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IBM AFTER AKERS

It's a headhunter's dream come true. John F. Akers' cataclysmic decision on Jan. 25 to step down as IBM's chairman and chief executive to give someone else a shot at reviving the world's largest computer company has set in motion a star search the likes of which Corporate America has never seen.

The casting isn't easy. Everybody seems to have a favorite candidate. They range from a handful of insiders to dozens of outsiders, including General Electric Co.'s Jack Welch and--are you sitting down?--Ross Perot.

Perot, the man with a plan to save America, would find this perhaps a tougher assignment. After all, Akers spent much of his seven years on the job administering a series of turnaround plans, none of which took. With his latest program--based on breaking IBM into 13 "Baby Blues"--showing few signs of doing the trick, Akers finally decided to call it quits. The announcement was sudden, yet the IBM chairman was not fired, insists James E. Burke, retired chairman of Johnson & Johnson and the unofficial spokesman for IBM's 14 outside directors. "He really was not. If he was fired, I wouldn't be talking with you," Burke told BUSINESS WEEK.

Until mid-January, Akers had seemed determined to see the $64 billion computer giant through its crisis, or at least to stay on until December, 1994, when he will reach IBM's customary retirement age of 60. But IBM's stunning $4.97 billion loss in 1992--the biggest in U. S. corporate history--changed all that.

INVESTOR POWER. Following the Jan. 19 announcement of the record red ink, investor and public pressure for Akers to step down reached a fevered pitch. "No doubt he was influenced by the press, though I tried to persuade him not to be," says Burke. In fact, the public criticism would have been dangerous to ignore, outsiders say. "The public speculation about his survival had weakened his position quite a bit," says Compaq Computer CEO Eckhard Pfeiffer.

It also made it harder for the IBM board to stand up to investor groups such as the United Shareholders Assn. (page 93). The group had plans to place four proxy proposals before IBM's annut's a headhunter's dream come true. John F. Akers' cataclysmic decision on Jan. 25 to step down as IBM's chairman and chief executive to give someone else a shot at reviving the world's largest computer company has set in motion a star search the likes of which Corporate America has never seen.

The casting isn't easy. Everybody seems to have a favorite candidate. They range from a handful of insiders to dozens of outsiders, including General Electric Co.'s Jack Welch and--are you sitting down?--Ross Perot.

Perot, the man with a plan to save America, would find this perhaps a tougher assignment. After all, Akers spent much of his seven years on the job administering a series of turnaround plans, none of which took. With his latest program--based on breaking IBM into 13 "Baby Blues"--showing few signs of doing the trick, Akers finally decided to call it quits. The announcement was sudden, yet the IBM chairman was not fired, insists James E. Burke, retired chairman of Johnson & Johnson and the unofficial spokesman for IBM's 14 outside directors. "He really was not. If he was fired, I wouldn't be talking with you," Burke told BUSINESS WEEK.

Until mid-January, Akers had seemed determined to see the $64 billion computer giant through its crisis, or at least to stay on until December, 1994, when he will reach IBM's customary retirement age of 60. But IBM's stunning $4.97 billion loss in 1992--the biggest in U. S. corporate history--changed all that.

INVESTOR POWER. Following the Jan. 19 announcement of the record red ink, investor and public pressure for Akers to step down reached a fevered pitch. "No doubt he was influenced by the press, though I tried to persuade him not to be," says Burke. In fact, the public criticism would have been dangerous to ignore, outsiders say. "The public speculation about his survival had weakened his position quite a bit," says Compaq Computer CEO Eckhard Pfeiffer.

It also made it harder for the IBM board to stand up to investor groups such as the United Shareholders Assn. The group had plans to place four proxy proposals before IBM's annual meeting: It wanted to split the CEO and chairman's job, form a nominating committee strictly of outside directors, change executive-pay formulas, and set up a board committee to evaluate management performance.

