IBM’s ex-CEO on run­ning the big show and leav­ing it be­hind

The Washington Post Sunday - - BUSINESS - BY LIL­LIAN CUN­NING­HAM

Sa­muel J. Palmisano led Big Blue as if he were coach. He thought about the stock mar­ket like a score­board. He thought about em­ploy­ees as play­ers whose tech­ni­cal skill out­shone his own, but who needed a leader to bring out their col­lec­tive best. He thought about the record he had to main­tain each sea­son to stay on for the next. It’s been 31/2 years since Palmisano re­tired as chief ex­ec­u­tive of IBM, where he spent his en­tire ca­reer. And though the scores were high dur­ing his decade-long run as CEO, rev­enue has slid since his de­par­ture — from about $107 bil­lion in 2011 to $93 bil­lion in 2014. It has left some an­a­lysts wary of the tech gi­ant’s longterm health, and of whether the fi­nan­cial gains un­der Palmisano came at the ex­pense of sus­tain­able growth.

Does Palmisano think he could have done any­thing dif­fer­ently to set up IBM for suc­cess once he left? Not re­ally. What has hap­pened since falls to a new­coach, a new team, he says.

In re­tire­ment he has turned his ef­forts to a non­profit re­search in­sti­tute called the Cen­ter for Global En­ter­prise. This con­ver­sa­tion has been edited for length and clar­ity.

How does it feel be­ing out of the hot seat?

Life is great no longer be­ing CEO of a large public com­pany. I think some peo­ple un­der­es­ti­mate the dif­fi­culty and stress of the job.

Once you stepped out of the role, did you be­come more aware of all the stress you were car­ry­ing?

A year af­ter I was no longer CEO, I was get­ting my an­nual phys­i­cal. I’ve gone to the same doc­tor for 10 years, and the guy looks at me and says, “Ev­ery­thing has im­proved, even things that at your age should never im­prove”— things which I won’t say here.

He said, “So, I guess there was a lot of stress in your job, wasn’t there?” And I said, “Yeah, I guess there was.” You don’t re­al­ize it at the time, be­cause you just do it. You grind away. Ev­ery­one wants the or­ga­ni­za­tion to be suc­cess­ful, so you work hard.

Doyou think many CEOs have trou­ble keep­ing in mind the things they should re­ally care about when all is said and done?

You’re there pri­mar­ily to drive fi­nan­cial re­sults. We could ar­gue the good or the bad of that — that’s a nice in­tel­lec­tual dis­cus­sion — but you’re mea­sured by your own­ers, the share­hold­ers, and they ex­pect fi­nan­cial per­for­mance. It’s like if you’re a coach in sports, you have to win on Sun­day. You can’t lose two years in a row in the NFL and still be a coach for that team. It’s the same thing. You can’t have three or four bad years as a public CEO and ex­pect to be CEO dur­ing year five. That’s just the na­ture of the job.

What was the hard­est part of lead­ing a public com­pany?

Not fall­ing in love with your­self. I was maybe the long­est-sit­ting CEO of IBM other than a Wat­son, but, nonethe­less, I’m not the IBM com­pany. A lot of peo­ple be­fore-me-built a great en­ter­prise. I was for­tu­nate enough to rep­re­sent it for nine to 10 years, but I’m a tem­po­ral stew­ard of an iconic or­ga­ni­za­tion.

In 2010, you set a tar­get for what earn­ings per share would be by 2015. Do you still think that was the right tar­get to set?

The first model was set in 2006 for 2010. We didn’t like the 90-day forecast of Wall Street. You make or you miss by a penny, and stocks are very volatile. I just felt that was the wrong way to run the com­pany. How­ever, in­vestors want some di­rec­tion as to where you’ll be so they can mea­sure you and de­cide whether to in­vest in you or not. That’s a very fair re­quest. It’s not short­sighted — they’re putting their money and their faith in you and the com­pany.

So, we-came up with some­thing we felt we could live with and that made sense, which was a 2010 road map to go from $6 to at least $10 a share. It wasn’t about want­ing a fi­nan­cial tar­get. It was about giv­ing a long-term per­spec­tive of where the IBM com­pany could be in four or five years. It was a way to be share­holder-friendly, but not be quar­terly driven.

When you re­tired, by most met­rics the com­pany was per­form­ing re­ally well. What’s it like to see that IBM has strug­gled?

When you’re gone, you’re gone. When you’re no longer the boss, then get out of there. Don’t com­ment from the cheap seats. The cir­cum­stances are com­pletely dif­fer­ent in to­day’s world eco­nom­i­cally, tech­no­log­i­cally.

Let’s talk about suc­ces­sion plan­ning. What lessons did you learn when you took over the CEO role from Lou Ger­st­ner, and then when you passed it along to Ginni Rometty?

