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IBM CORPORATE AFFAIRS (1993)

Akers (Finally) Falls...

A Nice Guy Who Lost His Compass

A Time for Careful Reflection for IBM

PHOENIX, January 26, 1993...

                The horses are starting to drink again[1]..  The IBM Board, which only 24 hours ago was supposed to be giving "full support" to the company's CEO according to IBM's PR department, gave John Akers a well-deserved boot.  At least three to eight years late, the IBM Board members were among the last to admit that the "emperor had no clothes."  A good time for IBM's shareholders, customers, or employees to rejoice?  It is not.  It is a time for careful reflection; a time to weigh the options which will shape the IBM future.  Akers' departure is but a first step on a possible, but not a certain, IBM recovery.

New CEO Selection Process to Shape IBM's Future

                Whether or not IBM will recover will depend to a large extent on the decisions which the newly-formed Selection Committee of the IBM Board makes in the process of selecting the new CEO.  If they merely try to replace John Akers with another executive whom they feel is more competent to do the same job which Akers had held, our advice to the shareholders will be -- continue heading for the hills, only faster!

                That's because the Selection Committee now has an excellent opportunity to redefine the chairman's job in accordance with its vision of the IBM future direction.  For example, IBM has often said in the last year or so that it wants to transition from being a hardware manufacturer to a services company.  We happen to think that that's a sound strategy.  But, we've said just as often that the way IBM has been going about it was all wrong.  IBM's internal structure is still that of a manufacturing company, not that of a service organization.

                We've also said that there are two major prerequisites for a successful service company.  First, that it must organize itself around the customers which it services (i.e., into units which are specialists for particular industry groups).  Second, it must be small, so as to be nimble.  In IBM's case, the former means that the company should not be just broken up into 13 units either by geography, or by its various manufacturing product lines.  The truly new IBM should be a confederation of maybe "113" different service companies, if that's how many industries IBM chooses to serve.

                Now, if the Board's Selection Committee buys into such a vision of the future IBM, the new CEO's job will obviously be quite different than that which John Akers had held.  For one thing, it won't be a hands-on management job.  No one, not even such respectable and accomplished people like Ross Perot, Jack Welch, or John Young, can manage "113" CEOs.  The new IBM CEO, therefore, needn't necessarily know which end of a 3090 mainframe is up, nor the difference between the DRAMs and the LA RAMs.  This person needn't come from within the computer industry, which would ensure that he or she would not be tempted to meddle in operational management.  This person should be a "business architect" with financial, legal and political skills to match the challenge of disposing of a tremendous amount of IBM's current assets, or acquiring some news ones down stream.

Some Names; An Insider or An Outsider?

                If you are like most people who called us today, you'd probably want to know if we had some names in mind.  We do, but not as real candidates.  Only to typecast the position of a "portfolio manager" which the new CEO would have to be.  The names that come to mind are people like Carl Icahn (who's already paid the price for "micromanaging" TWA), or Mike Milken (is he out of jail yet?), or Sir James Goldsmith, or Warren Buffet, or.... We hope you're getting the picture.  Not a single technocrat among them!

                The second most frequently asked question today was whether or not it would be an insider or an outsider.  Well, for our money, we hope that the preceding rationale has already answered that.  As for the IBM Board, its unprecedented decision to look outside, as well as inside IBM, for the new IBM CEO, is a clear signal that an outsider will be preferred.  You see, the Board members have had ample opportunity to get to know all of the insider candidates.  The fact that they decided to look outside implies that none of the insiders impressed them sufficiently to get the nod.

                The same logic applies for any of the former insiders who are also being mentioned as candidate -- the people like George Conrades, Mike Armstrong, etc.  Not only does the Board know them well, but they've forfeited a chance for the top job when they took Akers' spankings in 1991 with their tails between their legs.  If they were worthy of the leadership position, that's when they should have made a play for it.  Now, they'd be just the ambulance chasers, like a plethora of IBM critics who are suddenly emerging from the woodwork.

The Banks' Lost Power: Akers' Undoing?

                Why did Akers suddenly decide it was time to go, after the steadfast public assurances both by himself, and by some of the Board members?  Well, he didn't... decide that is.  We don't think that Akers did much more than sign his letter of resignation.  Which is about as much as he contributed to Paul Rizzo's appointment last December to watch over Akers' shoulders. 

