Lou Gerstner wrote, "People truly do what you inspect, not what you expect." … Lest we forget, "inspection pages" such as these exist because chief executives are "people" too.
Arvind Krishna: 2020 through 2025 Shareholder Risk
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Date Published: April 11, 2022
Date Modified: April 2, 2026 |
A One-Hundred Year Perspective on IBM's Shareholder Risk With Goodwill
- Arvind Krishna: IBM Shareholder Risk from 2020 through 2025
- Rometty & Krishna: IBM Shareholder Risk from 2011 through 2025
- Gerstner, Palmisano, Rometty & Krishna: IBM Shareholder Risk from 2001 through 2025
A One-Hundred Year Perspective on IBM's Goodwill and Shareholder Risk
An intangible asset is something that, if dropped on your toe, doesn’t leave a mark. It is ethereal, and its value is open to personal interpretation, imagination, and creative thinking. For the purposes of this article, intangible assets are presented in two ways: first, the goodwill that arises directly from an acquisition; and second, all other intangible assets—patents, brand image, customer relations, non-binding contracts, strategic alliances, or others (as identified from IBM's Annual Reports).
In the 20th Century, great chief executive officers like Thomas J. Watson Sr., the traditional founder of IBM, believed that goodwill was a terrible asset to carry on a corporation's books because essentially, if/when a company failed there were really no tangible assets behind this intangible asset and the dollars that represented it on the books.
In the 20th Century, great chief executive officers like Thomas J. Watson Sr., the traditional founder of IBM, believed that goodwill was a terrible asset to carry on a corporation's books because essentially, if/when a company failed there were really no tangible assets behind this intangible asset and the dollars that represented it on the books.
The line graph below documents that to find a similar percentage of goodwill to what IBM carries on it books today, a researcher would have to return to 1925. This was around the time that the C-T-R Company was renamed International Business Machines (IBM). In the 20th Century, it took Tom Watson Sr. forty-two years to drive goodwill to zero. The 20th Century Chief Executive Officers kept it at zero until 2001 when the accounting laws were modified.
In the 21st Century, goodwill is the difference between the full amount paid for an acquisition less all other tangible and intangible assets. As a real-time example from IBM's Annual Reports, IBM documented in its 2003 Annual Report the 2002 acquisition of PricewaterhouseCoopers Consulting (PwCC) for $3.89 billion. Of the purchase price, IBM estimated that PwCC had $.32 billion in tangible assets (current and fixed assets of value such as chairs, desks, computers, buildings, etc. less current and non-current liabilities), and $.41 billion in “other” intangible assets (strategic alliances, client relationships, and customer contracts). The remaining $3.16 billion--81% of the purchase price—was listed as goodwill: specifically, what IBM wrote in its annual report was that the "goodwill value" was to be acquired from "the assembled workforce, synergies gained from combining PwCC and IBM, and the premium paid to gain control" of the company.
Goodwill is a hidden risk that most shareholders fail to understand—until a company files for bankruptcy.
It took Thomas J. Watson Sr. his entire forty-two year career at IBM (1914 through 1956) to decrease the amount of goodwill to zero that Charles Randall Flint's "creative thinking" assigned to the C-T-R Company when he merged several companies together to form the company in 1911. A lessor chief executive than Tom Watson Sr. would have probably just ignored the valueless asset, but not IBM's first Chief Executive Officer. He immediately went to work to get it off the books—even reducing it during The Great Depression.
It took Thomas J. Watson Sr. his entire forty-two year career at IBM (1914 through 1956) to decrease the amount of goodwill to zero that Charles Randall Flint's "creative thinking" assigned to the C-T-R Company when he merged several companies together to form the company in 1911. A lessor chief executive than Tom Watson Sr. would have probably just ignored the valueless asset, but not IBM's first Chief Executive Officer. He immediately went to work to get it off the books—even reducing it during The Great Depression.
