Ginni Rometty leaves complex legacy as she steps away as IBM CEO

When Ginni Rometty steps down as CEO at IBM in April and her replacement Arvind Krishna takes the helm, more than eight years will have passed since she took the reins at Big Blue. The executive helped lead a massive transformation, but IBM has had a bumpy financial ride throughout her tenure — at one time recording an astonishing 22 straight quarters of declining revenue.

To be fair, Rometty took over at a tumultuous time when technology was shifting from on-prem software stacks to the cloud. She saw what was coming and used the company’s considerable cash position to buy what she needed to make that switch while taking advantage of IBM’s extensive R&D to build other pieces in-house. But the transition took time, which resulted in some financial missteps.

She deserves credit for trying to move the battleship in a new direction — culminating with the $34 billion purchase of Red Hat — even if the results were ultimately mixed.

Leading the way

Rometty was the first woman to lead IBM in an industry where female CEOs are scarce. When she came on board in 2012, there were just 21 women running Fortune 500 companies; last year, that number had risen to 33, still a paltry 6.6%. Along with Safra Catz at Oracle and Lisa Su of Advanced Micro Devices, Rometty has been part of a small group of female CEOs at large technology companies.

In a 2015 interview with The Wall Street Journal, Rometty conceded that being a role model was an important aspect of her job, even if it wasn’t something she was always thinking about. “Look, IBM is an iconic company, it’s an important company to this world. And I never felt the most important thing was that I was a woman, that wasn’t it. It was about being and doing the right things as CEO for IBM,” she said.

In a 2017 interview with Bloomberg she acknowledged that while she wanted her accomplishments to be blind to gender, she also had a role as a mentor. “Over time, though, I really came to learn and see how important it is that there be role models and you have to accept the fact that you are a role model on the appropriate things,” she said.

Ultimately, running a company like IBM made Rometty a role model, whether she wanted to be one or not.

Changing a company

When she took over in 2012, the industry was in the early stages of a monumental shift to the cloud, even if it would be a few years before it really took off, and Rometty helped put the company on the road to that transition.

IBM bought SoftLayer in 2013, providing the company with a much needed infrastructure layer. Over time, it added SaaS pieces, both through acquisitions and technology built in-house. On her watch, from 2012-2019, IBM bought more than 50 companies, culminating with the massive acquisition of Red Hat for $34 billion at the end of 2018.

During her tenure, the company moved more deeply into artificial intelligence with Watson and developed tools for data and analytics, security, blockchain and quantum; all areas that should pay dividends after she leaves.

But during her tenure, these moves to propel her company forward did not always translate into immediate strong financial results. Wall Street is not always patient through these kinds of substantive changes, but as the Harvard Business Review reported in a 2017 interview with Rometty, the board remained supportive, even giving her a raise. In fact, at that point her total pay package was $33 million, making her the eighth highest paid CEO in America.

Rough financials

It would be impossible to discuss Rometty’s legacy without addressing the company’s financial performance under her watch, especially the run of 22 straight quarters with falling revenue, which began shortly after she took over in 2012 and only ended in 2017. A smaller five-quarter slump followed after the 2017 turnaround.

As a result, during her tenure, the stock plummeted from a high of around $215 in March 2013 to a low of $116.10 at the end of 2018. Since then, the stock has recovered some and after its most recent earnings report earlier this month, the company reversed that second five-quarter slump. Yesterday’s price was up to $142 as we published.

IBM stock performance 2012-present. Chart: Macrotrends.net.

The market cap under Rometty has also slipped along with the stock price falling from $224 billion on January 31, 2012 to $126.5 billion today. That’s almost a $100 billion drop, or a loss of 43.53% in eight years.

In the 2017 Harvard Business Review interview, Rometty blamed the decline on selling off legacy businesses and taking currency hits, but she also chose to see the positive side of the changes that she helped usher in, regardless of the short-term financial results:

What’s positive is that the plan is proceeding as we believe it should, with the growth of large new businesses that are adjacent to our core franchises. IBM will grow again. But we need to grow in the right ways. We’re moving into areas that have value and shedding ones that don’t. We could have higher growth rates, but we made a bold decision to divest commoditizing businesses before they commoditize further. The new areas are higher margin, but we have to invest in them and then scale them up.

That is indeed the hope, and that by putting two people in charge who have a strong cloud pedigree — Krishna and incoming president Jim Whitehurst — they can take what she has built and put the company on strong financial ground moving forward.

While she was a great role model and led IBM through a tumultuous time, the financial results weren’t always there. Ray Wang, founder and principal analyst at Constellation Research, says in many ways Rometty was dealt a bad hand, as she had to balance shifting priorities and acquisitions while trying to keep Wall Street happy.

“Her legacy is going to be making the Red Hat deal, stemming the earnings slump and handing it over to the new CEO,” he said.

She also helped redefine a company that’s more than 100 years old, and she should feel pretty good about that.