—ibm corporate responsibility report— The IBM Corporate Responsibility Report represents the information reported in various categories on IBM's Corporate Responsibility Web site. Every effort has been made to include the most recent data available for the subjects covered — in some instances, that data may be for 2004; in others, it will be for 2003. The date the content contained in this document reflected the online content is shown as an “effective date” on the last page of each section. For more recent information, content added since this document was produced, and links to related information, please visit IBM's Corporate Responsibility Web site at www.ibm.com/ibm/responsibility. —a guide to this report— from the chairman 0ther voices our views Companies Need to Grow Inclusive Cultures Every Day, Every Month and Every Year: an interview with Ilene H. Lang, Catalyst Corporate Culture is the Key to Unlocking Innovation and Growth, Diversity as Strategy: an interview with David Thomas, by Linda Sanford, IBM senior vice president, enterprise on demand Harvard Business School transformation and information technology The Future of Work: an interview with Thomas Malone, The New Discipline of Services Science, by Paul Horn, IBM senior MIT Sloan School of Management vice president and director of IBM Research One-stop Shopping for Government Grants: an interview with Creating a New Frontier of Innovation, by Nicholas M. Donofrio, Rebecca Spitzgo, U.S. Department of Health and Human Services IBM senior vice president, technology and manufacturing Volunteerism is Good for Business, but It's not Business as Usual: Why Regulation Compliance is a Growth Opportunity for an interview with Robert K. Goodwin, Points of Light Foundation Business, by Brett MacIntyre, IBM vice president, enterprise content management Standing Out from the Crowd: an interview with Jonathan Ford, Turning the TIDE our company our people our world Corporate Profile Compensation and Benefits Contributing to Communities • On Demand Business • Pay • On Demand Community • Business Model • Equity Ownership • World Community Grid • Values • Executive Compensation • Reinventing Education • KidSmart Corporate Governance • Health and Retirement Benefits • Eternal Egypt • Employee Awards and Recognition • Leadership • TryScience • External Audits Employee Well-being • ¡TradúceloAhora! Management System • Managing Well-being • Addressing Adult Literacy • Objectives • Workplace Safety • Internet Ease of Use • Business Conduct Guidelines • Crisis Management • MentorPlace • Higher Education • Policies • Promoting Health and Well-being • Awards • Internal Audits • Cleanrooms • Personal Business Commitments • Incentives to Health Environmental Protection • Work/life Balance • Global Environmental Relationships • Accessibility Management System • Business Partners • Ergonomics • Environmental Evaluation of Suppliers • Clients • Workforce Relations • Relationships • Suppliers • Awards and Recognition • Investment and Return • Investors • Product Stewardship • Employees Workforce Diversity • Product Safety • Retirees • Heritage of Diversity • Energy Conservation • Communities • Global Diversity • Climate Change • Governments • Training • Releases • Pollution Prevention and • Universities • Executive Task Forces, Councils and Network Groups Waste Management Accountability and Sustainability • Government Requirements • Water Conservation • Corporate Citizenship • Audits and Compliance • Diversity as Strategy • Global Leadership Network • Remediation • Awards and Recognition • GRI Index • Awards and Recognition Learning and Opportunity Supply Chain Governments and Public Policy • People Development • Supplier Conduct • Contributing to the Best Ideas in • Leadership Development • Supplier Diversity Government • Employee Opportunity • Advising and Educating • e-government • Recognition • Open Computing Collaboration and Communications • Case Studies • On Demand Workplace • Public Advocacy • Online Jams Security and Privacy • Internal Appeals • Relationships • Global Pulse Survey • Data Governance • Network and System Security • Security Innovation • Business Recovery and Continuity • Privacy Commitment • Privacy Innovation • Awards and Recognition from the chairman — When IBMers think about leadership, they mean more than increasing our market position or growing shareholder value — as important as those are. For us, leadership must occur on multiple fronts, and it must spring from innovation. I’m not just talking about technology. The innovation we As IBM’s CEO, I’m glad to see the recent focus on corpo- seek is broader than that — the joining of invention with rate accountability and trust. From a purely competitive insight to produce important new value. perspective, it plays to our company’s strengths — whether we’re after new client contracts, new talent and This is not new ground for IBM. From our earliest days, expertise, or new markets. A business environment that we have helped pioneer global commerce, have led corpo- raises the bar for companies in this way is one in which we rations and even governments to provide equal opportunity are very much at home. for all, and have applied the discoveries of science to advance business, healthcare and education. As I said, lead- However, I also welcome a broader concept of corporate ership for us means all the dimensions in which a business responsibility for more personal reasons. I have spent my can lead. So, for example, since 1994 we’ve required that a entire working life in this company. I first learned about majority of our board be independent of the company. For business when I joined IBM, and so I naturally developed each of the last 12 years, we’ve earned more U.S. patents an IBMer’s point of view on what a corporation can and than any other company. And as early as 1935, our policy should be. That’s how I learned that you can deliver was for men and women to receive equal pay for the same increased shareholder value and consistently high kinds of work. To IBMers, these facts are not unrelated. returns on invested capital as the result of developing They are evidence of a continuum of innovation. deep relationships with clients, employees, suppliers and entire communities. You cannot achieve this kind of leadership all by yourself. It requires engagement with a broad spectrum of enter- You can read more about that view and our practices on prises and people — openly, collaboratively and with a our corporate responsibility Web site [www.ibm.com/ibm/ deep sense of responsibility. It requires addressing the responsibility]. They’re part of how we describe our work concerns of the wider society in which competitive at IBM and among the things for which we want to be markets operate and technological discoveries occur. And, known. We think managing these responsibilities effec- importantly, you can only sustain such broad-based lead- tively is one of the marks of true leadership. And — as you ership by continually reshaping your own enterprise to be will see — it is certainly a hallmark of our company. a force for positive change. Today, many businesses are newly discovering the impor- tance of ethics, corporate responsibility and the multiple ways in which they are part of this wider ecosystem. In some cases, perhaps, it is a reaction to excesses of the prior decade. But for us at IBM, this is much more than a Samuel J. Palmisano matter of legal compliance or even “giving back to the Chairman, President and Chief Executive Officer community.” It is and has always been integral to how we conceive of ourselves as a business. —ibm corporate responsibility report— fective 05/23/2005 Ef our views — An ongoing series of essays and articles written by IBMers that offer a variety of our perspectives on the responsibilities of business, technology, government and society. Corporate Culture is the Key to Unlocking Innovation and Growth Technology is important—but people must come first by linda sanford Working in a leading technology company, I have come to create sustained brand equity and drive greater shareholder understand the importance of innovation: it can transform value. That culture is defined by its ability to anticipate business, create new markets and drive economic growth. customer needs and market dynamics, then quickly respond In today’s uncertain economic climate, however, innova- with flexible business processes and technology to meet tion has become less of a priority among many business those challenges. leaders, with corporations generally reducing their focus Investing in people and creating a culture of innovation on research and development. might seem counter-intuitive as we are slowly emerging In the right form, however, innovation can still be a from five years of utilizing cost containment as a primary tremendous driver of shareholder value. First, though, we financial management strategy. Every executive I talk with must be careful to understand the distinction between is interested in how to sustain productivity gains going invention and innovation. Invention is the creation of forward — and they realize cost cutting can now only go something new — “the next big thing,” if you will. so far. They’re not interested in buying hot technology Innovation is the application of invention to business or just because it’s the newest thing. They’re looking for top- societal needs. line growth. From that point of view, the reinvigoration of innovation This was supported in the findings of The Global CEO is a critical issue