IBM's Sam Palmisano Is Out: Ginni Rometty Is Chairman

Ginny Rometty

Photo: Wikimedia Commons

IBM’s Chief Executive Officer Ginni Rometty will succeed former CEO Sam Palmisano as chairman of the board, cementing her transition as leader of the century-old company.Rometty, 55, will take the new role on Oct. 1, the same day that Palmisano steps down from the board, Armonk, New York-based IBM said yesterday in a statement. Palmisano, 61, will become a senior adviser until he retires on Dec. 1.

Rometty took the reins at IBM in January, becoming the company’s ninth CEO and its first female leader, following stints in services, sales, strategy and marketing. During her ascent, she oversaw the integration of PricewaterhouseCoopers Consulting, helping IBM build a staff of more than 100,000 consultants. Now she faces the challenge of reinvigorating revenue after years of favouring profit over top-line growth.

“She’s an operations and a sales person,” said Laurence Balter, an analyst with Oracle Investment Research in Fox Island, Washington. “That bodes well for the role as IBM starts to focus on their global growth, and she’s really a global- minded leader. It’s a good move from the board’s point of view.”

Even so, IBM missed an opportunity to keep the two jobs separate, something other companies are increasingly doing, said Charles Elson, a corporate-governance professor at the University of Delaware. Splitting the roles makes it easier for a board to stand up against a CEO if something goes wrong.

Countering Trends

“They are swimming against the current,” Elson said in an interview. “Good governance practice is to split, and a changeover is a good opportunity to do that.”

IBM shares fell less than 1 per cent to $204 at the close in New York. The stock has climbed 11 per cent this year.

IBM has maintained profit growth by shifting to higher- margin software sales and cutting expenses — a strategy that Rometty has said she will continue. The company raised its annual profit forecast in July to at least $15.10 a share, topping analysts’ estimates.

IBM, the world’s biggest computer-services provider, aims to get half of its earnings from software by 2015, a move away from less-profitable hardware and services.

Sales Slump

Still, sales growth has slowed. Revenue fell 3 per cent to $25.8 billion last quarter, dragged down by sluggish demand for hardware and currency fluctuations. Analysts had predicted sales of $26.3 billion, the average of estimates compiled by Bloomberg.

Rometty sees an opportunity for growth by selling software in developing economies and creating programs that work with cloud computing and business analytics.

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 when she was named to the CEO job.

Palmisano promoted her to senior vice president of the group in 2005, and she boosted profit at the unit 42 per cent 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 ranging from State Farm Insurance Co. to Prudential Financial Inc.

Engineering Degree

Rometty has technical background, with a degree in computer science and electrical engineering from Northwestern University. After school, she took an internship with General Motors in Detroit, where she met her husband, Mark. She then joined IBM in 1981.

This month Rometty was named the most powerful woman in business by Fortune magazine, ahead of PepsiCo Inc. CEO Indra Nooyi and Hewlett-Packard Co. CEO Meg Whitman.

Her CEO appointment also led to scrutiny of the Augusta National Golf Club, which traditionally invites the leader of IBM to join. The club didn’t allow women members until last month, when it added former Secretary of State Condoleezza Rice and financier Darla Moore. Augusta National hasn’t made any announcement about Rometty’s membership.

Palmisano served as CEO between 2002 and 2012, and has been chairman since 2003. Rometty’s ascension to the chairman job is happening faster than anticipated, Oracle Investment’s Balter said.

“She’s proven herself obviously, so I think this is a little shorter time than expected,” he said. “I thought she’d be in the role until at least 2013 before being nominated chairman.”

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