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Retired IBM chief executive Palmisano defends policies

Samuel J. Palmisano led Big Blue as if he were coach. He thought about the stock market like a scoreboard. He thought about employees as players whose technical skill outshone his own, but who needed a leader to bring out their collective best. He thought about the record he had to maintain each season to stay on for the next.

It’s been 3½ years since Palmisano retired as chief executive of IBM, where he spent his entire career. And though the scores were high during his decadelong run as CEO, revenue has slid since his departure – from about $107 billion in 2011 to $93 billion in 2014. It has left some analysts wary of the tech giant’s long-term health, and of whether the financial gains under Palmisano came at the expense of sustainable growth.

Does Palmisano think he could have done anything differently to set up IBM for success once he left? Not really. What has happened since falls to a new coach, a new team, he says.

In retirement he has turned his efforts to a nonprofit research institute called the Center for Global Enterprise. This conversation has been edited for length and clarity.

Q: How does it feel being out of the hot seat?

A: Life is great no longer being CEO of a large public company. I think some people underestimate the difficulty and stress of the job.

Q: Once you stepped out of the role, did you become more aware of all the stress you were carrying?

A: A year after I was no longer CEO, I was getting my annual physical. I’ve gone to the same doctor for 10 years, and the guy looks at me and says, “Everything has improved, even things that at your age should never improve” – things which I won’t say here.

He said, “So, I guess there was a lot of stress in your job, wasn’t there?” And I said, “Yeah, I guess there was.” You don’t realize it at the time, because you just do it. You grind away. Everyone wants the organization to be successful, so you work hard.

Q: Do you think many CEOs have trouble keeping in mind the things they should really care about when all is said and done?

A: You’re there primarily to drive financial results. We could argue the good or the bad of that – that’s a nice intellectual discussion – but you’re measured by your owners, the shareholders, and they expect financial performance. It’s like if you’re a coach in sports, you have to win on Sunday. You can’t lose two years in a row in the NFL and still be a coach for that team. It’s the same thing. You can’t have three or four bad years as a public CEO and expect to be CEO during year five. That’s just the nature of the job.

Q: What was the hardest part of leading a public company?

A: Not falling in love with yourself. I was maybe the longest-sitting CEO of IBM other than a Watson, but, nonetheless, I’m not the IBM company. A lot of people before me built a great enterprise. I was fortunate enough to represent it for nine to 10 years, but I’m a temporal steward of an iconic organization.

Q: In 2010, you set a target for what earnings per share would be by 2015. Do you still think that was the right target to set?

A: The first model was set in 2006 for 2010. We didn’t like the 90-day forecast of Wall Street. You make or you miss by a penny, and stocks are very volatile. I just felt that was the wrong way to run the company. However, investors want some direction as to where you’ll be so they can measure you and decide whether to invest in you or not. That’s a very fair request. It’s not shortsighted – they’re putting their money and their faith in you and the company.

So, we came up with something we felt we could live with and that made sense, which was a 2010 road map to go from $6 to at least $10 a share. It wasn’t about wanting a financial target. It was about giving a long-term perspective of where the IBM company could be in four or five years. It was a way to be shareholder-friendly, but not be quarterly driven.

Q: When you retired, by most metrics the company was performing really well. What’s it like to see that IBM has struggled?

A: When you’re gone, you’re gone. When you’re no longer the boss, then get out of there. Don’t comment from the cheap seats. The circumstances are completely different in today’s world economically, technologically.

Q: Let’s talk about succession planning. What lessons did you learn when you took over the CEO role from Lou Gerstner, and then when you passed it along to Ginni Rometty?

A: The responsibility of the CEO is to prepare multiple alternatives for the board to decide.

There were probably three legitimate CEO candidates within the organization. Then the board, based upon their view of the future strategy, made a decision. They can go outside if they feel it’s appropriate. I’d argue you should go inside, because insiders know the place the best.

In our case, we were preparing multiple people, and the board selected Ginni. I think they made the right decision. She was clearly the most able, the most capable, and she deserved the job.

Q: What did being a company lifer make easier for you when taking on the CEO role, and what did it make harder?

A: The hardest thing is that you have to put yourself in an outsider’s view as an insider. You have to be able to look at things objectively and analytically.

The easy part of the job is that you know the culture. If you see things in the culture that are inhibitors to future success, you know exactly what to do to turn those knobs.

Lou Gerstner brought the perspective of a customer; he brought an outsider’s point of view, but he needed help connecting to the culture to get people to change. He used to tell us in meetings: You guys are the natives with the map. I don’t have the map. You’ve got to help me change this place.

Q: Did you develop techniques for getting people to still give you honest feedback and not shield you from things because suddenly you’re CEO?

A: I would try to make sure I had a constant feedback channel. I used to include people other than my direct reports as part of the monthly meeting. They could be four levels down from the senior vice presidents. It was a way for them to learn, and also a way to get different points of view into the discussion that weren’t just the old guys who had seen these things a zillion times.

The other thing I would suggest to any CEO is to have one source of data. Not multiple financial systems, not multiple facts. At IBM there was one system – one set of accounting, one set of market share, one set of customer satisfaction and employee morale. It created total transparency. Whether you were a salesperson or an entry-level HR person, you saw the same information the CEO and CFO saw.

There was no time spent debating the data. The discussion was: Given these problems we see, how do we work on them?

Q: What mistake in your life yielded a leadership lesson that has stuck with you?

A: There are a lot of those. Gosh. You have to move faster – I learned that in the PC business. Suddenly one of your competitors cuts prices in Asia, let’s say. You don’t have a lot of time to respond. You can’t study the market trends. You’ve got to react. I learned I was slow.

Personnel decisions. You grow up with all these people, so you always want to give them a second chance. But a third chance? A fourth chance? A fifth chance? You think: Come on, they’ll get better. You coach them and they don’t.

Q: On the flip side of that, what would you identify as a key factor that helped you move up the ranks to have a successful career?

A: You’ve got to start with luck. You’ve got to be in the right place at the right time, and moving at the right pace. If you’re 60, it’s hard to become the CEO.

But the most important thing – to me, anyway – was phenomenal resilience. You’re going to get knocked down. I got beat up a lot – 2005 first quarter was a bad quarter. Everybody was screaming for my head on TV. You have to fight through it; you can’t personalize it. Bad times are going to happen to everybody.

People say you have to be smart. I don’t know if I’m smart. I was a scholarship kid who played sports. I’m not an engineer. Do you have to be brilliant to be a successful CEO? If you’re brilliant, you should be a brain surgeon. Or an academic. You don’t have to be brilliant to run a company, but you have to be a good people person. You have to be able to lead, to cajole. You have to care. That’s what you have to do.