| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||
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| INFORMATION TECHNOLOGY
Big Blue's Blunt Bohemian Larry Ricciardi's real job at IBM: Talking turkey to the boss If you want to understand what has made Lawrence R. Ricciardi the most trusted adviser to IBM(IBM) Chairman Louis V. Gerstner Jr., look at the $14 billion deal he negotiated in November with AT&T(T). At the center of the complex agreement is the $5 billion sale of the IBM Global Network data-communications pipeline. It was Ricciardi who argued that IBM should sell the unit, and then stubbornly held out until AT&T met his price--even though no one at IBM, including Gerstner, thought he could get it. And in typical Ricciardi fashion, he smoothly negotiated side deals, including $4 billion AT&T will pay IBM to develop software and $5 billion IBM will fork over to AT&T for access to the network over the next five years. Ricciardi, though, is far more than Gerstner's chief deal-closer. Officially, his title is IBM senior vice-president and corporate counsel. Unofficially, ''He's really Lou Gerstner's consigliere,'' says Karl M. von der Heyden, vice-chairman of PepsiCo Inc.(PEP), who worked with both Gerstner and Ricciardi at RJR Nabisco Inc(RN). While Gerstner is the company's visionary and top business strategist, Ricciardi is his intellectual sounding board, ready to challenge Gerstner's thinking whenever needed. ''Larry will always tell me what he thinks,'' says Gerstner. ''I do not want people around me who tell me...what they think I want to hear.'' He need not worry about that. Lately, Ricciardi has been pushing Gerstner to reduce the company's involvement in memory chips, a business IBM is getting hammered in because of depressed prices due to a worldwide oversupply. ''He's sort of a fearless fighter about what he believes in,'' says Xerox Corp(XRX). CEO G. Richard Thoman, a close friend who has worked with Ricciardi at IBM, RJR, and American Express Co(AXP). ''He's both extremely bright and extremely willing to express his opinion.'' And he gets results: Last month, IBM announced it would shift the mix of its chip business to focus on higher-profit products. This sort of give-and-take has been going on between Gerstner and Ricciardi for more than 20 years. Together at American Express, RJR Nabisco, and now IBM, the duo has compiled one of the most admired track records in business. They have gone from building American Express into a financial-services powerhouse to fixing IBM's balance sheet and turning Big Blue into a nimble Internet competitor. Colleagues say the two have developed a shorthand that sometimes reduces communications to a series of facial expressions. Says Vernon Jordan, who has served on the board of American Express and RJR Nabisco: ''There's a mutual respect and understanding of each other's modus operandi.'' Plainly put: They share a no-holds-barred approach to doing business. Yet on the surface, the two appear to be more different than alike: Gerstner impeccably tailored; Ricciardi rumpled, with a scruffy beard, an unruly mop of gray hair, and worn khakis. Those differences disappear, though, when it comes to work. ''Larry Ricciardi has a first-class mind. And more important, he works that mind,'' says Gerstner. PROFITS UP. The one-two punch of Gerstner and Ricciardi is paying off handsomely for IBM. The $82 billion computer giant's revenue growth, stuck in the low-single-digit range for most of Gerstner's six-year tenure, has begun to edge up, hitting 15% for the first quarter. IBM stock, meanwhile, is up 23% from $91 since the beginning of the year. (On May 27, IBM stock split for the second time in two years.) Analysts say Ricciardi deserves some of the credit. ''He's one of the unsung heroes of the turnaround,'' says Merrill Lynch & Co. analyst Steven M. Milunovich. Now, the 58-year-old Ricciardi is helping Gerstner keep the momentum going. He has guided the company through 58 acquisitions, mostly smaller deals in software and services. At the same time, he has been reviewing the company's portfolio of businesses and putting some units on the block, such as IBM's high-end printer business. The scalpel isn't his only tool. Ricciardi also has made a big contribution to the top line. He noticed that IBM was collecting royalties on its hardware technology but had mostly ignored software patents. He more than doubled IBM's patent revenue, to $1.1 billion last year, by going after companies that violated IBM software patents. PEACEMAKER. Inside the company, Ricciardi aims to make the lumbering giant more competitive. It was Ricciardi who decided--shortly after joining the company--to leave IBM's battery of lawyers at home and go to Washington to convince the feds that the historic 1956 consent decree limiting anticompetitive practices at the company was no longer relevant. Except for a handful of managers Gerstner brought in, the entire management of IBM had spent their careers with the consent decree, so they were cautious by nature. Ricciardi went to make peace. ''My father always said: 'Separate the generals from the peacemakers,''' he says. Ricciardi did--and he cut a deal ending the consent decree in stages by 2001. That was a huge morale booster because it allowed IBM to price and bundle its products more aggressively. Still, Ricciardi isn't admired by all. Some former IBM managers dismiss him as simply ''Lou's lawyer,'' rather than an independent voice in the company. What's more, they say, Ricciardi has contributed to making the IBM culture less collegial. He can be mercurial, stubborn, and unnecessarily blunt. Thoman defends him, though: ''There are many times...where Larry would say something was dumb and would get it disposed of right away.'' Ricciardi, born in the Bronx, got his first taste of business from his father, an Italian immigrant who was an investor in four film-processing companies that were merged and taken public in 1961. He let his 18-year-son sit in on all the talks with bankers, lawyers, and public relations people. ''It was an education for me to see how they all worked,'' Ricciardi says. At that time, Ricciardi wasn't sure he wanted a career in business. As an undergraduate at Fordham University, he studied history, art, and literature, and was interested in teaching literature at the college level. But he went