                In other words, we think that Akers got a little bit of "help" from John Opel and Frank Cary, his former bosses at IBM.  They, in turn, may have been recalled not just by Tom Watson Jr., as some suggest, who was clearly not happy with Akers, but also by the powerful banking interests.  The latter have not only lost a lot of money on the IBM stock during Akers' tenure; they have also lost the power they once wielded on the IBM Board.

                You see, back in December 1984, just as John Akers was about to resume chairmanship of IBM, the banks were the biggest IBM shareholders (see "OF BOARDS AND NETWORKS," ACR Jan/86).  Our December 1985 analysis of the IBM shareholders revealed that the list of the top IBM shareholders read like the "who's who" in the U.S. banking industry!  Today, NOT ONE of them is represented on the IBM Board anymore!

                In the last eight years, therefore, these major U.S. financial institutions have a lot of strong reasons to be unhappy about John Akers' management of the company.  Wouldn't it be logical, therefore, that these powerful American financial egos, would summon their former friends at IBM (Opel, Rizzo, Cary) to try to right what they thought was wrong with IBM?  Just how the banks managed to do it, will have to remain a mystery for the time being.  But, it is no mystery at all that they were the corporate entities which had the most to lose if John Akers' continued to do what he has already done -- diminish both their capital and their influence on IBM's future direction.

                Consequently, if someone were to suggest to you that John Akers voluntarily resigned a mere 24 hours after "everyone in sight" at IBM denied the rumors which we have been hearing about twice a day for the last three weeks about his resignation; we hope that you would dismiss such suggestions as -- sheer nonsense.  Akers was no more the resigning kind than was Gorbachev, or Milosevic.  People like that have to be pushed out.  He was.

Not Just An Akers' Problem

                IBM's difficulties, however, weren't caused by Akers alone.  He was merely doing what he had been "programmed" to do by an outdated "IBM system."  It is a system in which most of the members of the newly-formed Selection Committee for the new IBM CEO also have a stake.  Each and every one of them, has to some extent also partaken in the squandering of the largest amount of assets in the history of world business!  All that any of them needed to say to Akers was, "wait a minute, we've heard the same promises last year; and the year before that; and the year before that... We're getting tired of the same old stories; the worn out excuses.  Either your turn this thing around by ______, or we'll get someone else who will." 

                But, they never did.  In fact, at the IBM 1990 Annual Meeting in Phoenix, I asked Akers in front of all IBM directors, not to mention the 1,500 or so IBM shareholders, if the Board had given him the deadline to make one year, "the year of the shareholder," just like he made 1987 "the year of the customer" (see CMS BULLETIN 90-19, 5/05/90).  He replied that he'd like every year to be "the year of the shareholder," but then marshaled out again the tired old excuses why he had not been able to it just yet.  He never answered the part of the question which dealt with the deadline.  Probably because the Board had not given him one.

                As a result, we find the Board equally responsible for IBM's disastrous results as was one John F. Akers.  Most of the same IBM directors, who are now looking for the new CEO, approved Akers for the job which turned out to be over his head (Bechtel, Burke, Brown, Munro and Frist were all members of the IBM Board when that decision was made; only Murphy and Keohane were appointed later).  Is that why they kept backing him until he nearly dragged them all down with him (and still might)?

                You see, by the time Akers became the IBM chairman (in 1985), this was not a time for a "slick salesman;" it was a time for a "corporate wrecker," who would quickly dismantle the unrealistic wishful thinking which envisaged a $180 billion corporation by 1995, conceived by Frank Cary and/or John Opel, the two former IBM CEOs who set the "Big Blue" on this disastrous course.  In other words, the erstwhile air force fighter pilot's greatest fault was that he behaved like a wimp to his superiors, while acting like a tough guy to the subordinates.  Or would you rather think of him a "good old boy?"  Whatever the label, Akers either did not have the intellectual capacity to contradict the disastrous business trends set in motion by Opel/Cary; or did not have the guts to do it. 

