Gerstner, Louis V., Jr.

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Gerstner, Louis V., Jr.

(1942-)
International Business Machines Corporation (IBM)

Overview

Louis V. Gerstner was appointed chairman of the board and chief executive officer (CEO) of IBM in 1993 and since then has brought the computer giant back from the low point the company found itself in during the early 1990s with debts in the billions of dollars. Since those days, Gerstner has taken many steps to trim the company's waistline and make it an agile company and an industry leader once again.

Personal Life

The second of four boys, Louis V. Gerstner was born on March 1, 1942 and grew up in modest circumstances in Mineola, on New York state's Long Island. His father, Louis Sr., was a night superintendent at a brewery and his mother worked as a real estate agent. Both parents demanded that their children excel at school and all the children would go on to become high-achievers in their later careers.

Gerstner attended Chaminade High School, a competitive Catholic high school run by the Marianist order of the Catholic church. Standards at Chaminade were high for both academic performance and behavior. Although most Chaminade students later attended colleges affiliated with the Catholic church, Gerstner chose to accept a scholarship to attend non-sectarian Dartmouth College. At Dartmouth, he was tapped by the elite senior honor society, the Casque and Gauntlet. After graduating from Dartmouth in 1963 with a bachelor's degree in engineering, Gerstner immediately enrolled at Harvard Business School. In 1965, Gerstner received his master's degree in Business Administration from Harvard.

Gerstner married Elizabeth Robins Link in 1968 and together they have two children; Louis III and Elizabeth. In his leisure time, Gerstner is a passionate golfer and gardener.

Gerstner is a director on the board of Bristol-Myers Squibb Company and has previously served on the boards of American Express Company, AT & T, Caterpillar, Inc. and The New York Times Company. He is a member of The Business Roundtable, serving on its policy committee, and a member of The Business Council. He is also a member of the board of Lincoln Center for the Performing Arts, the America-China Society, and the Council on Foreign Relations. He serves as a member of the President's National Security Telecommunications Advisory Committee and Advisory Committee for Trade Policy and Negotiations. He is also a member of the Board of Regents of the Smithsonian Institution.

Gerstner received an honorary doctorate in business administration from Boston College in 1994 and has been awarded honorary doctor of laws degrees from Brown University and Wake Forest University. He has received numerous awards for his work in education, including the Cleveland E. Dodge Medal for Distinguished Service to Education from Teachers College, Columbia University, and the Distinguished Service to Science and Education Award from the American Museum of Natural History.

Career Details

Gerstner began his career at the management consulting firm of McKinsey and Co., Inc. after graduating from Harvard. During his 13 years at McKinsey, he became the firm's youngest principal at the age of 28 and one of its youngest directors at the age of 33. Working on McKinsey's American Express Company (Amex) account, he acted as an adviser to James D. Robinson III, Amex's new chairman of the board of directors and CEO. In 1978, Gerstner left McKinsey to join Amex as an executive vice president and head of the charge card business. During his ten years with Amex, he became president of the parent company and chairman and CEO of its largest subsidiary, American Express Travel Related Service Company.

In 1989, Gerstner joined RJR Nabisco, Inc. as chairman of the board of directors and CEO. At the time, RJR was in disarray following a $25 billion leveraged buyout. In Fortune magazine, Betsy Morris reported, "Gerstner got high marks for crisis management at RJR. He provided steadiness and focus . . . and he steered the debt-laden company through the collapse of the junk bond market. He never flinched at tough decisions."

In 1993, Gerstner was heavily recruited to take over the struggling International Business Machines Corporation. He was reportedly reluctant to take on the job. But, according to Morris, "The recruiters told Gerstner he had a moral imperative to take the job. He must do it for the good of the country. That worked."

When Gerstner arrived at IBM (known in the industry as "Big Blue" because of the color of its logo and its once dominant market share) on April 1, 1993, he confronted a situation in which declining sales of mainframe computers had resulted in almost $16 billion in losses. The company was in the process of halving its work force from 406,000 in 1986 to 219,000 in 1994, and its debt rate was dropping fast.