As of 2025, $70.3 billion is carried on IBM's books as goodwill as a result of its expenditure of $99.2 billion for its 224 acquisitions since 2001. This goodwill carries zero inherent value and, in a worst-case scenario such as bankruptcy, it would have little or no monetary value for shareholders. This increasing percentage of goodwill increases shareholder risk.
It was a 2001 accounting change that has allowed 21st Century Chief Executive Officers to carry goodwill effectively … forever. And it doesn't appear that any of IBM's 21st Century Chief Executive Officers have wanted to address this shareholder risk.
Instead they prefer to keep "passing the buck ... the risk."
It was a 2001 accounting change that has allowed 21st Century Chief Executive Officers to carry goodwill effectively … forever. And it doesn't appear that any of IBM's 21st Century Chief Executive Officers have wanted to address this shareholder risk.
Instead they prefer to keep "passing the buck ... the risk."
- IBM's Shareholder Risk from 2020 through 2025
- IBM's 2020 through 2025 Shareholder Risk With Arvind Krishna as CEO
- Arvind Krishna inherited a high degree of shareholder risk from his 21st Century predecessors.
Shareholder Risk increased in 2021 as goodwill + intangible assets surpassed a benchmark 50% of total assets because of the Kyndryl divestiture—the 52% annotated in the charts below reflects the appropriate percentage. Since then, the percentage of intangible assets has remained in the 52-53% range.
There appears to be no activity or expressed concerns to address this risk to IBM's shareholders.
This 2020 through 2025 information is graphically reflected in the charts below.
- Arvind Krishna inherited a high degree of shareholder risk from his 21st Century predecessors.
- IBM's Shareholder Risk from 2011 through 2025
- IBM's 2011 through 2025 Shareholder Risk with Krishna and Rometty as CEOs
- From 2011 through 2025, the percentage of goodwill + other intangible assets rose from 25% to 53%, The Red Hat acquisition resulted in a large increase not only in goodwill but in total intangible assets which grew from its decade-long $3 billion to over $15 billion in a single year.
This 2011 through 2025 information is graphically reflected in the charts below.
- From 2011 through 2025, the percentage of goodwill + other intangible assets rose from 25% to 53%, The Red Hat acquisition resulted in a large increase not only in goodwill but in total intangible assets which grew from its decade-long $3 billion to over $15 billion in a single year.
- IBM's Shareholder Risk from 2001 through 2025
- IBM's 2001 through 2025 Shareholder Risk: (Including Goodwill only)
- Starting first with just goodwill, the following chart documents the continuous growth of goodwill (blue bars) from 2001 through 2025 and goodwill's percentage of these total assets (red line graph) which has now reached 45% of total assets.
The combination bar chart and line graph below documents IBM's Total Shareholder Equity in billions of dollars from 2001 through 2025 while highlighting the percentage of these assets that are carried on its books as "Goodwill."
- IBM's 2001 through 2025 Shareholder Risk: (Including both Goodwill + Intangible Assets)
- The following chart documents the continuous growth of goodwill + intangible assets (blue bar chart) since 2001 and maps goodwill's and intangible assets' percentage of total assets (red line graph) which has reached 52% in 2025. This means that more than half of all of IBM's total assets are "intangible." They have little to no book value.
The combination bar chart and line graph below documents IBM's Total Shareholder Equity from 2001 through 2025 while highlighting the percentage of these assets that are carried on its books as "Goodwill and Intangible Assets."
- IBM's 2001 through 2025 Shareholder Risk: (Including both Goodwill + Intangible Assets)
- Goodwill accumulated through 245 acquisitions at a total cost of $110 billion drove shareholder equity less goodwill into the red in 2008 by constantly increasing goodwill and other intangible assets. Goodwill and other intangible assets peaked at $53 billion in 2019. Under Arvind Krishna they had dropped to $44 billion in 2024 only to rise again in 2025 to $46 billion.
The bar chart below documents IBM's Total Shareholder Equity highlighting how the increase in IBM's Goodwill and Intangible Assets from 2001 through 2025 have driven it into the red.