The re­spon­si­bil­ity of the CEO is to pre­pare mul­ti­ple al­ter­na­tives for the board to de­cide. There were prob­a­bly three le­git­i­mate CEO can­di­dates within the or­ga­ni­za­tion. Then the board, based upon their view of the fu­ture strat­egy, made a de­ci­sion. They can go out­side if they feel it’s ap­pro­pri­ate. I’d ar­gue you should go in­side, be­cause in­sid­ers know the place the best.

In our case, we were pre­par­ing mul­ti­ple peo­ple, and the board se­lected Ginni. I think they made the right de­ci­sion. She was clearly the most able, the most ca­pa­ble, and she de­served the job.

What did be­ing a com­pany lifer make eas­ier for you when tak­ing on the CEO role, and what did it make harder?

The hard­est thing is that you have to put your­self in an out­sider’s view as an in­sider. You have to be able to look at things ob­jec­tively and an­a­lyt­i­cally.

The easy part of the job is that you know the cul­ture. If you see things in the cul­ture that are in­hibitors to fu­ture suc­cess, you know ex­actly what to do to turn those knobs.

Lou Ger­st­ner brought the per­spec­tive of a cus­tomer; he brought an out­sider’s point of view, but he needed help con­nect­ing to the cul­ture to get peo­ple to change. He used to tell us in meet­ings: You guys are the na­tives with the map. I don’t have the map. You’ve got to help me change this place.

Did you de­velop tech­niques for get­ting peo­ple to still give you hon­est feed­back and not shield you from things be­cause sud­denly you’re CEO?

I would try to make sure I had a con­stant feed­back chan­nel. I used to in­clude peo­ple other than my di­rect re­ports as part of the monthly meet­ing. They could be four lev­els down from the se­nior vice pres­i­dents. It was a way for them to learn, and also a way to get dif­fer­ent points of view into the dis­cus­sion that weren’t just the old guys who had seen these things a zil­lion times.

The other thing I would sug­gest to any CEO is to have one source of data. Not mul­ti­ple fi­nan­cial sys­tems, not mul­ti­ple facts. At IBM there was one sys­tem — one set of ac­count­ing, one set of mar­ket share, one set of cus­tomer sat­is­fac­tion and em­ployee morale. It cre­ated to­tal trans­parency. Whether you were a sales­per­son or-an-en­try-level-HR per­son, you saw the same in­for­ma­tion the CEO and CFO saw.

There was no time spent de­bat­ing the data. The dis­cus­sion was: Given these prob­lems we see, how do we work on them?

What mis­take in your life yielded a lead­er­ship les­son that

has stuck with you?

There are a lot of those. Gosh. You have to move faster — I learned that in the PC busi­ness. Sud­denly one of your com­peti­tors cuts prices in Asia, let’s say. You don’t have a lot of time to re­spond. You can’t study the­mar­ket trends. You’ve got to re­act. I learned I was slow.

Per­son­nel de­ci­sions. You grow up with all these peo­ple, so you al­ways want to give them a sec­ond chance. But a third chance? A fourth chance? A fifth chance? You think: Come on, they’ll get bet­ter. You coach them and they don’t.

On the flip side of that, what would you iden­tify as a key fac­tor that helped you move up the ranks to have a suc­cess­ful ca­reer?

You’ve got to start with luck. You’ve got to be in the right place at the right time, and mov­ing at the right pace. If you’re 60, it’s hard to be­come the CEO.

But the most im­por­tant thing — to me, any­way— was phe­nom­e­nal re­silience. You’re go­ing to get knocked down. I got beat up a lot — 2005 first quar­ter was a bad quar­ter. Ev­ery­body was scream­ing formy head on TV. You have to fight through it; you can’t per­son­al­ize it. Bad times are go­ing to hap­pen to ev­ery­body.

Peo­ple say you have to be smart. I don’t know if I’m smart. I was a schol­ar­ship kid who played sports. I’m not an engi­neer. Do you have to be bril­liant to be a suc­cess­ful CEO? If you’re bril­liant, you should be a brain sur­geon. Or an aca­demic. You don’t have to be bril­liant to run a com­pany, but you have to be a good peo­ple per­son. You have to be able to lead, to ca­jole. You have to care. That’s what you have to do.

MARVIN JOSEPH/THE WASHINGTON POST

Sa­muel J. Palmisano spent his ca­reer at IBM and was CEO for a decade.

BILL O'LEARY/THE WASHINGTON POST

Sa­muel J. Palmisano, IBM’s CEO at the time, with Pres­i­dent Obama at a 2009 White House meet­ing of busi­ness lead­ers.

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