Within 90 days of joining the computer giant, Gerstner made two critical decisions. The first was to keep the company together and to concentrate on mainframes rather than sell off pieces of the company in order to save money. Secondly, he announced that IBM would again become the industry leader in devising the information technology strategies of big companies by building and running their systems.

By 1997, Gerstner eliminated more than 35,000 jobs, cut costs company-wide, returned IBM to profitability and slashed its debt. Wall Street and IBM stockholders appreciated his aggressive cost-cutting and layoffs approach as IBM under Gerstner's guidance has gained more than $40 billion in market value.

Gerstner has challenged many long-held IBM traditions. No longer is a career with IBM a guarantee of lifetime employment as was the case in the past. The company, which was founded in 1888 and initially manufactured things such as time clocks and weight scales, had become bogged down in its own lengthy decision-making processes and internal politics and was a victim of its own perfectionism. Morris quoted Gerstner telling some of his technical people; "You don't launch products here. They escape." Gerstner demanded performance from his employees, and he got it.

IBM's new 420,000-square-foot headquarters in Armonk, New York reflects Gerstner's approach. While his previous offices were cloistered at the end of a long corridor of other offices, his new quarters and those of a few top executives occupy the center wing of a sprawling Z-shaped structure. Most of the remaining IBM headquarters staff work in cubicles with expansive amounts of space on either side. Everyone is within range of Gerstner because "I like to walk the floors," he told The New York Times.

Chronology: Louis V. Gerstner, Jr.

1942: Born.

1963: Graduated from Dartmouth College.

1965: Graduated from Harvard Business School.

1965: Joined McKinsey and Co., Inc.

1970: Became youngest principal at McKinsey and Co., Inc.

1975: Named youngest director at McKinsey and Co., Inc.

1978: Joined American Express Company as an executive vice-president.

1989: Joined RJR Nabisco, Inc. as chairman of the board and CEO.

1993: Joined IBM as chairman of the board and CEO.

1994: Co-authored Reinventing Education: Entrepreneurship in America's Public Schools.

The new building also demonstrates the latest in high technology. "I wanted this building to be a living example of the strategy of the company, which is built around network computing," Gerstner told The New York Times.

The compensation package he received in 1993 for agreeing to head IBM was enticing. Gerstner reportedly was paid a $1.5 million salary along with a $1.1 million bonus. He also reportedly received options for 500,000 IBM shares plus a payment of $4.2 million to cover the RJR benefits he had left behind. In November of 1997, Gerstner agreed to stay on at IBM for an additional four-and-a-half years. IBM's board of eight directors reportedly granted him options for an additional two million shares of stock in addition to the 2.4 million shares Gerstner had received since 1993. These shares were worth an estimated $95 million in 1997.

Social and Economic Impact

By all accounts, Gerstner is intense, brilliant, impatient and intimidating. He drives himself and others ruthlessly and has never tolerated fools or time-wasters. He has been called pompous by many and is reportedly remarkably status-conscious. In response to criticisms of his style, Gerstner told Morris; "I'm intense, competitive, focused, blunt, and tough, yes."

It says something, however, about Gerstner's personal magnetism, integrity and loyalty that a group of very able top assistants has stayed with him from his early days while working at American Express.

As he has moved from position to position at the top of America's greatest companies, Gerstner has been a lifetime advocate for the importance of quality education. He is co-author of Reinventing Education: Entrepreneurship in America's Public Schools, which was published by Dutton Publishers in 1994.

He is vice chairman of the New American Schools Development Corporation and, while he was at RJR Nabisco, served as chairman of Next Century Schools. At IBM, he established Reinventing Education, which is a $35 million grant program that enables IBM researchers and classroom teachers to address curriculum and other education issues. Through Reinventing Education, IBM has initiated strategic partnerships with ten states and school districts using IBM technology and technical assistance.

Gerstner speaks frequently on the quality of education and many other issues dealing with America's educational system. In November of 1997, he received a public service award from the Advertising Council, a New York-based partnership of non-profit groups and advertising agencies, and warned that technology would not be the "silver bullet" needed to reform what he termed the "grinding underperformance of U.S. schools." Gerstner said, "Technology can help, but it cannot replace a great teacher's ability to inspire."