It's official: IBM picks Gerstner as chief RJR chairman faces huge task

March 27, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Tobacco and food executive Louis V. Gerstner Jr. was named the head of International Business Machines Corp. yesterday, capping an extraordinary search to lead the shrinking computer giant.

Mr. Gerstner, the 51-year-old chairman and chief executive of RJR Nabisco Holdings Corp., replaced John F. Akers, a consummate IBM insider who, while starting to downsize the world's largest computer maker, could not effect the radical changes considered necessary to reverse IBM's collapsing fortunes.

Since Mr. Akers announced his resignation two months ago, the search for a new chairman and chief executive developed into the most widely followed head hunt in modern corporate history. But as one top-flight manager after another rejected the daunting task of reviving IBM, attention focused on Mr. Gerstner as the remaining big-name business leader.

James E. Burke, the board member who was rumored to have nudged Mr. Akers into retirement and who led the search to find his replacement, denied yesterday that Mr. Gerstner was a second-string choice.

"This myth that he was last in line was simply not true," said Mr. Burke, adding that Mr. Gerstner's lack of computer-industry experience was no weakness. "We made a specific offer to only one person, and that was Lou Gerstner."

Mr. Gerstner, speaking at a news conference held yesterday morninghere to announce his selection, declined to divulge his salary. He said he did not know precisely how he would turn around IBM, which lost $5 billion last year, cut its enormous dividend and announced the first layoffs in company history.

"My first priority is to listen and learn what the issues are," said Mr. Gerstner, who will take over Thursday as the 79-year-old company's sixth CEO and the first from outside the company. "The issue now is to become part of the team."

Mr. Akers, 58, is due to stay on indefinitely as a consultant to help oversee the transition.

Mr. Gerstner is known as a hard-driving manager who radically slashed RJR's $29 billion debt to $14 billion over the past four years, but he was remarkably quiet yesterday. He said he had no idea how long his task would take and said the board had set no deadlines.

His one sure goal, he said, is to ensure that IBM serves its customers as well as it once did. As president of

American Express Co. in the 1980s, Mr. Gerstner said yesterday, he frequently used IBM products. He said he wants IBM to be what it was then: a one-stop center that could solve all a customer's needs.

He said he owns two IBM personal computers -- one at home and one in the office -- but added with a laugh that he also owns a laptop computer, "whose name escapes me now."

That comment highlighted IBM's Achilles' heel: its failure to anticipate the industry's shift away from its strength -- mainframe computers. Although consumers were happy to buy small IBM (( clones that could be linked into powerful networks, IBM continued to build the technically advanced but extremely costly mainframes that fewer and fewer companies were demanding.

In response, IBM embarked on a restructuring, creating 13 independent divisions. At the same time, its payroll has shrunk by 100,000, to 300,000. Industry analysts believe that 50,000 to 100,000 more jobs must be eliminated for the company to regain profitability.

Despite these changes, IBM still derives its earnings mostly from the large systems and peripherals.

The depth of the company's problems was illustrated again this week, when a bond rating company downgraded IBM's debt, and two brokerage houses reduced their earnings estimates for IBM. Most analysts now believe that IBM will suffer losses this year of about $1 billion.

IBM has stumbled over whether it should build computers or become a company that solves information problems for businesses through computers. The company engages in both fields, but most industry observers believe it must abandon its unwieldy computer production unit.

Such a challenge means that IBM's board might have made a good decision in Mr. Gerstner, said Bob Djurdjevic, head of Annex Research in Phoenix, Ariz. Rather than choose another brilliant computer insider, the company settled on someone who can mold the company into a new shape, he said.

"I think we'll see the contours of a new IBM in six to nin months," Mr. Djurdjevic said. "Until then, we can't know for sure what the company's fate will be or what Gerstner's effect will be."

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