Sam Palmisano

Sam Palmisano
Born	Samuel J. Palmisano 1951-07-29July 29, 1951 (age 75) Baltimore, Maryland, U.S.
Nationality	American
Education	Calvert Hall College High School Johns Hopkins University (B.A., history, 1973)
Alma mater	Johns Hopkins University
Occupation	Business executive
Years active	1973-present
Employer	IBM (1973-2012) Center for Global Enterprise (2013-present)
Title	Chairman, president and chief executive officer
Term	2002-2011 (CEO) 2003-2012 (chairman)
Predecessor	Lou Gerstner
Successor	Ginni Rometty
Known for	Chairman and CEO of IBM Sale of the IBM PC division to Lenovo Smarter Planet initiative Globally integrated enterprise
Spouse	Gaier Notman
Children	4

Samuel J. Palmisano (born July 29, 1951), known as Sam Palmisano, is an American business executive who served as chairman, president and chief executive officer of IBM. He was chief executive from March 2002 until the end of 2011 and chairman from January 2003 until October 2012. He spent his entire corporate career at IBM, joining as a salesman in 1973 and rising through sales, services and hardware divisions over nearly four decades.

Palmisano succeeded Lou Gerstner, who had rescued IBM from near-collapse in the 1990s. Where Gerstner's task had been survival, Palmisano's was direction. He committed the company to high-margin software, analytics and services and withdrew it from hardware businesses he judged to be commoditising, selling the personal computer division to Lenovo in 2005 and the disk drive business to Hitachi. He restructured IBM's worldwide operations under a model he called the globally integrated enterprise, shifting work to lower-cost countries and organising functions by capability rather than by geography. In 2008 he launched the Smarter Planet initiative, an attempt to apply computation and analytics to physical infrastructure such as electricity grids, transport networks and water systems.

Revenue rose from $81.2 billion in 2002 to $106.9 billion in 2011, earnings per share increased roughly fivefold, and the company generated more than $100 billion in free cash flow and invested more than $50 billion in research and development during his tenure. His financial framework, a set of published earnings-per-share targets known internally and to investors as the roadmaps, was widely praised while it was being met and heavily criticised after his successor Ginni Rometty abandoned the 2015 target in October 2014.

Early life and education

Family and childhood

Samuel J. Palmisano was born on July 29, 1951, and grew up in an Italian-American middle-class family in Baltimore, Maryland. His father owned an automobile body shop. The background was one Palmisano referred to throughout his career, and it distinguished him from the professionally credentialed executives who dominated large American companies by the 2000s.

He attended Calvert Hall College High School, a Catholic school in Baltimore, where he played American football as an offensive lineman. Contemporaries described a methodical approach to preparation: he studied pre-game scouting reports closely and rarely missed a blocking assignment. The habits of preparation and positional discipline were ones he later described as formative.

Palmisano was also a working musician. He held a union card and played saxophone, and on one occasion he performed as an opening act and played backup saxophone for The Temptations.

Johns Hopkins

Palmisano attended Johns Hopkins University in Baltimore, where he took a bachelor's degree in history rather than in engineering, computer science or business. He was a member of the Beta Theta Pi fraternity.

He continued to play football at Hopkins as a center and offensive tackle and served as a team co-captain. He was offered the opportunity to try out with the Oakland Raiders of the National Football League and declined it, choosing instead to begin a business career.

He met his wife, Gaier Notman, a 1969 alumna of Miss Porter's School, at an IBM training school.

Career at IBM

Early career, 1973-1996

Palmisano joined IBM in 1973 as a salesman. He spent the next quarter century in operating roles across the company at a time when IBM moved from unchallenged dominance of the computer industry through a near-fatal crisis and then a recovery.

Between 1989 and 1990 he served for a year as executive assistant to John F. Akers, then IBM's chairman and chief executive. The assignment was a recognised route for identifying senior management candidates, and during the period Palmisano had lunch once a month with Thomas Watson Jr., the retired chairman who had built IBM's mainframe business and whose conception of the company Palmisano would later invoke as his own guiding principle.

Palmisano subsequently ran IBM's operations in Japan, one of the company's most important markets and one where it faced its most capable hardware competitors.

He was president of Integrated Systems Solutions Corporation, an IBM subsidiary that took over the operation of customers' information technology functions. That business became the nucleus of IBM Global Services, the division that would drive the company's transformation from a hardware manufacturer into a services company. He also led IBM's strategic outsourcing business.

Divisional leadership, 1997-2000

Palmisano was appointed senior vice president and group executive of the Personal Systems Group in 1997, running the personal computer business he would later sell.

In 1998 he was promoted to senior vice president and group executive of IBM Global Services, during the period in which IBM shifted its emphasis from technology products toward outsourcing and consulting. Global Services grew into the largest single source of IBM revenue and was the central element of Gerstner's turnaround strategy.

In 1999 he became senior vice president and group executive of Enterprise Systems, the hardware group. During his time there the division committed IBM to the Linux operating system across its server range, an unusual decision for a company whose commercial model had rested on proprietary systems, and one that gave IBM a strong position with customers moving to open-source infrastructure.

