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Chairman’s Letter

A commitment to corporate responsibility pervades IBM, from new hires to the chairman’s office. In this year’s letter, Chairman, President and Chief Executive Officer Sam Palmisano describes IBM’s long-term approach to corporate responsibility, and the IBMers that make it possible.

IBM’s Approach

Through the years, IBM has consistently expanded the definition of corporate citizenship, pushing the boundaries of what is required to be considered a responsible enterprise. In this section of IBM’s 2010 Corporate Responsibility Report, you will find more detail on our approach to corporate responsibility, and some examples of how that approach manifested itself during the past year.

Communities

At IBM we engage with communities around the world by offering our technology, services and expertise to help solve some of the world’s most complex problems. While the monetary value of these contributions is great, we eschew checkbook philanthropy whenever possible. We believe that this approach is the most efficient, effective and sustainable way to practice good corporate citizenship. And we believe it is helping to make the world work better. In this section of IBM’s 2010 Corporate Responsibility Report, you will find examples of the contributions IBM made to the global community this past year.

The IBMer

For the last 100 years, IBM has pioneered innovative approaches to hiring, managing and retaining our work force. From some of the earliest thinking on work force diversity to progressive programs for employee well-being and leadership development, this ongoing commitment to our employees is critical to the success of IBM and IBMers. And as the nature of our business changes, we will continue to apply the same innovation and creativity we use to develop products and services to our relationship with employees. In this section of IBM’s 2010 Corporate Responsibility Report, you will find examples of the commitments IBM made to its work force this past year.

Environment

IBM has long maintained an unwavering commitment to environmental protection, which was formalized by a corporate environmental policy in 1971. The policy calls for IBM to be an environmental leader across all of our business activities, from our research, operations and products to the services and solutions we provide our clients to help them be more protective of the environment. Download this section of the report (2.2MB)

Supply Chain

IBM manages a supply chain of more than 27,000 suppliers in nearly 100 different countries. We understand that managing a supply chain of this size carries with it considerable social responsibility. Even so, we are continually expanding the definition of what it means to run a responsible supply chain, challenging ourselves and our suppliers to reach ever higher standards of social and environmental compliance. In this section of IBM’s 2010 Corporate Responsibility Report, you will find examples of IBM’s supply chain responsibility efforts over the past year.

Governance,
Ethics and Integrity

Both the size and nature of IBM’s business necessitate that it adhere to the highest standards of conduct. IBM employs more than 400,000 employees, and provides services and technology that support businesses, governments, schools, hospitals and highways. As such, integrity, transparency, privacy and risk management are all crucial parts of our business, and our commitment to making the world work better. In this section of IBM’s 2010 Corporate Responsibility Report, you will find examples of how IBM is setting the modern standard for business ethics.

Enterprise Risk Management

Managing risk is a complex and nuanced business discipline. Every strategic decision within an enterprise carries with it both risk and opportunity. And because IBM’s business affects the fortunes of our shareholders, clients, business partners and employees, it is critical that the company takes a strategic and disciplined approach to enterprise risk management (ERM). We believe that effective risk management is critical to protecting and enhancing the value of the company.

For example, a key element of the company’s strategy has been focused on becoming the premier globally integrated enterprise. In the early part of the decade, the company drove implementation of a consistent set of processes and standards worldwide to reduce inefficiencies and improve collaboration. With its processes integrated, the company implemented a new operating model with work shared in global resource centers of excellence located where it made the most business sense.

The company is now embarking on the next generation of its transformation in which new capabilities and technologies like business analytics and cloud computing will drive performance. The proven principles of the globally integrated enterprise will be applied to all of the company’s spending to continue to drive additional productivity benefits in shared services, integrated operations and end-to-end process transformation.

In conjunction with our internal business transformation and global integration initiatives intended to improve quality and productivity and enable rapid scaling, we implement comprehensive risk mitigation strategies.

One of the most effective ways to manage risks in a global enterprise is to integrate a culture of risk identification, analysis and mitigation throughout the company. We began by infusing that culture into the business units, the most important dimension since that is where risk is taken for commercial gain, and subsequently focused on the geographic units and on the enterprise processes.

In 2010, we continued to further engage senior management in a collaborative approach to identifying, evaluating and managing enterprise-level risk. We communicated with the Audit Committee of the Board of Directors because an overall review of risk is inherent in the Board’s consideration of IBM’s long-term strategies and in transactions and other matters. In addition, our senior vice presidents, in acknowledgment of their accountability for managing risk to acceptable levels, have volunteered to lead the work for various identified risks. A key aspect of their leadership is the governance model and management system they are putting in place to foster collaboration and transparency in managing risk. And risk management has been integrated into our executive compensation system, designed to motivate our leaders to deliver a high degree of business performance without encouraging excessive risk taking.

Throughout the company, the approach we take to identifying and managing risk is based on the ISO 30001 ERM Standard. We consider and assess potential financial, operational, regulatory and other risks to our business. And setting the context is especially important. There are risks we encounter because of where we do business, how we do business, and the nature of our offerings. It is particularly challenging to identify risks that have not been previously identified. We have enhanced our risk identification process over the past five years. The approach in 2010 included several sources. We analyzed our peers’ 10K filings. We worked with leading consultants. And we conducted a rigorous self-examination that included several rounds of reviews with approximately a hundred key executives. This effort resulted in some key changes to the set of enterprise-level risks that will receive senior executive focus in 2011.

Because the very nature of our business—information technology—changes so rapidly, we continually challenge ourselves to identify risks that we haven’t encountered before, or escalate the importance of existing risks due to changed circumstances. Going forward, IBM intends to continue to drive a culture of risk management into all parts of the enterprise, allowing for business, geography and process experts to define and manage risk at increasingly granular levels.