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IBM Just Can’t Compete With Current Board

Will Ashworth

If you’re a regular InvestorPlace reader and own shares of IBM (NYSE:IBM), you might be familiar with some of my articles criticizing CEO Ginni Rometty. She’s a big reason I wouldn’t own IBM stock. 

Linux-maker Red Hat Purchase Adds Risk to Owning IBM Stock

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There are other reasons, including Warren Buffett selling the last of his International Business Machines stock on May 2018 after a costly seven-year hold, but it is Rometty’s eight-year run as CEO that I believe more than anything has destroyed IBM’s chance at regaining its former glory. 

While I freely admit I don’t know Rometty and wouldn’t recognize her if I ran into her on the street, I do believe her technology chops aren’t up to speed to other women working in the industry. Her background, for better or worse, is in sales and marketing, not technology. 

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Sure, she recognized Red Hat was an excellent way to springboard IBM’s cloud ambitions, but almost anyone in her position would be fully aware of the acquisition opportunities out there.

In my last article about IBM, I facetiously suggested that General Electric (NYSE:GE) should merge with IBM so GE CEO Larry Culp could run the combined entity.   

“Larry Culp is a proven winner. Ginni Rometty has done nothing in her 7.5 years as IBM’s CEO to demonstrate that she has the technology chops or the leadership qualities necessary to reignite the company’s former penchant for innovation,” I wrote July 26.  

“I’m not saying IBM hadn’t already lost its innovation spark before Rometty became CEO in January 2012, but she’s been at Big Blue for most of her career. If she were going to make IBM great again, she would have already done it.”

Not only is Rometty past her best before date, but she has assembled a board over the last eight years that’s ancient by almost every standard. Technology companies are supposed to be young and innovative; the IBM board is anything but.

If IBM is to regain its former glory, not only should Rometty step down as CEO, but they ought to recruit some younger directors. Until both of these things happen, the IBM stock price won’t see $200 for a very long time. Here’s why. 


The Average Age of the Board

In 2019, IBM appointed two new directors to its board, both women, one of whom is African American. The move is to be applauded. However, the age of the two directors is 58 (Admiral Michelle Howard) and 60 (Martha E. Pollack). 

The average age of the 12 IBM board members, including the two new appointees, is 64, one year less than the traditional retirement age. 

While I understand it’s hard to recruit younger candidates because they’re still in the prime of their careers, I do believe that a company trying to get its mojo back should bend over backward to make that happen in order for IBM stock to excel. 

How old is the average director at Square (NYSE:SQ), considered a financial services disruptor? 

It’s 55, almost a decade younger. In fact, four out of 11 of Square’s directors are younger than 50 with just one over the age of 70. Just as Ginni Rometty, Square CEO Jack Dorsey is also Chairman. 

However, Dorsey co-founded Square; Rometty’s merely worked at IBM for 38 years. At the very least, the Chairman’s role at IBM should be separate from the CEO. In January 2018, I even suggested that Rometty moves into the Executive Chairman’s position, hiring an entrepreneurial CEO to lead its turnaround.  

That never happened. Instead, Rometty went for the Red Hat Hail Mary. 

The Bottom Line on IBM Stock

If you look at IBM’s roster of directors, none of them have high tech experience. Sure, all of them have used technology in their specific careers, but no one stands out as a real go-getter in the tech industry. 

At least Square has several directors that have serious tech venture capital experience that allows them to understand the technical aspects of the company’s business better. 

You would think that a company with a market cap of $120 billion would be able to find one or two directors with real-world tech experience. 

Given the current composition of IBM’s board, I don’t see how it’s going to work through the Red Hat integration successfully. 

Until the board gets younger and more technically bent, I remain skeptical of IBM stock’s chances. 

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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