October 29, 2002 10:12 AM PST

IBM names Palmisano as chairman

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IBM appoints Palmisano CEO

January 29, 2002
IBM announced Tuesday that its chief executive, Sam Palmisano, has been elected chairman, setting the stage for longtime Chairman Lou Gerstner to bid adieu at the end of the year.

The move had been expected, after IBM's announcement earlier this year that Palmisano would serve as Big Blue's new chief executive. Palmisano's appointment as CEO and now chairman has been part of a long succession plan. Gerstner had indicated at the time of Palmisano's CEO appointment that he would relinquish his chairman title at the end of the year.

Palmisano will begin work as chairman on Jan. 1 and will serve a dual role, a position given to many CEOs by their boards as a reward for work accomplished. But these dual roles have come under increasing fire because of greater scrutiny over corporate governance issues since the collapse of Enron and WorldCom.

"Everyone is nervous about corporate governance, so the tendency we have already started to see is companies will separate the roles by having an outsider as chairman," said Jon Holman, who heads executive recruiting firm The Holman Group. "Or if the board wants to reward the CEO by naming them chairman, then they'll appoint an outsider to serve as lead director, and the chairman's role becomes largely honorary."

A chairman, or lead director, generally plays the top administrative role for the board of directors. They ensure meetings are attended, reports are turned in, and committees--such as the audit and compensation committees--are monitored.

"I would be astonished if (IBM's) board didn't have a conversation about these issues," Holman said. "Maybe they did and decided they were confident there was enough strength on the board to counter the CEO."

IBM Lou Gerstner

IBM does not use a lead director, said Carol Makovich, an IBM spokeswoman. She declined to comment on any boardroom discussions, but noted that Palmisano will serve as the only inside director once Gerstner steps down.

Gerstner is credited with turning IBM from a slow-moving giant to a profitable services behemoth, while Palmisano has inherited a smooth-running machine.

During his tenure as CEO beginning in March, Palmisano initiated the acquisition of PricewaterhouseCoopers Consulting, restructured the microelectronics unit, hired outside companies to manufacturer IBM's desktop PCs, and set in motion the pending sale of its hard-drive business.

Before taking over as CEO, Palmisano served a two-year stint as the company's president and chief operating officer. Palmisano, who joined IBM in 1973 as a salesman, managed a number of operating divisions at Big Blue before ascending to the president's post in 2000.

 

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