https://www.wsj.com/articles/ibm-splits-the-difference-11580495682
How does one shake up the leadership of a century-old company that prides itself on stability in the top ranks? The answer from IBM’s board: Very carefully.
The company formally known as International Business Machines Corp. IBM +4.76% announced such a shake-up late Thursday. Arvind Krishna was named to the CEO role, succeeding Ginni Rometty, who’s held the job since 2012. Jim Whitehurst, who’s remained Red Hat’s CEO since IBM acquired the software maker in late 2018, was named president. Ms. Rometty will remain as executive chairman of the board through the end of the year before retiring.
The move was rightly seen as IBM sharpening its focus on the vital cloud-computing market. But it was surprising for other reasons. At 57 years old, Mr. Krishna is older than past chiefs of Big Blue when they got the job. IBM also tends to age out its CEOs at 60, though Ms. Rometty held on until 62.
IBM has also never separated its president and CEO roles before. Given the crucial role Red Hat is now playing in IBM’s turnaround story, many on Wall Street thought the 52-year-old Mr. Whitehurst was in the running for the CEO job.
He still might be. Analyst Toni Sacconaghi of Bernstein wrote Friday that naming Mr. Whitehurst as president “clearly sets the expectation that he will be heir apparent.” Analyst Jeff Kvaal of Normura Instinet noted that “exposure to IBM’s broader suite of businesses may put Mr. Whitehurst on a path to eventually hold the CEO seat himself.”
CEOs of acquired companies have a long history of bolting once the deal is done, so giving Mr. Whitehurst such a high-profile role was likely IBM’s way of getting him to stick around.
But IBM also has a long history of promoting seasoned executives from within. Ms. Rometty had been with the company for 31 years before her appointment, while her predecessor Sam Palmisano had logged 29 years before he got the top job. Mr. Krishna has also been with IBM for 29 years now, though he benefits from having his name closely attached to the company’s cloud and software operations that are its current area of focus.
It was certainly time to do something. Ms. Rometty had the bad fortune of inheriting control of IBM the year after its annual revenue peaked. So her tenure has been marked by mostly declining sales and profit at a time when other giant tech businesses saw their businesses soar.
The market’s response wasn’t kind. On the day of Ms. Rometty’s appointment, IBM and Microsoft had similar market values of a little over $200 billion each. Microsoft is now worth about $1.3 trillion; IBM’s value has fallen by 40%.
That does set a nice, low bar for the new team—especially with a stock fetching barely 10 times forward earnings. Microsoft, by contrast, is fetching a multiple of about 28 times.
And Ms. Rometty’s recent focus on the cloud and the acquisition of Red Hat does put IBM on the right course. But big ships turn slowly. Sometimes they even require two sets of hands rather than one.