New CEO to keep IBM on steady course

After months of speculation, IBM announced yesterday that Sam Palmisano will replace Lou Gerstner as CEO on March 1.

Palmisano, IBM Corp.’s president and chief operating officer, will succeed Gerstner as CEO, the company said in a statement. Palmisano has been long been considered as Gerstner’s replacement since he was named president and COO in 2000.

Gerstner, who is stepping down on March 1 – his 60th birthday and the day his contract expires, will stay on as chairman until year’s end. IBM did not name a new chairman.

Big Blue’s board met Tuesday to officially vote on the management change, according to a company statement.

In a related move, John Thompson, current vice-chairman, will retire Sept. 1, and IBM didn’t name a replacement. Thompson led IBM’s US$13 billion software group.

“It’s not a dramatic surprise, [the transition from Gerstner to Palmisano] has been handled so smoothly and is well-managed, there’s little to say,” says Brian Jeffrey, a consultant at ITG. “I don’t expect any major changes to happen with Palmisano, since he’s been in the inside for years when it came to any decisions.”

Palmisano is no stranger to Big Blue – he’s been with the company since 1973 fresh out of St. John Hopkins University. He’s held leadership roles in virtually all of IBM’s operating units, including the services and servers group. The new CEO also worked at IBM Japan as its senior managing director of operations – one of the few IBM executives to go overseas.

In all likelihood, Palmisano is expected to continue to steer Big Blue in the directions already set by Gerstner and the current management team. Servers have played a large part in IBM’s rebound, especially under Palmisano’s direction.

Personality-wise, Palmisano is said to be more outgoing and gregarious than Gerstner.

When Gerstner came on board IBM in 1993, Big Blue was in the midst of its worst financial crisis and on the brink of being broken up by its then-CEO John Akers. Gerstner caused some controversy in his initial days when he said he had no “vision” for IBM, yet cleaned up Big Blue laying off tens of thousands of employees, implemented disciplined cost controls and sold or shut down low-margin or money-losing business lines, such as networking and enterprise applications.

Gerstner moved the company’s focus to services, and IBM is the biggest computer consulting and services company in the world. The company has continued to finish first in patents, filing 3,411 patents in 2001 – finishing first for the ninth year in a row.

IBM now is a force in storage, but its PC business continues to lose money – a market it helped develop.

As for IBM’s stock – it’s up more than 800 per cent since 1993.

Even when Gerstner steps down as chairman later this year, he’s expected to stick around. IBM amended Gerstner’s contract, awarding him a 10-year consulting contract after his retirement.

IBM Canada Co. in Markham, Ont., is at