Palmisano was elected president and chief operating officer effective October 2000, establishing him as the leading internal candidate to succeed Gerstner.

Chief executive officer, 2002-2011

Palmisano was promoted to chief executive officer in March 2002, retaining the title of president, and became chairman effective January 1, 2003, on Gerstner's retirement. He took over in the aftermath of the dot-com bubble collapse, with corporate technology spending sharply reduced.

Strategic direction

Gerstner's achievement had been to prevent the break-up of IBM and to rebuild it around systems integration and services consulting. Palmisano's stated ambition was different: to re-establish IBM as a company that set standards rather than followed them. He explicitly invoked the founding Watson family's conception of the firm, which, as he put it, had always defined IBM as a company that did more than sell computers and that had a role to play in solving societal problems.

Operationally the mandate was narrower: move IBM into businesses with high profit margins and scope for innovation, and out of businesses without them.

Acquisitions and the move into software and analytics

The first major transaction was the purchase of the consulting arm of PricewaterhouseCoopers in 2002 for approximately $3.5 billion. The acquisition added roughly 30,000 consultants and gave IBM the capacity to advise clients on marketing, procurement and manufacturing processes rather than only to install and run their systems.

Over the following decade IBM acquired around twenty-five software companies specialising in data mining and analytics, among them Cognos and SPSS, assembling a business intelligence portfolio intended to let corporate and government customers find patterns in internal and web data. Software carried substantially higher margins than services or hardware and contributed a disproportionate share of profit growth even though services remained the larger revenue line.

Palmisano also positioned IBM for what became cloud computing, a business the company initially described internally as on-demand computing, in which software and services would be delivered over the internet from centralised data centres.

The sale of the PC division

The decision that attracted the most attention was the sale of IBM's personal computer division to the Chinese manufacturer Lenovo, announced in December 2004 and completed in 2005 for approximately $1.75 billion.

The move was contentious inside the company. IBM had introduced the IBM Personal Computer in 1981 and effectively defined the industry standard. The PC was one of very few IBM products in general public use and was the principal source of the company's consumer brand recognition. The division generated roughly $20 billion in annual revenue, and its purchasing volume helped reduce component costs for IBM's larger server and mainframe products. Divesting it meant surrendering the title of largest information technology company by revenue to Hewlett-Packard, which had absorbed Compaq in 2002.

Palmisano's reasoning was that personal computer manufacturing had become commoditised, that margins would continue to compress, and that the business offered few opportunities for the kind of innovation that could sustain premium pricing. Exiting low-margin businesses was, in his framing, the necessary counterpart to entering high-margin ones. The judgment took about five years to be widely accepted and was generally regarded as vindicated from 2010 onward as the market shifted away from the personal computer as the centre of computing.

He applied the same logic to storage, selling IBM's disk drive business to Hitachi and simultaneously signing a five-year agreement to purchase drives from the buyer. IBM also exited printers.

The globally integrated enterprise

Palmisano articulated a model of corporate organisation he called the globally integrated enterprise, set out in a 2006 essay in Foreign Affairs. The argument was that the multinational corporation, which replicated a full set of functions in each country it operated in, was obsolete, and that companies should instead locate each function wherever it could be performed best and most economically, integrating them into a single global operation.

In practice this meant a substantial expansion of IBM's presence in India, China, Brazil, Russia and other developing markets, and the transfer of a large number of development and support positions from the United States and Western Europe to those countries. IBM's Indian workforce grew from a few thousand at the start of his tenure to well over 100,000. The programme reduced costs materially and was central to the company's margin expansion.

It was also the most criticised aspect of his record within the United States, where the Alliance@IBM employee organisation and others attributed successive rounds of American job reductions to the strategy. IBM declined for much of the period to publish country-by-country headcount figures.

Smarter Planet

In November 2008, during a speech at the Council on Foreign Relations delivered as the global financial crisis was at its most acute, Palmisano launched the Smarter Planet initiative.

The premise was that instrumentation, interconnection and analytics could be applied to physical systems that had historically been managed without them: electricity grids, traffic management, water distribution, supply chains, healthcare records and food safety. IBM positioned itself as the integrator for such projects, working with municipal and national governments as well as corporate customers.

Smarter Planet functioned simultaneously as a marketing platform, a research agenda and an organising principle for the company's software and services portfolio. It anticipated much of what was later described as the internet of things. Critics noted that its revenue contribution was difficult to isolate from IBM's other lines of business.

Financial performance and the roadmaps

Palmisano introduced a practice of publishing multi-year earnings-per-share targets, which became known as the roadmaps and which shaped both IBM's internal management and its investor base.

In 2007 he committed the company to operating earnings of $10 to $11 per share by 2010. IBM exceeded the target, reaching $11.52. On the strength of that record, in May 2010 he announced Roadmap 2015, committing IBM to at least $20 in operating earnings per share by 2015.

