IBM's Palmisano May Step Down Next Year in Historic Succession

International Business Machines Corp. Chief Executive Officer Sam Palmisano will probably cede the post next year, raising the possibility of the first female or first black CEO in the 99-year-old company’s history.

Three of IBM’s last four chief executives have stepped down at 60, with the exception being John Akers, who was forced out by IBM’s board before he reached that age. Palmisano, who has led the company for more than eight years, will hit that mark next July. IBM’s tradition of CEOs stepping aside at 60 helps retain top executives, said Val Rahmani, former general manager of an IBM security software business.

“People need to see that there’s the opportunity to progress,” said Rahmani, who left IBM last year and is now CEO of the Atlanta-based security software firm Damballa Inc. She said Palmisano will probably retire next year. “There’s loads of speculation going on at the moment.”

IBM, the world’s largest computer-services provider, has brought in a CEO from outside the company only once, when it named Louis V. Gerstner Jr. to succeed Akers in 1993. The likely candidates this time are internal, including the senior vice presidents who oversee sales, hardware, consulting and technology services. Steve Mills, the well-respected senior vice president for software, may be unlikely to take over the top post since he also turns 60 next year.

Photographer: K.M. Cannon/Bloomberg

International Business Machines Corp. CEO Sam Palmisano. Close

International Business Machines Corp. CEO Sam Palmisano.

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Photographer: K.M. Cannon/Bloomberg

International Business Machines Corp. CEO Sam Palmisano.

IBM doesn’t comment on CEO succession, spokesman Edward Barbini said, because it’s an issue for IBM’s board. Directors won’t discuss their activities, he said.

Succession Unclear

For the last CEO change, IBM made the succession path clear more than a year before Gerstner stepped aside. The company appointed Palmisano, then head of the server business, president and chief operating officer in September 2000. The formal CEO announcement came in January 2002, and Gerstner stepped down from the position March 1, on his 60th birthday. Gerstner remained chairman through the end of 2002 before Palmisano assumed that title.

“It is an IBM tradition,” said Louis Miscioscia, a Boston-based analyst at Collins Stewart Plc who rates the shares “buy.” “I would guess that Palmisano would follow the tradition.”

Palmisano hasn’t named a president or chief operating officer, which may be evidence he doesn’t plan to step down at 60. That hasn’t stopped speculation about the succession in the halls of the company’s Armonk, New York, headquarters, Rahmani said.

Rometty, Adkins

One leading candidate is Ginni Rometty, who has overseen IBM’s sales effort for more than a year. Before that, she headed global business services where she spearheaded the integration of PwC Consulting, the company’s second-largest acquisition and a key step in shifting its strategic focus to services.

“She’s really a ‘Let’s just get it done’ person, but not in an abrasive manner,” said John Chen, CEO of Sybase Inc., a database software maker that partners with IBM. “One time we went and met with her, she sat there and spent the time going through details. A lot of top-level people would just expect their staff to summarize.”

Another possibility is Rod Adkins, also 51, who heads IBM’s hardware group and supply chain. Adkins, who is black, is a member of the company’s technology team, which oversees IBM’s technical strategy.

“He’s very much the young engineer who made it,” Rahmani said. “And very well-regarded technically. A great product visionary.”

Moffat’s Fall

Other candidates include Mike Daniels, who has headed technology services -- which makes up 40 percent of IBM’s sales -- for more than four years and previously led sales in the U.S., Canada and Latin America. Frank Kern heads global business services, IBM’s consulting division, and ran the sales division before switching positions with Rometty last year.

Bob Moffat, a former senior vice president who led the mainframe, storage and server businesses, was considered a frontrunner until he was arrested in October for leaking insider information to an outside consultant. He resigned, pleaded guilty and faces up to six months in prison. Adkins, who then headed the semiconductor unit, took on Moffat’s duties as well.

“Before I left, it was all about Ginni and Bob Moffat,” Rahmani said. “Now of course, no one talks about Bob that way.”

IBM fell 64 cents to $125.75 at 9:35 a.m. in New York Stock Exchange composite trading. The shares had fallen 3.4 percent this year before today.

Stepping aside next year would allow Palmisano to leave the top post after a strong run. He guided IBM through the economic slump while steadily boosting earnings. This month, he set a goal of doubling operating profit to $20 a share by 2015, with average annual sales growth of 5 percent over the same period, topping analysts’ expectations.

Since becoming chief executive in 2002 and chairman at the beginning of 2003, Palmisano sold off hardware businesses, most notably the personal computer division, and focused IBM, once the world’s largest computer company, on more profitable software and services.

Eight years later, IBM is the third-largest software maker, trailing Microsoft Corp. and Oracle Corp.

“He’s achieved a lot -- and in a tough time,” Rahmani said. “You need change every once in a while. That’s what keeps IBM going. It keeps renewing itself.”

To contact the reporter on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net

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