Burke says even the directors were astounded by the company's dismal fourth-quarter performance, which was brought on by weak European sales and a steep decline in sales of minicomputers and mainframes (page 106). Until they were briefed on the results, the board "didn't realize how bad things were," Burke says. As investors' faith in an Akers-led turnaround dwindled, IBM's stock sank to a 17-year low, below 46.

Akers tipped his hand to a few board members in mid-January. During the week of Jan. 18, his people warned some directors that the subject of the Jan. 25 board meeting would be the CEO's job. Burke says Akers also discussed his thoughts with a few members directly. "As I remember it, I think it was a process in which he was kind of thinking out loud and talking about what he was thinking about doing," Burke says. In the end, Akers decided his time was up. "I think he came to the conclusion that the company had lost credibility . . . that the company would be better off . . . to move in a CEO who perhaps could get things done faster or may have a different approach," says Burke.

After Akers announced his decision at the Jan. 25 meeting, there was "spirited discussion," Burke says. But Akers was "very specific and adamant." At the meeting, directors also replaced Chief Financial Officer Frank A. Metz Jr. with IBM retiree Paul J. Rizzo, shifted President Jack D. Kuehler out of daily operations, and authorized a 55% cut, to $1.21, in IBM's quarterly dividend. After the work was done, Akers sat down to dinner with several board members, Burke says.

OUTSIDER? For the post-Akers era at IBM, Burke and the other six outside directors on his search committee may go where no IBM board has gone before--outside for a CEO. "It's fair to say some new blood would be better," says William H. Gates III, chairman of Microsoft Corp. "But I will be surprised if they pick somebody outside. It's so non-IBM." Of course, he notes, Akers' decision was also astonishingly non-IBM. "IBM's such an orderly company. It has such a calm, steady way of making decisions and moving forward. Their succession has always been very well planned and straightforward," says Gates.

With a self-imposed 90-day deadline, the IBM board, never known for its activism, must act quickly. Who do directors believe can lead IBM? Perot, most IBM watchers say, is pretty far-fetched. Yet Dee Soder, president of consultants Endymion Inc., says the Texas billionaire and ex-IBMer is one director's candidate. Since the formal board meeting, directors have contacted headhunters and have been chewing over the names of any number of outsiders--itself an indication of the sea change under way at IBM. During his tenure, Akers eliminated 100,000 jobs, drastically reorganized the company, and split the personal-computer division into a separate unit. But the company's culture remains intact, say analysts and former IBMers.

Now, only an outsider may be willing and able to revolutionize IBM. "An outsider would be seen to have a much stronger endorsement by the board," says Pfeiffer, who was installed as Compaq's CEO in October, 1991, after a boardroom coup ousted founder Rod Canion. An outsider would have an easier time, for example, ordering IBM's first-ever layoffs.

Burke says the board also will look at IBM insiders for a replacement. But those pickings are slim. Most of the leading candidates have left over the last few years, and the remaining executives may not have the authority to effect wrenching changes. The names most commonly bandied about are Robert J. LaBant, 47, IBM's marketing head, and James A. Cannavino, 48, who heads the personal-computer and workstation operations.

Cannavino would be the most radical inside choice. He came up from the technical staff, rather than from the marketing side, as other IBM CEOs have. He even lacks a college degree. But he does have the respect of the outside world. "He's one of those young guys who seem like they are working for an entrepreneurial company," says Gianluca RatIt wanted to split the CEO and chairman's job, form a nominating committee strictly of outside directors, changeexecutive-pay formulas, and set up a board committee to evaluate management performance.

Burke says even the directors were astounded by the company's dismal fourth-quarter performance, which was brought on by weak European sales and a steep decline in sales of minicomputers and mainframes (page 42). Until they were briefed on the results, the board "didn't realize how bad things were," Burke says. As investors' faith in an Akers-led turnaround dwindled, IBM's stock sank to a 17-year low, below 46.

