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How IBM Board Member Jim Burke Persuaded Gerstner to Put His Career At Stake

05.04.2007

From 1990 to 1993, IBM shareholders saw nearly $6 billion in equity evaporate as the stock plunged by some thirty percent. In  his final years the company's chairman and CEO, John Akers, cut IBM's workforce by a quarter, closing ten plants and trimming manufacturing capacity by forty percent. Already intellectually drained and bankrupt of ideas, the company was now leaderless for the first time in nearly eighty years. Jim Burke, a longtime IBM board member, finally led the other seventeen directors to realize there had to be a change at the top. IBM needed a new CEO immediately. The board felt strongly that what was wrong with IBM couldn't be fixed by an IBMer. The short list quickly became very short: most of the candidates felt that resuscitating IBM was next to impossible. Lou Gerstner was not IBM's first choice and he also was not interested in this job. Gerstner had never run a computer company. But IBM's problems were not intrinsically technical. IBM was desperate, and the candidates undoubtedly sensed this.

After at least two other candidates - and possibly more - had said no, Burke decided to aggressively go after Gerstner. Burke played the civic responsibility card. He told Gerstner that it was important to the economy, and it was crucial that IBM be restored to its position of prominence in the industry. The company was as important to the technology industry as Chrysler was to the automobile industry. Then Burke asked Paul Rizzo, IBM's retired vice chairman, to walk Gerstner through some of the problems he'd face as head of the company. Burke arranged for Rizzo and Gerstner to meet secretly in a Washington, D.C., hotel room where the two talked for three and a half hours. Gerstner wanted to hear all of the grisly news before he seriously thought about leaving Nabisco. After the meeting with Rizzo, there were two additional meetings at Heidrick and Struggles chief Gerry Roche's second home in Hobe Sound, Florida. During the first meeting Gerry Roche, Jim Burke, and Tom Murphy spent hours discussing with Gerstner Akers's plan to dismantle IBM into smaller units. Many of Gerstner's concerns centered on how much leeway the board would allow him to make significant changes, especially in terms of top officials. It was a sensitive subject, but Gerstner wanted to choose his own board, as well. Gerstner, whose considerable ego was well known, was also clear that he wanted the twin titles of chairman and CEO. In short, Gerstner wanted free rein. At this point, the board had little choice but to agree. He might be the last best hope. By the second Hobe Sound meeting, Gerstner was leaning toward yes, ready to discuss his pay package. The IBM board appeared to be generous. Gerstner's career was on the line as well. If he failed, it might be his last job. If IBM recovered, he stood to benefit greatly more prestige, not to mention the money. Instead of remaining an ordinary rich CEO at a large cookie and cigarette concern, he had the opportunity to become extremely wealthy selling computers and related technology. Now he would be joining a very exclusive club, the CEO of a Fortune 10 company.

Finally Lou Gerstner agreed and his formal coronation as the new leader of IBM was set for the Mercury Ballroom at the New York Hilton on the last Friday morning of March 1993. Outgoing chairman John Akers introduced his successor indirectly, through Jim Burke, and shortly after he did, he slid quietly into a chair at the edge of the stage. For Akers, a tall and engaging man, it was a cruel and humiliating end to his career. At the podium, waiting to assume command, was Louis Vincent Gerstner Jr., the first outsider to claim the executive suite.

Doug Garr, IBM Redux, 1999

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