Commentary: The Question At Ibm: Who's Second In Charge Here?

The IBM board can breathe a sigh of relief now that Chairman and CEO Louis V. Gerstner Jr. has agreed to stay on at least another five years. Given his record in turning around the corporate giant, his new pay package--with an eye-popping options grant of two million shares--may even be justifiable. But now Gerstner faces a critical task: putting in place a succession plan.

Gerstner's accomplishments at IBM are certainly enormous. He has cut the workforce nearly in half, sold off noncritical businesses, and most important, transformed IBM from a bureaucratic behemoth into a leaner organization better able to keep pace with Silicon Valley startups. But Gerstner should remember how he arrived at Big Blue: The board recruited him from RJR to save the company after its embarrassing slide under John Akers, who himself had an inadequate succession plan.

As things stand, IBM's bench isn't very deep. That's an unsafe situation for a $76 billion company with more than 240,000 employees. IBM hasn't had a president since Gerstner came on board in 1993. And many of its 10 senior vice-presidents are nearing retirement or are close in age to the 55-year-old chairman.

INSIDE JOB? What's more, with IBM's stock near its all-time high of 108, many of the company's most seasoned managers could easily opt to cash out. "At IBM, the bench is as important as the current lineup, especially as you get into later innings in the ball game," says independent consultant Sam Albert.

First step for Gerstner: Pick a No.2, and fill the long-empty post of president. Who are his candidates? The highest-ranking is Senior Vice-President Samuel J. Palmisano, 45, one of the youngest members of IBM's inner circle. After building IBM's services business into a $16 billion industry leader, he is taking on the difficult PC business. Another contender may be David M. Thomas, 48, who runs IBM's industry-specific sales groups, an organization responsible for nearly two-thirds of the company's revenue.

Other up-and-comers inside IBM include John W. Thompson, the general manager of North American sales, and Bob E. Dies, former general manager of the AS/400 computer business. Dies, 51, has one of the toughest assignments at IBM--persuading businesses to replace their terminals and personal computers with an IBM network computer. It's a business that Gerstner is excited about, but it's too early to tell whether the company will succeed in making stripped-down network computers attractive to its customers.

Of course, Gerstner also has a world of candidates outside IBM to choose from. In this job market, however, that's easier said than done. Analysts say that IBM has been slow to find a new chief financial officer to replace G. Richard Thoman, a Gerstner protege who resigned in June to become president of Xerox Corp. Lawrence R. Ricciardi, senior vice-president and general counsel, is the acting CFO, but IBM is still looking for a candidate with operational experience who could move from the CFO position into a business unit--or possibly the job of president.

Gerstner would do well to step up the pace. IBM is in a much better position as a result of his tenure. He should be ensuring that Big Blue's success will continue after him.

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