Gerstner, Lou


Gerstner, Lou
▪ 1994

      When Lou Gerstner assumed the mantle of chief executive officer (CEO) at IBM in April 1993, he inherited what was called the toughest job in corporate America. Despite being the world's largest computer manufacturer and one of the nation's leading companies, with $60 billion in sales, IBM was reeling from losses of $5 billion in 1992. Gerstner was chosen to succeed John Akers as CEO after several of the nation's top executives declined the daunting position. Observers were surprised that a company known for its insular and traditional business methods would choose an outsider with little technological experience. But Gerstner also had the reputation of being a tough and decisive manager with a history of rebuilding corporations.

      Louis Vincent Gerstner, Jr., was born in Mineola, N.Y., on March 1, 1942. He studied engineering at Dartmouth College, Hanover, N.H. (B.A., 1963), where he graduated magna cum laude. After attending Harvard University (M.B.A., 1965) he joined McKinsey & Co., a management consulting firm in New York City. By 1970 he had become one of the youngest partners in the history of the firm and distinguished himself by overhauling the bankrupt Penn Central Railway. In January 1978 he joined American Express as executive vice president and head of its travel-related services division. In his first 10 years there, the number of currencies in which the American Express credit card was issued doubled, the number of total cardholders quadrupled, and travel-related services became the most profitable division in the company. As president (1985-89) he increased corporate net income by 66%.

      In March 1989 he accepted the challenge of becoming the new CEO of RJR Nabisco, which had been acquired the previous November by Kohlberg Kravis Roberts & Co. in one of the largest leveraged buyouts in corporate history. As a result of the takeover, the company was saddled with a massive $25 billion debt, with annual interest costs of $3 billion. During his four-year tenure at RJR Nabisco, Gerstner pared the debt down to $14 billion, sold off $6 billion of peripheral assets, and trimmed general expenses.

      In his first six months at the helm of IBM, he faced criticism that he lacked vision by focusing on immediate cash management. He froze some long-term projects and continued the cost-cutting measures that Akers had begun in the late 1980s by ordering 35,000 additional layoffs and by reducing overhead costs and operating expenses. Gerstner also arranged an $8.9 billion write-off against company earnings—one of the largest in corporate history. Although a frequent proponent of decentralization, he rejected a proposal to break IBM into smaller divisions.

      (TOM MICHAEL)

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▪ American businessman
in full  Louis Vincent Gerstner, Jr. 
born March 1, 1942, Mineola, N.Y., U.S.

      American businessman best known for the pivotal role he played in revitalizing the ailing International Business Machines Corporation (IBM) in the mid-1990s.

      Gerstner studied engineering at Dartmouth College in Hanover, N.H. (B.A., 1963), where he graduated magna cum laude. After attending Harvard University (M.B.A., 1965), he joined McKinsey & Co., a management consulting firm headquartered in New York City. By 1970 he had become one of the youngest partners in the history of the firm and distinguished himself by overhauling the bankrupt Penn Central Railway. In January 1978 he joined American Express (American Express Company) as executive vice president and head of its travel-related services division. Gerstner became president of the company in 1985, and during his four years in the position he increased corporate net income by 66 percent.

      In March 1989 Gerstner became the new CEO of RJR Nabisco (RJR Nabisco, Inc.), which had been acquired the previous November by Kohlberg Kravis Roberts & Co. in one of the largest leveraged buyouts in corporate history. As a result of the takeover, the company was saddled with a massive $25 billion debt, with annual interest costs of $3 billion. During his four-year tenure at Nabisco, Gerstner pared the debt down to $14 billion, sold off $6 billion of peripheral assets, and trimmed general expenses. In April 1993 he became the CEO of IBM (International Business Machines Corporation), a position many considered the toughest in corporate America. Despite being the world's largest computer manufacturer and one of the country's leading companies, with $60 billion in sales, IBM was reeling from losses of $5 billion in 1992. In his first six months at the company's helm, he faced criticism that he lacked vision by focusing on immediate cash management. He froze some long-term projects and continued the cost-cutting measures begun in the late 1980s by ordering 35,000 additional layoffs and by reducing overhead costs and operating expenses. Gerstner also arranged an $8.9 billion write-off against company earnings—one of the largest in corporate history. IBM experienced a dramatic turnaround during the mid- to late 1990s, though Gerstner was criticized for using company profits to fund stock buybacks as a way to increase the stock's share price. He stepped down as CEO of IBM in 2002.

      Between 1996 and 2002, Gerstner was the cochair of Achieve, an organization dedicated to pursuing academic excellence in public schools, and while with IBM he established the Reinventing Education program, which worked to integrate IBM technology into schools to assist in student improvement. For his contribution to public education, Gerstner was made an honorary Knight of the British Empire by Queen Elizabeth II (Elizabeth II) in 2001. The next year he published an account of his time with IBM, Who Says Elephants Can't Dance?, and in January 2003 Gerstner became chairman of the Carlyle Group, a leading private equity firm.

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Universalium. 2010.

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