Akers tipped his hand to a few board members in mid-January. During the week of Jan. 18, his people warned some directors that the subject of the Jan. 25 board meeting would be the CEO's job. Burke says Akers also discussed his thoughts with a few members directly. "As I remember it, I think it was a process in which he was kind of thinking out loud and talking about what he was thinking about doing," Burke says. In the end, Akers decided his time was up. "I think he came to the conclusion that the company had lost credibility . . . that the company would be better off . . . to move in a CEO who perhaps could get things done faster or may have a different approach," says Burke.

After Akers announced his decision at the Jan. 25 meeting, there was "spirited discussion," Burke says. But Akers was "very specific and adamant." At the meeting, directors also replaced Chief Financial Officer Frank A. Metz Jr. with IBM retiree Paul J. Rizzo, shifted President Jack D. Kuehler out of daily operations, and authorized a 55% cut, to $1.21, in IBM's quarterly dividend. After the work was done, Akers sat down to dinner with several board members, Burke says.

OUTSIDER? For the post-Akers era at IBM, Burke and the other six outside directors on his search committee may go where no IBM board has gone before--outside for a CEO. "It's fair to say some new blood would be better," says William H. Gates III, chairman of Microsoft Corp. "But I will be surprised if they pick somebody outside. It's so non-IBM." Of course, he notes, Akers' decision was also astonishingly non-IBM. "IBM's such an orderly company. It has such a calm, steady way of making decisions and moving forward. Their succession has always been very well planned and straightforward," says Gates.

With a self-imposed 90-day deadline, the IBM board, never known for its activism, must act quickly. Who do directors believe can lead IBM? Perot, most IBM watchers say, is pretty far-fetched. Yet Dee Soder, president of consultants Endymion Inc., says the Texas billionaire and ex-IBMer is one director's candidate. Since the formal board meeting, directors have contacted headhunters and have been chewing over the names of any number of outsiders--itself an indication of the sea change under way at IBM. During his tenure, Akers eliminated 100,000 jobs, drastically reorganized the company, and split the personal-computer division into a separate unit. But the company's culture remains intact, say analysts and former IBMers.

Now, only an outsider may be willing and able to revolutionize IBM. "An outsider would be seen to have a much stronger endorsement by the board," says Pfeiffer, who was installed as Compaq's CEO in October, 1991, after a boardroom coup ousted founder Rod Canion. An outsider would have an easier time, for example, ordering IBM's first-ever layoffs.

Burke says the board also will look at IBM insiders for a replacement. But those pickings are slim. Most of the leading candidates have left over the last few years, and the remaining executives may not have the authority to effect wrenching changes. The names most commonly bandied about are Robert J. LaBant, 47, IBM's marketing head, and James A. Cannavino, 48, who heads the personal-computer and workstation operations.

Cannavino would be the most radical inside choice. He came up from the technical staff, rather than from the marketing side, as other IBM CEOs have. He even lacks a college degree. But he does have the respect of the outside world. "He's one of those young guys who seem like they are working for an entrepreneurial company," says Gianluca Rattazzi, president of Parallan Computer Inc., an IBM partner.

Of course, there are no candidates who have run a technology company as big and complex as IBM. The board is "going to have to have the guts to go with someone who doesn't have the experience but who is going to be a leader, a visionary for the future," says G. Glenn Henry, a 21-year IBMer and now an executive at Dell Computer Corp.

That could be anyone from Apple Computer Chairman John Sculley to Motorola Chairman George M. C. Fisher. Both, says Burke, are in the running. Also under consideration are Robert Kavner of AT&T, Charles E. Exley Jr., former chairman of NCR, and John A. Young, retired chairman of Hewlett-Packard. Some outsiders speculate that Michael Armstrong, an IBM veteran who left last year to head Hughes Aircraft, could be asked back. Other popular guesses include former Xerox chief David Kearns and Intel's Andrew Grove.Once a new CEO is chosen, "the board's job is just beginning," says John Pound, a Harvard professor. "These kinds of situations can be seen as closing the books on the past and not changing the future in any meaningful way." In other words, the cataclysm at IBM has only just begun.Catherine Arnst in New York and Joseph Weber in Philadelphia, with bureau reports


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