Ginni Rometty has been CEO of IBM (IBM) since Jan of 2012—almost seven years. Since then, IBM’s stock is down 38% while the market is up 110%. That’s a damning 148 percentage points of underperformance.
It’s not surprising really. The company isn’t growing. Revenue and operating income in 2014: $92.8 billion and $20.1 billion respectively. In 2017: $79.1 and $11.9 billion. Analysts aren’t looking for much improvement in 2018. No wonder the stock’s down.
IBM’s recent deal to buy Red Hat for $34 billion is perceived to be a richly priced scheme to acquire top line growth. The market was not pleased and the stock dropped from $125 to $115.
The company’s once core business of mainframes is not such a hot tamale anymore. It faces tough challenges from Amazon and Microsoft in cloud computing. Watson? Doesn’t move the needle.
So how safe is Ginni Rometty’s job, and why isn’t there more outcry from IBM shareholders? A few reasons. First, she wasn’t dealt such a great hand from her predecessor Sam Palmisano. And two, she certainly deserved some time to show her mettle. A year or two is too soon to judge whether or not a CEO is a success. How much is enough time? There are no hard and fast rules.
“Under Ginni’s leadership, IBM has successfully undertaken a portfolio shift far larger in scope and scale than any before at this company or many other Fortune 500 companies,” an IBM spokesperson said in an email to Yahoo Finance. “IBM today is a much different company from 10 years ago, five years and even 3 years ago. IBM’s return to growth in the fourth quarter of 2017 is due in significant part to our Strategic Imperatives reaching critical mass. During the first three quarters of 2018, IBM has grown revenue, operating profit, operating earnings per share and has delivered strong free cash flow realization. This is our best performance on these metrics in the last three years. Half of the IBM workforce today is new to the company within the last five years.”
To be sure, incrementalism also plays a part here. In other words, if you told the board their stock was going to be down massively point to point, of course they would kick the CEO out. But if there’s more of a drip, drip, drip scenario—which it often is—who knows when to pull the plug.
IBM and Rometty also have all kinds of capital on their side. All of Big Blue and the CEO’s relationships with the media, Wall Street and the boards she’s on—Memorial Sloan Kettering, Council on Foreign Relations, Northwestern University—plus her being on the White House business advisory and co-chairing Davos, it all adds up and make it that much more to oust her.
But IBM’s board need look no further than another blue-chip company located close by. That being GE (GE). It’s indisputable GE’s board stuck with former CEO Jeff Immelt too long. Immelt was CEO for 15 years and 11 months. During that time, GE stock slowly but inexorably declined 35%, while the market was up 128% over the same time period. That’s 163 percentage points of underperformance.
At least one investor has already given up on IBM, Warren Buffett. This past May when CNBC’s Beck Quick asked if he had sold all his IBM shares—he reportedly owned 81 million shares at the end of 2016—Buffett said, “The answer is almost certain, yes.”
For IBM’s board, that should have been a wake-up call.
NOTE: This story has been updated to include a statement from IBM.
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter @serwer
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