Lou Gerstner's First Day at IBM

At Gerstner's passing, a warm story about his long ago encounter with IBM's ghosts

Now that Lou Gerstner has died, you may read lots of stories about how he rescued IBM – which was certainly one of history’s great feats of management. But I have a fun little Gerstner story that I doubt you’ll see anywhere else today.

I’ve written about IBM my entire career. When Gerstner took over as IBM’s chief executive in 1993, I wrote USA Today’s cover story. I talked to him many times after that.

In 2002, after I had been working for a couple of years on what would be my biography of Thomas Watson Sr., who built and ran IBM from 1914 to the 1950s, I met Gerstner in his office at IBM headquarters in Armonk, N.Y. He seemed sunnier than usual. (Around the media, Gerstner had never been particularly sunny.) He told me he was about to announce he was retiring.

Then he told a story about his first day as IBM’s CEO.

I used that story when I wrote the script for a 2018 Wondery podcast series titled “The First Computer War.” Below is that part of the script. I dramatized the story for the podcast, but all of it is true, as told to me by Gerstner. (Gerstner also tells a brief version of the story in his book, Who Says Elephants Can’t Dance, and I wrote a version in my Watson biography, The Maverick and His Machine.)

The italicized parts are dialogue.

–

It is a bright spring day in 1993. We’re in the toniest part of Greenwich, Conn. – where sprawling houses by the water bump up against a marina packed with sailboats swaying with the waves. Louis Gerstner, short, balding, ruggedly built and dressed in a beautiful tailored suit, steps out of his house and toward a black luxury car waiting in his driveway to take him to work in New York City 30 miles to the south.

Gerstner is just starting as the new CEO of IBM. Before this, he was CEO of a food and tobacco company, RJR Nabisco. IBM’s board recruited him to turn the company around.

Gerstner opens the back door of the car, slides in, and jumps back, startled to see someone already sitting on the other side of the seat. He does a double-take, and realizes his passenger is Thomas Watson Jr.

Watson:
Mind if I ride to work with you?

In one of the odder twists in business history, Gerstner lives next door to Watson and his wife, Olive. It’s been 15 years since Watson retired as IBM’s CEO – a job his father held for 40 years before that. Gerstner and Watson don’t know each other well, and their proximity has nothing to do with Gerstner getting the IBM job.

Watson wants to rant.

Watson:

Lou, I am mad as hell about what they have done to my company! Those people don’t know what the hell they are doing. I want you to tear the place up and move quickly. We took bold action in my day. I’m not going to tell you what to do, but I will tell you that it better be bold.

Gerstner has a sense of humor and a preternatural calm about him. He looks at the angry Watson and smiles, saying:

Gerstner:

You know, I’m sitting here thinking, this is a really special moment.

Watson can’t help but laugh. But on the ride, the two feel that something important is happening. Gerstner senses that Watson is handing him the keys to the Watson culture that once made IBM great.

The moment lingers with Gerstner as he gets to IBM’s New York offices and meets for the first time with the executives who will report to him. They gather around a long wooden boardroom table. They stare at Gerstner anxiously, waiting to be told that they’re all fired, or that IBM will be broken up and sold, or some other horror.

Instead, Gerstner says he wants to keep the company together.

Gerstner:

We’re under tremendous pressure – from the media, from Wall Street. We’re not going to be given a lot of time. The first thing we have to do is shore up the balance sheet. And we’re going to have layoffs.

There is a gasp in the room. Through its 80-year history to this point, IBM has never laid off workers. Not even in the Great Depression.

Gerstner:

I know there are a lot of things at this company that have become sacred. Some of those things are sacred because they are powerful parts of IBM’s culture, and we’re not going to mess with those. But some of those things are sacred for the wrong reasons, and I’m not going to hesitate to kick those out the door. Our job is to find IBM’s core, protect it, and change everything else.

The meeting is exhausting. It’s a tiny taste of how much Gerstner is going to have to do to stabilize IBM, and then help the company rediscover its own greatness.

After a long day of more such meetings, Gerstner gets back in his car, and the driver takes him to the airport. IBM’s corporate jet is waiting to take Gerstner to yet more meetings – this time with IBM customers. He’s expecting the customers to beat him up over IBM’s failings over the past decade.

Finally, on the jet, Gerstner settles into one of the leather captain’s chairs and relaxes. He is the only one on board. He calls the stewardess over to him.

Gerstner:

You know, after a day like I’ve had, I could really use a drink. What do we have on board?

Stewardess:

Um, well, sir, there is no alcohol on IBM airplanes. It is prohibited to serve alcohol.

Way back in IBM’s past, the company’s patriarch, Thomas Watson Sr., did not drink and disapproved of drinking. So for 80 years, alcohol was banned from official IBM life. Gerstner thinks: That is clearly one of those sacred things that needs to be kicked out the door.

Gerstner (wryly):

Can you think of anyone who could change that rule?

Stewardess:

Well, perhaps you could, sir.

Gerstner:

It’s changed, effective immediately.

—

Here is the story I wrote for USA Today when Gerstner was hired as IBM’s CEO: