These Board Members Aren't Ibm Compatible

The winds of change buffeting IBM's executive suites are now reaching into Big Blue's boardroom. Director J. Richard Munro--a member of IBM's powerful executive committee--won't be there when directors meet on July 27 in New York, BUSINESS WEEK has learned. Munro has resigned, citing his unfamiliarity with the computer business as one reason--a remarkable bit of candor, considering he has served on IBM's board since 1979. Stephen D. Bechtel Jr., chairman emeritus of Bechtel Group Inc.--and also on the executive panel--is quitting, too. Helmut Sihler, the former chief executive of Henkel, retired from the board in June for "personal reasons." Afd more IBM directors are expected to depart by spring.

Such boardroom shifts may look anticlimactic compared with last winter's events, when the ax fell on CEO John F. Akers. But IBM-watchers see the resignations as a tacit admission that the board isn't up to the task of overseeing IBM. "The business did get a little beyond us," concedes Munro, former co-CEO of Time Warner Inc. Bechtel, a director since 1976, wouldn't comment.

Old-line outsiders may be quitting partly because heat from investors is growing. Angry shareholders, who have seen IBM's stock fall off a precipice, sniped at them at April's annual meeting. And the bad news keeps coming: IBM is expected to announce a second-quarter loss on July 27. Analysts predict red ink of 20 a share, vs. a $1.29 per share profit a year ago, according to First Call. That follows a 1992 loss of $6.9 billion on $64.5 billion in sales. IBM's stock just hit an 18-year low of 41 5/8.

Louis V. Gerstner Jr., who took over from Akers in April, "went in with a mandate to change the board," says a source close to Director James E. Burke, the retired Johnson & Johnson CEO who led the search for Akers' replacement. So far, Gerstner, who previously held the top post at RJR Nabisco Inc. and the No.2 spot at American Express Co., has focused on more pressing tasks. But he wants to compensate for his lack of in-depth knowledge of the computer industry by finding technologically savvy directors. And IBM's outsiders have been of little help. Gerstner has had to rely on insiders--former CEO John R. Opel, Vice-Chairmen Jack D. Kuehler and Paul J. Rizzo. Kuehler retires on July 30.

PC REMARK. The board's deficiencies were made very clear last Feb. 23, when the four outsiders on the eight-member executive panel--Bechtel, Burke, Munro, and Thomas S. Murphy, chairman of Capital Cities/ABC Inc.--met with California Public Employees' Retirement System officials. At the 90-minute meeting, Munro said none of the directors felt comfortable using a personal computer. "Not one of us has a PC in our home or in our office," he said, according to a participant. No one disagreed.

Yet because IBM's 18-member board is too big to handle many issues effectively, the power--and key responsibility--rests with these directors. "The people on the executive committee all should have resigned," says a source close to the board. "None knew what was going on, and they all should have known."

The rest of the board hasn't exactly shone, either. It's studded with blue-chip members unlikely to challenge the status quo. Examples: Thomas F. Frist Jr., chairman of Hospital Corp. of America; John B. Slaughter, president of Occidental College; and Nannerl O. Keohane, president of Duke University. Says one outsider: "We were world-class directors five years ago, but it doesn't make sense for a Dick Munro or a Thomas Murphy to be on that board today." IBM won't comment.

Munro agrees that "requirements for boards have changed." He forecasts that more IBM directors will leave. "Directors should have limited terms and move on," he says. "I think Lou deserves a younger board. In a fast-moving technology business, you need younger legs. Lou should have the right to choose some people he knows, respects, and who are much more attuned to the industry."

Letting Gerstner pick directors would not sit well with shareholder activists: An independent nominating panel of outsiders, which IBM has, should do that. With IBM's stock sinking--and new layoffs, write-offs, and a possible dividend cut rumored on Wall Street--beefing up Big Blue's board is one of the few quick good-news signals Gerstner can send.

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