to Columbia law school as a compromise between literature and business. Even then, he took literature and Chinese classes on the side. To this day, Ricciardi remains a restless spirit. He's an avid traveler, a voracious reader, a collector of rare books, antiques, and art. In Florida during early March for a three-day strategy session with IBM's top 300 execs, Ricciardi passed up golf and tennis for a solitary tour of the art galleries of South Beach, where he picked up a piece for his home. His house is one-of-a-kind, too: circular, made of stone and concrete, with an atrium in the middle. Ricciardi describes it as a ''concrete bagel.'' At home, where he lives with wife Lucy, a retired software executive, Ricciardi's an early riser. He will get up at 5 in the morning and sit in the bathtub reading a book. On average, he says he reads a book a day--and often reads a series of books on a single topic. He spent 18 months consuming everything he could on the Ottoman Empire. ''I started because I realized I know nothing about the Ottoman Empire.'' TABLOID READER. Still, Ricciardi isn't an elitist intellectual who wouldn't know a baseball from a golf score. At the office, he may start the day with the Wall Street Journal but he leaves with a tabloid under his arm. ''I sit down at night, I'm tired and cranky, and I open up the New York Post, and I've got to tell you, man, it just juices me up.'' What really gets him juiced is a challenge. The kick for him is putting his intellect to work on IBM's problems. He likes to win--whether it's in negotiations with a partner or putting together a lobbying campaign. He's an overachiever, even when he's on vacation. Last year, on a barge and bicycling trip in France with family and friends, Ricciardi said he would stay on the barge while the others rode bikes. Once there, that all changed. Ricciardi, says his friend, Karl von der Heyden, ''was the first one on the bikes each morning, and he was ahead of the pack all day.'' Ricciardi's a bit of an adventurer, too. Friends say that on business trips he's usually scouting out a side trip to some exotic locale. He roamed the back streets of Hanoi on one of the first visits by a U.S. businessman, visited a temple in Nepal where chickens were being sacrificed and, after wandering into a military zone in Beijing, was detained--until a guide could convince officials he wasn't a spy. ''He doesn't live for his work,'' says friend and former American Express colleague Mark Ewald, who was along on those trips. Indeed, Ricciardi is one to cut loose. Thoman remembers a trip to Rio de Janeiro the two took when they were both at AmEx. He says Ricciardi loves the samba. ''We stayed up all night,'' recalls Thoman. ''He's passionate about good food, good wine, good conversation.'' NEW TECHIE. Now, Ricciardi is applying that passion to understanding high tech. When he told his kids he was joining IBM, they thought it was a hoot that their dad would try to understand an industry that changes direction by the nanosecond. Ricciardi says they described his PC skills as at the level of ''techno-dolt.'' Not for long. Ricciardi is running Windows NT on the computer in his office so that he can get a feel for the operating system. Ricciardi had a tech tutor in his early days. He would come into the office and have someone from research sit with him and explain what an operating system was, what middleware was, how the software operates with the hardware. ''It's like learning Russian,'' Ricciardi says. Ricciardi may look like IBM's resident bohemian scholar, but he regularly sits in on operations meetings covering every aspect of Big Blue--something corporate lawyers typically do not do. Gerstner asked Ricciardi to work on the Lotus deal even before joining IBM in May of 1995. Gerstner also turned to Ricciardi when Thoman left IBM as chief financial officer in June of 1997 to join Xerox. It was Ricciardi who stepped in for a year until the vacancy could be filled. The two have been close since 1978, when Ricciardi was the lawyer for the travel-reservations business Gerstner ran at American Express. But the relationship almost didn't get started. Shortly after he started at American Express, Ricciardi was appointed Gerstner's lawyer, but Gerstner wasn't hitting it off with the outspoken Ricciardi, says close friend Ewald. Gerstner, Ewald says, went to the company's top lawyer to have Ricciardi replaced. But Gerstner was told no dice, and to give it time. Gerstner and Ricciardi say they don't recall the incident. NOT BORED. After 12 years at AmEx, Ricciardi joined Gerstner at RJR Nabisco, where the pair kept up a frenzied pace of deals, nearly one a week, to reduce the company's staggering debt load. Gerstner says it was there that Ricciardi honed his business skills. Indeed, in 1993 when Gerstner left to run IBM, Ricciardi and von der Heyden were appointed co-chairmen of RJR. Ricciardi eventually became president of RJR. He stayed there until he decided to retire, following management changes at the company. It didn't take long for Gerstner to come calling. ''I said to him I thought it was a joke that he had retired. He has such a natural inquisitiveness and a love of complex problems that he was going to be bored to tears within a month,'' recalls Gerstner. ''And I had the mother of all challenges to offer him.'' It was. But there's still plenty more to do. Another unofficial Ricciardi role: Mentor. He's working with several execs, including Chris Caine, vice-president of government programs. Ricciardi plucked him from two levels down in the organization to run IBM's lobbying efforts. In late February, Ricciardi flew down to Washington to get an overview of current legislation and lobbying efforts from Caine and his 40-person staff. Caine told Ricciardi he wanted IBM to take up the cause of protecting consumer privacy online. Ricciardi wasn't convinced, partly because of IBM's missteps in the market. Caine didn't give up. Finally, Ricciardi told him: ''You can come back to me on consumer protection, and I'll convince you you're wrong.'' The bluntness was vintage Ricciardi. Caine wasn't miffed, though. He knows the boss gets the same treatment sometimes, too. By Ira Sager in Armonk, N.Y, with Diane Brady in Greenwich, Conn. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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