grace, and unlike me was comfortable rubbing elbows with the leaders of governments or other businesses. Capitalizing on his linguistic ability, he made his way smoothly and rapidly in the centers of commerce of South America and the Far East. There were no heads of major countries in Europe whom Dick didn’t know, and Willy Brandt, the mayor of West Berlin, had become a particularly good friend. Within the business Dick had the deft touch it takes to run a widely dispersed operation like World Trade. He set high standards, chose good people as country managers, and gave World Trade the flexibility it needed to bend to the customs of the ninety countries it was in. Yet Dick didn’t hesitate to buck traditions that ran contrary to good business sense. IBM stood out among European companies, for example, by being willing to promote talented young executives over the heads of their elders. Dick was also not afraid to fight when a government made unreasonable demands. Around 1957 Japan gave an ultimatum to foreign companies doing business on its soil: either sell a 50 percent interest in their operations to Japanese investors or get out. Every American company in Japan capitulated except for Texas Instruments and IBM World Trade. My brother told me, “The Japanese need the data-processing industry too much to make us leave.” After years of jawboning, the government finally agreed to let our subsidiary alone. As a result we were always a major force in the Japanese computer market.

  To some degree Dick and I had outgrown our rivalry after Dad’s death. At Williamsburg I made him a member of the Corporate Management Committee, which was IBM’s ruling council. Later, when Mother had her seventy-fifth birthday and retired from the board of directors, I asked Dick to take her place. I still followed the practice of not meddling in Dick’s business—when he asked me to join the World Trade board I declined because I didn’t want to breathe down his neck—but the organizational split between our two companies, which had been quite useful at first, now seemed more like a formality.

  Outside of work, Dick and I had never been closer, and we spent a great deal of time with Mother now that she was slowing down. Dick built her a summer house on his property in New Canaan, and for a couple of months each year he and I lived there with her while our wives and children spent the summer in Maine. Those were warm, funny times. Mother and Dick were particularly close—he was her youngest child and he’d taken her on long trips including one to Australia to look up a long-lost branch of the Watson family. I never traveled with her, but she confided in me in a way she never had while Dad was alive, sharing her worries about this or that member of the family. What meant the most to me was that she thought I was doing a superior job running IBM. She’d say, “If your father was alive, how proud he’d be.” She and Dick and I would chat every morning over breakfast and then Dick and I would drive to work together on the tree-lined back roads of Westchester County to Armonk, where IBM had recently moved its headquarters. Mother had always loved to drive, and as a surprise Dick and I bought her a Jaguar convertible. She drove it around with the top down until she was eighty and could hardly see. Anybody in New Canaan, when they saw that Jaguar coming, would get behind a tree.

  Now that we’d reached a point where it was natural to set up the IBM succession, Al Williams pushed me to make the first move. “We’ve got to get Dick
over from World Trade,” he said. Our plan was to groom my brother just as Dad had groomed me, and we figured he would need a couple of years in a big job on the domestic side to establish his authority. Then he’d be ready to take Al’s place, and eventually mine. I talked to my brother about it in 1963. “You’re doing great at World Trade,” I said. “Dad always predicted it would be bigger than the main company and maybe he had a point. But as far as I’m concerned, you’re also the number-one candidate for this top job. So tell me what you’d prefer. Do you want to stay with World Trade and be the great internationalist? Or do you want to get in the running to be chief executive?”

  I thought I was being scrupulously fair, but in hindsight it was the worst business and family mistake I ever made. I should never have forced my brother into a horse race with other executives for the top job, and it would have been better for everybody if he’d said, “I’ll make no such choice. You decide whether you want me to succeed you, and when you’re ready to make an offer, I’ll consider it.” Instead, Dick asked what I had in mind for him. I told him I’d bring him in at the level of senior vice president, and that meanwhile he would keep the title of chairman of IBM World Trade, although somebody else would actually run that business. He said, “I’d like to think about it overnight.” When you offer a career opportunity to a man who has ambition, he’ll always take the job. Dick came back the next day and said, “If there’s a chance of my running this company, I want to try.”

  While all this was going on, we’d been getting ready to announce a new family of computers that was radically different from anything that had ever been built. This new line was named System/360—after the 360 degrees in a circle—because we intended it to encompass every need of every user in the business and the scientific worlds. Fortune magazine christened this project “IBM’s $5,000,000,000 Gamble” and billed it as “the most crucial and portentous—as well as perhaps the riskiest—business judgment of recent times.” Building this new line meant putting IBM through tremendous upheavals. Careers were made and broken, and the mistakes we made along the way changed a lot of lives, including Dick’s and my own. The expense of the project was indeed staggering. We spent three quarters of a billion dollars just on engineering. Then we invested another four and a half billion on factories, equipment, and the rental machines themselves. We hired more than sixty thousand new employees and opened five major new plants. It was the biggest privately financed commercial project ever undertaken. The writer at Fortune pointed out that it was substantially larger than the World War II effort that produced the atom bomb.