Bloomberg News

IBM’s Rometty Breaks Ground as Company’s First Female Leader

October 26, 2011

(Updates with AIG board experience in 15th paragraph.)

Oct. 26 (Bloomberg) -- International Business Machines Corp.’s Virginia “Ginni” Rometty has grown throughout her career by taking on challenges she’s never faced before. Now she’ll tackle something no one has ever done.

Rometty, 54, will become the first female chief executive officer in IBM’s 100-year history. The Armonk, New York-based company said yesterday she will succeed Sam Palmisano in the role effective Jan. 1. Palmisano, who has been CEO since 2002, will remain chairman.

In an interview, Rometty said she has grown the most in her career through “experiential” learning.

“I learned to always take on things I’d never done before,” she said.

She takes the reins as steady profit growth pushed IBM shares this year to the highest level since the company went public in 1915. Her experience in sales, services and acquisitions fits with the strategic direction set by Palmisano, who said last year the company will add $20 billion to revenue between 2010 and 2015 by expanding in markets such as cloud computing and analytics.

Rometty made it clear she would follow the road map the company has laid out because she helped construct it.

“I’ve been head of strategy at IBM and together with my colleagues built our five-year plan,” she said. “My priorities are going to be to continue to execute on that.”

Budget Fights

The 30-year IBM veteran caught Palmisano’s attention in 2002 when she helped integrate the $3.9 billion acquisition of PwC Consulting, IBM’s largest deal ever at the time. Rometty, then a general manager of the consulting unit, said she knew from the start the acquisition would be challenging.

“It was the first and only time a professional services firm of that size has been integrated into another large company,” she said.

Rometty is credited with helping retain PwC’s principal consultants, who didn’t always mesh with IBM’s cost-cutting culture. When Palmisano wanted to cut travel budgets, making consultants stay at Holiday Inns, she helped them fight -- and win, said Ric Andersen, a former PwC consultant who joined IBM in the deal.

Palmisano promoted her to senior vice president of the group in 2005, and she boosted profit at the unit 42 percent in her first two years on the job. During her three decades at IBM, she became known as a polished executive who can close a sale, expanding relationships with companies from State Farm Insurance Co. to Prudential Financial Inc.

“She’s an engaging woman -- great with customers,” said Fred Amoroso, who was her boss in the financial-services consulting division during the 1990s. “Customers just love Ginni.”

Sales Promotion

Amid the recession, Palmisano put her in charge of running the company’s almost $100 billion in sales. Last year, she added marketing and strategy to her responsibilities.

“She is more than a superb operational executive,” Palmisano said in the statement. “With every leadership role, she has strengthened our ability to integrate IBM’s capabilities for our clients.”

Rometty also served on the board American International Group Inc. from 2006 until 2009, a period in which the insurer had three CEOs and received a government rescue that swelled to $182.3 billion. She didn’t stand reelection for the position in 2009 as government-appointed trustees for the company moved to reshape the board.

‘No-Nonsense Thinker’

“She is a serious, no-nonsense thinker,” Martin Feldstein, a Harvard University professor who served on the AIG board at the same time as Rometty, said in an e-mail.

The succession at IBM has been the result of careful, long- term planning by the company’s board, said Rosabeth Kanter, a Harvard Business School professor who knows Rometty and other IBM executives. Rometty not only held many key positions at IBM during her career, she also has received mentoring and exposure to global leaders important to IBM’s future, she said.

“In contrast to other companies that have abruptly named new CEOs recently, such as Hewlett-Packard, IBM handled this very smoothly over several years,” Kanter said in an interview.

Palmisano turned 60 in July, the age at which three of the past four IBM chiefs have stepped down. He’s IBM’s longest- serving CEO who doesn’t share the surname of the company’s founder, Thomas J. Watson.

Vastly Different

He will leave a business vastly different than the one he took over. In his first year at the helm, he bought PwC Consulting, and two years later, he sold off the PC business. Those moves coupled with more than $25 billion in software acquisitions helped Palmisano realign what was once the largest computer company into a services and software powerhouse.

The maneuvers made the company predictably profitable, boosting per-share profit for more than 30 straight quarters. Since 2001, Palmisano’s boosted sales by 20 percent, while keeping costs of the 426,000-employee behemoth little changed.

He also used IBM’s cash flow to buy back stock, helping to boost earnings per share and the share price. The company yesterday added $7 billion to its repurchase authorization, raising the buyback program to $12.2 billion.

The appointment of Rometty, with a background beyond technology, underscores the company’s focus on business services, said Bobby Cameron, an analyst for Forrester Research.

“A lot of the company’s strategies now are business- focused, not tech-based,” Cameron said in an interview. “I look at Rometty being put in this spot as evidence of that shift.”

Sign of Stability

Analysts took the news as a sign of stability.

“I don’t think much changes, and that’s a good thing,” said Brad Zelnick, an analyst at Macquarie Capital USA in New York, who has an “outperform” rating on the stock. “The leadership team has acted in a very cohesive fashion over the years. Especially with Palmisano remaining as chairman, I would expect that the strategy keep consistent.”

Rometty grew up in a Chicago suburb, the oldest of four children. In 1979, she got a degree in computer science and electrical engineering from Northwestern University and headed to an internship with General Motors in Detroit, where she met her husband, Mark. After her internship, she joined IBM. She now splits her time between homes in White Plains, New York, and Bonita Springs, Florida, where she and Mark are avid scuba divers.

Growth Versus Comfort

This month at Fortune magazine’s Power Women Summit, Rometty said she learned shortly after beginning to work that she needed to take risks to advance.

“Really early, early in my career, I can remember being offered a big job,” she said. “Right away I said, ‘You know what? I’m not ready for this job.’”

That night “as I’m telling my husband about this, he just looked at me and he said, ‘Do you think a man would have ever answered that question that way?’” she said. “What that taught me was you have to be very confident even though you’re so self- critical inside. Growth and comfort do not coexist.”

In a commencement speech at her alma mater last year, she explained why she has stayed at IBM as she encouraged the graduating students to seek the largest challenges.

“You have the skills that can be applied to some of the world’s most significant challenges,” she said. “I know that is what has always drawn me to, and kept me at IBM. IBM’s long- standing mantra is ‘Think.’ What has always made IBM a fascinating and compelling place for me, is the passion of the company, and its people, to apply technology and scientific thinking to major societal issues.”

“Every day I get to ‘Think’ and work on everything from digitizing electric grids so they can accommodate renewable energy and enable mass adoption of electric cars, helping major cities reduce congestion and pollution, to developing new micro- finance programs that help tiny businesses get started in markets such as Brazil, India, Africa,” she said. “After 30 years, I’m genuinely excited to get up and apply those problem- solving skills in ways I would never have imagined when I was sitting where you are.”

--With assistance from Noah Buhayar in New York. Editors: Peter Elstrom, Ville Heiskanen, Donna Alvarado

To contact the reporter on this story: Carol Hymowitz in New York at chymowitz1@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.


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