                But, THAT was not John Akers' fault; THAT was what the (in)famous "IBM Culture" produced.  Which is why the "IBM Culture" must go if IBM is to recover, not just Akers.  It is precisely such a "required" servility or duplicity that drove many talented people out of IBM.  They refused to kowtow to their superiors so as to get the next promotion.  Fortunately for them, "what goes around, comes around."  Many of them have become quite successful elsewhere in the computer industry, or other endeavors.  They're "in;" the "IBM culture" is (on its way) out.

                So, after all, our kids may not get the idea what kissing up to incompetent superiors, or causing failures of humongous proportions, was the way to succeed in America of the 1990s.  At least not from the IBM/Akers example.  That's good!  But, there are other bastions of autocracy yet to be challenged....

Happy bargain hunting!

A Personal Farewell to Akers...

                "Aren't you sorry for Akers?" a family member asked this writer upon hearing the IBM news today.  "No," I said.  "Akers, as an IBM CEO, got what he deserved; only a few years and a few billion dollars too late.  I feel sorry for the IBM shareholders."  But, Akers as a person, I explained, is a different story....

                John Akers is a figure of almost tragic proportions.  He was a fish out of water; a bird caged by his own prejudices carefully brainwashed into him over a 30-year period by the people and things he loved and respected.  He was a salesman put in charge of a construction project; he was a fighter pilot commanding an infantry brigade; he was an "American in Paris;" a cruise ship in the jet era.... 

                None of this was his fault, of course.  His mistake was merely that he bit off more than he could chew.  And that he never understood that continuous kissing of one's posterior cannot by itself improve the scenery.

                That Akers lasted eight years at the IBM helm despite such overwhelming odds is a miracle in itself.  It is a credit to Akers as an individual; but also a condemnation of our corporate value system.  Akers certainly did his best, for which he deserves credit, at least for the effort.  He even had some successes, just as miraculously, given all the odds which the American corporate system had stacked against him. 

                For example, his 1987 "year of the customer" message to the IBM employees was a long-overdue attempt at refocusing the IBM bureaucracy on what side its bread is buttered.  His drive to simplify the IBM contracts/bureaucracy, launched roughly at the same time, was similarly motivated by noble causes.  IBM's version of "glasnost" (openness) should also go to John Akers' credit.  At the June 1986 IBM analyst meeting in San Jose, Akers fielded questions from analysts well beyond his allocated time -- a breath of fresh air compared to the staid performances by his predecessors, Opel and Cary.  By comparison, his predecessors acted and sounded like the "Brezhnev's" of the Soviet Union.  And finally, the long-overdue IBM downsizing was also launched on his watch. 

                That's not Akers' fault.  That's not even Opel's or Cary's error.  They are all the way they were "programmed" to be -- technocrats who had a hard time coping with -- CHANGE!  In the end, as we have already pointed out in July 1990, we think that the ultimate responsibility for IBM's demise lies with the person who is responsible for IBM's greatest successes -- Tom Watson, Jr.  His greatest error was in choosing his successor.  Who, in turn, also chose a wrong successor.... who, in turn...

                The fact that Akers never pointed out that the problems he was having to fix were, in fact, a result of his bosses' errors, not his own, also revealed "Akers the Gentleman;" or "Akers the Team Player;" or "Akers the Nice Guy."  But, his ruthless booting out of people like George Conrades, or Mike Armstrong, for the sake of preserving his personal power, mitigates against such an image.  Also, that a "team player," Akers was trained to be, blamed the troops in public for IBM's problems, as he did in May/June 1991, also speaks against a "benevolent dictator" image.  By that time, however, Akers had already developed a "siege mentality," as you may recall from out "AKERS: THE LAST EMPEROR?" reports, published in June 1991. 

Our bottom line?  Akers was a nice guy, who lost his compass!



[1]horse to water, but you can't make him drink."

 

Also, check out: ICC: More Armonk "Fudge," Armonk's
"Fudge Factory,"
"Now IBM Is Even 'Officially' Spineless", "Where Armonk Meets Wall Street, Greed Breeds Incest", "Some Insiders Cashed in on IBM Stock Buybacks", "Louis XIX of Armonk", "Wag the Big Blue Dog", "the new blue"  

 








Volume XIII, No. 93-07
January 26, 1993

Editor: Bob Djurdjevic
Published by Annex Research
e-mail: annex@djurdjevic.com

5110 North 40th Street,      Phoenix, Arizona 85018
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