What Lou Gerstner Could Teach Bill Clinton

Washington Monthly, Sept, 1999 by Robert Worth

By early 1993 Big Blue appeared to be beyond hope. It had taken more than $20 billion in losses, and its debt rating was dropping fast. The board of directors sacked John Akers as CEO and dangled the job before several corporate saviors, including GE's Jack Welch, AlliedSignal's Lawrence Bossidy, and Eastman Kodak's George Fisher (then at Motorola). There was even talk of asking Bill Gates to take over. No one was willing. Lou Gerstner, then CEO of RJR Nabisco, initially refused the offer. He accepted only after IBM board member James Burke appealed to his sense of civic duty: IBM was vital to the American economy, and it must not be allowed to die. It was a good line, but the smart money said that no one could bring Big Blue back to life. Gerstner reported for duty at company headquarters in Armonk, NY on April Fools' day, 1993.

No More Yes-Men

Gerstner's first task was to change the ingrained attitudes that had prevented IBM from seeing the world around it. These are often described as a product of the company's unique place in American business--as one old company saying went, "there's the right way, the wrong way, and the IBM way." But IBM's problems were really not so different from those of any large bureaucracy. "If you leave institutions in place for too long, whether governments or corporations, they get focused on maintaining themselves as institutions," says Jim McGroddy, who ran IBM's research labs from 1989 to 1995. "What they achieve for the customer becomes very secondary."

At IBM, as in the federal government, this meant that people who made criticisms--however valid--were often ignored or even punished. "The operating principle was, don't make the boss unhappy," says one longtime IBMer. This attitude, she adds, did incalculable damage to the company. Legitimate criticism of products and strategy never percolated up to the people who needed to hear it. And managers would take a financial hit rather than admit a mistake. In IBM Redux, Doug Garr describes an IBM supplier who tried to return a $20,000 overpayment. IBM refused to accept it, because in order to do so someone would have to admit an error was made.

Gerstner witnessed this "good news only" syndrome at one of his early meetings, where he heard a presentation from the chip-making division, which was widely known to be having problems. The head of the chip division told Gerstner that the problem was that there was no mainframe business, so his division couldn't make money making chips for mainframes. Gerstner stopped him right there and asked why the mainframe guy had just told him his division was doing fine. As it turned out, the mainframe division was in trouble--but they couldn't bear to admit it to the chief.

"Gerstner made it very clear very quick that you tell the boss the truth," says one IBMer who witnessed the turnaround. How? For one, he spent much of his time during the first few months talking to IBMers, consultants, and customers about the company and making it very clear that he wanted unvarnished truth. "He was the best listener I have ever seen," says Sam Albert, an IBM analyst who worked for the company from 1959 to 1989. Early in his tenure, Gerstner sat down with Albert, and as he asked him what he thought about the company, he took five pages of handwritten notes--not exactly typical CEO behavior.