The reported results during his tenure were strong. Revenue grew from $81.2 billion in 2002 to $106.9 billion in 2011. Earnings per share increased by roughly five times. The company generated more than $100 billion in free cash flow and invested more than $50 billion in research and development. Annual dividends per share rose from $0.59 in 2002 to $2.77 in 2011. Warren Buffett's Berkshire Hathaway disclosed a large IBM stake in 2011, an endorsement widely read as confirmation of the strategy.

The record on shareholder value was more ambiguous. IBM's share price rose from roughly $115 in early March 2002 to more than $180 by late 2011, but by some measures the company's market value at the end of 2011 was close to where it had stood at the end of 2001, because the share count had fallen sharply through repurchases while the total equity value had not grown proportionately.

The roadmaps became the central point of criticism after Palmisano left. Rometty formally abandoned the $20 target in October 2014, alongside a disappointing third-quarter result. Critics argued that the earnings-per-share growth had rested on declining revenue, aggressive cost reduction, offshoring that eroded technical capability, weakening staff morale, and large debt-financed share repurchases rather than on underlying business expansion. Defenders responded that the portfolio shift Palmisano executed was correct in direction and that the company's later difficulties in cloud computing reflected decisions taken after his departure.

Compensation

Palmisano's compensation was disclosed in IBM's annual proxy statements. In 2007 his total compensation rose approximately 11 percent to $20.9 million, comprising $1.8 million in salary, a $5.8 million incentive payout, options and stock equivalents valued at $12.3 million, and $988,479 in other items including $406,235 of personal travel on company aircraft, $364,162 in dividend equivalents on restricted stock, and $152,460 in retirement plan contributions.

For 2009 he received total compensation of $21,159,289, comprising a base salary of $1,800,000, a cash bonus of $4,750,000, stock grants valued at $13,517,401, no options, and $1,091,888 in other compensation.

His accumulated retirement benefits were estimated at approximately $271 million. IBM subsequently disclosed spending $1,033,138 on personal use of company vehicles, retirement items, office costs, administrative support and office renovation for him after his retirement, and a consulting arrangement paying $20,000 for four hours of consultation and $10,000 for less. The arrangements drew press criticism as an example of post-retirement executive benefits.

Succession

Palmisano announced on October 25, 2011, that he would step down as president and chief executive officer, with Ginni Rometty succeeding him effective January 1, 2012. Rometty became the first woman to lead IBM. Palmisano continued as chairman until October 1, 2012, a shorter overlap than many transitions of comparable scale, and then severed his formal connection with the company.

Later career

Center for Global Enterprise

In 2013 Palmisano established the Center for Global Enterprise, a private, non-profit, non-partisan research institution devoted to the study of the contemporary corporation and of management practice in a globally interconnected economy. He serves as its chairman. The centre's stated purpose is to educate leaders from the private sector, the public sector and academia about the globally integrated economy, continuing the argument he had set out while at IBM.

Board and advisory roles

Palmisano was elected to the board of directors of ExxonMobil in 2006. He served for fifteen years and was voted off the board in 2021 following a proxy contest led by the activist investor Engine No. 1, which campaigned on the company's handling of climate risk and succeeded in replacing several directors. The defeat was one of the most significant activist victories in American corporate governance.

In May 2013 Bloomberg L.P. appointed Palmisano as an independent adviser on the company's privacy and data standards, following disclosures that Bloomberg journalists had been able to view certain client activity data on the company's terminals.

In February 2016 President Barack Obama appointed Palmisano vice chairman of the Commission on Enhancing National Cybersecurity, a body created to recommend measures to strengthen United States defences against and resilience to cyber attack. The commission delivered its report in December 2016.

He served as honorary chairman of National Engineers Week in 2008.

Management approach

Palmisano's method combined a long internal apprenticeship with a willingness to divest businesses that carried significant institutional attachment. His central analytical claim was that a company should be defined by the value it adds rather than by the products it has historically made, and that failure to exit commoditising markets is the ordinary way large technology companies decline.

He placed unusual emphasis on articulating a corporate value system. Early in his tenure IBM conducted a company-wide online discussion, known internally as the ValuesJam, in which employees debated and helped redraft the company's statement of values, replacing the Watson-era Basic Beliefs. The exercise was widely studied in management literature as an example of large-scale participative strategy setting.

His public style was reserved by comparison with his predecessor. He gave relatively few interviews, avoided the conference circuit, and preferred to communicate strategy through written arguments such as the Foreign Affairs essay and through the numerical commitments of the roadmaps.

Recognition

In 2010 Palmisano received the Deming Cup, awarded by the W. Edwards Deming Center for Quality, Productivity and Competitiveness at Columbia Business School, for driving IBM to new levels of operational excellence and for his role in creating and leading IBM Global Services.

Personal life

Palmisano married Gaier Notman, whom he met at an IBM training school. They have four children. He has largely kept his family life out of public view, consistent with his general reticence about personal publicity.

His continuing associations with Johns Hopkins University include support for the institution, and he has spoken about the value of a humanities education for business leadership, citing his own history degree as preparation for a career that required judgment about institutions and people rather than technical specialisation.

External links

• Center for Global Enterprise
• IBM official website