IBM’s Racial Quota Program Does Not Compute

The SEC does the right thing and sides with the Heritage Foundation over IBM.

We recently wrote to you about how the Heritage Foundation is now the first big political nonprofit over the wall in the corporate engagement arena, putting its finances to work backing up its values. One of the companies on Heritage’s list is IBM, “Big Blue,” one of the biggest tech companies on earth. And this big company has a big problem: public comments about DEI which are potentially illegal.

In 2023, IBM CEO Arvind Krishna was caught on a hot mic talking about the company’s use of racial & gendered quotas in hiring, saying that execs have “got to move both [race & gender] forward by a percentage point” to get a higher bonus. The leaked video, to put it lightly, caused problems. IBM became embroiled in a slew of negative media and later would even be the target of a lawsuit from the Missouri Attorney General. Krishna later rebuffed criticism, saying that this PR maelstrom was fine because… wait for it… he “has a thick skin.” Seriously?

Unsurprisingly, shareholders don’t care if the CEO of IBM has a thick skin, so long as his company is prioritizing merit and talent over race & gender. And now, apparently, it isn’t. In response, the Heritage Foundation put its shares to work. We filed a shareholder proposal on Heritage’s behalf, asking about the risks of discrimination in recruitment/promotion, ahead of the company’s 2025 annual meeting.

And somehow this whole story gets worse.

Peak Intellectual Defense from IBM

As many of you know, when companies receive shareholder proposals from us, they submit letters to the SEC asking permission to exclude the proposal from their ballot. The rationale varies, from micromanagement (because pushing back on a company joining a potentially illegal anti-conservative advertising cartel is definitely micromanaging) to the proposal being misleading. And, given all those options, IBM chose the weakest possible rationale to try and wriggle out of dealing with this proposal: that they don’t know what DEI means.

You read that correctly.

In its letter to the SEC, IBM wrote that “the key terms of the Proposal are not defined,” an incredible statement given that the entire proposal is about race/gender targets in recruitment. “What is DEI?” IBM wrote, apparently expecting this to be taken seriously: “The phrase “DEI requirements for hiring/recruitment” is not defined.

For context, these companies pay white-shoe lawyers INCREDIBLE sums of money to write these letters — and the best they can do is ‘we don’t know what DEI is, despite integrating it into our workforce, training executives to recruit based on it, and fielding a literal lawsuit from a state attorney general because we use it.’

The Paper Tiger Defense Crumples

The SEC, thankfully, took that argument about as seriously as all of you reading this probably do. They ruled in our favor, and the Heritage Foundation’s proposal will appear on IBM’s 2025 ballot. We’re already seeing some inclinations that IBM may be backtracking its strategy on diversity - the company notably made no reference to diversity in its latest annual report. If the company’s willing to take the idea of business focus seriously, it’ll stop hiding behind this paper-tiger defense (Note from Jerry: Isaac wrote that bit, email him if you thought that was over the line) and provide honest answers on how exactly it recruits, hires, and promotes employees. Because what it’s doing now not only isn’t working but digging the company deeper and deeper into this completely avoidable hole.

                                        Jerry Bowyer is President of Bowyer Research.
                         Isaac Willour is a Corporate Relations Analyst at Bowyer Research.

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