Louis V. Gerstner: My Personal History　　　　Nikkei Net 2002/11

1. Announcing retirement

At the end of this year, I will retire as Chairman of IBM at the age of sixty.

It has been a tumultuous nine years since I was asked to take the post in the spring of 1993, when I was a chairman and CEO of RJR Nabisco.

At the beginning of the 1990s, IBM, a leading manufacturer of supercomputers, mainframes and personal computers, was labeled a "dying elephant," about to collapse under the hardship of the IT revolution and worldwide competition. In 1992, it posted $64.5 billion in revenue, but $5 billion in net loss and its payroll was drastically cut down to 301, 600 from its peak of over 400,000 worldwide in the late 80s.

I came to IBM as an outsider, a force for change. The Board of Directors asked me to focus on one short-term objective: save the company. I quite honestly did not know if that could be done. I certainly didn't know how long it might take.

I had to make a lot of difficult decisions, and wrench the company in ways it did not want to go.

And we succeeded in reviving the elephant, against the widespread expectation of failure. IBM was not dismantled, and in 2001 recorded a revenue of $85.8 billion, net income of $7.7 billion and recovering the number of employees to 319,900.

Throughout my business life, I have always believed you cannot run a successful enterprise from behind a desk. That's why, during my nine years as CEO, I have flown more than 1 million miles and met with untold thousands of IBM customers, business partners and employees.

Along the way, in my heart I became a "true Blue" IBMer. Interestingly, this outsider occupied the CEO's office longer than any IBM Chief Executive Officer other than the Watsons. Here are a few excerpts of the letter I wrote to my colleagues to announce my retirement:

"... my original mandate (to save the company) was largely completed by the mid-nineties. But along the way, something happenedーsomething that, quite frankly, surprised me. I fell in love with IBM. I decided, like many of you, that this was the best company in the world at which to spend my career. IBM is a fascinating, important, frustrating, exhausting, and fulfilling experienceーand I've enjoyed every minute (well, maybe not every minute)!

"Let me say something about the timing of this transition, because some people believe IBM CEOs are required to step aside at age sixty. That's not so. There is no rule or age limit that requires me to do this now. I am doing it because I am convinced that the time is right. The company is ready, and so is the new leader, Sam Palmisano. I have never felt more optimistic and confident about our future. And those are the best circumstances under which to make this sort of change.

"Over the past two years, Sam and I have forged a strong partnership to prepare the company for a transition in leadership. Sam is an exceptional leader with critical qualities and disciplines. Beyond them, Sam bleeds Blue. And because he does, he understands the character of our company at its soul. I know you will give Sam all the support you so generously provided me over many years. ... And long after I step aside as chairman, I want you to know that I will be cheering and rooting for this magnificent company and its extraordinary people. I am an IBMer for life."

2. Invited to IBM

After I announced my intention to retire, I was amused to read an editorial in an American newspaper that said it hoped Gerstner was going to do something more useful than write a book and play golf. Nice thought, but I also got thousands of letters and e-mails, and the most frequent sentiment was that I should tell what I had learned from my tenure at IBM, asking "How did you save IBM?" and "What did you do to bring the company back to life?"

I concluded, a little reluctantly, that the easiest way for me to fulfill all this "popular demand" was to write a book and to hold off on serious golf for the time being. The book, titled "Who Says Elephants Can't Dance?," will be published in the middle of this month. I wrote this book without the aid of a coauthor or a ghostwriter, which is why it's a good bet this is going to be my last book; I had no idea it would be so hard to do.

To join IBM was namely the most serious and important decision in my life of 60 years. So let me start the Nikkei's series with the critical scenes I faced nine years ago.

It was the night of December 14, 1992. I had just returned from one of those always well-intentioned but rarely stimulating charity dinners that are part of a New York City CEO's life, including mine as CEO of RJR Nabisco. I had not been in my Fifth Avenue apartment more than five minutes when my phone rang with a call from the concierge desk downstairs. It was nearly 10 P.M. The concierge said, "Mr. Burke wants to see you as soon as possible this evening."

Startled at such a request so late at night, I asked which Mr. Burke, where is he now?

The answers were: "Jim Burke. He lives upstairs in the building. And, yes, he wants very much to speak to you tonight."

I didn't know Jim Burke well, but I greatly admired his leadership at Johnson & Johnson, as well as at the Partnership for a Drug-Free America. When I called, he said he would come right down.

When he arrived he got straight to the point: "I've heard that you may go back to American Express as CEO, and I don't want you to do that because I may have a much bigger challenge for you."

I had been a senior executive for 11 years since 1978, but resigned to move to RJR Nabisco in 1989. And in fact, in mid-November 1992, three members of the American Express board had met secretly with me to ask that I come back. However, I told the three directors politely that I had no interest in returning to American Express. I was not going back to fix mistakes I had fought so hard to avoid.

I told Burke I wasn't returning to American Express. He told me that the top position at IBM might soon be open and he wanted me to consider taking the job. I was very surprised. While it was widely known and reported in the media that IBM was having serious problems, there had been no public signs of an impending change in CEO. I told Burke that, given my lack of technical background, I couldn't conceive of running IBM. Burke repeated, "Please, keep an open mind on IBM," and went back upstairs.

On January 26, 1993, IBM announced that its chairman and CEO, John Akers, had decided to retire and that a search committee had been formed to consider outside and internal candidates. The committee was headed by Jim Burke. He called me and urged me, but I gave him the same answer as I had before.

He and his committee then embarked on a rather public sweep of the top CEOs in America. Names like Jack Welch of General Electric, Larry Bossidy of Allied Signal, George Fisher of Motorola, and even Bill Gates of Microsoft surfaced in the press. The search committee hired two recruiting firms, which was believed to be a first-of-its-kind transaction.

3. Decision to join IBM

In February, 1993, many newspapers, magazines, and TV featured the failures of IBM, with industry analysts and experts indicating that the giant computer company was not likely to survive, like a brontosaurus moved deeper into the swamps to be extinct.

Jim Burke, search committee chairman, insisted to me that IBM was looking for "not a technologist, but rather a broad-based leader and change agent, a proven, effective leader who is skilled at generating and managing change." Still, I really did not feel qualified for the position.

The turning point in my thinking occurred over the President's Day weekend that month. I was at my house in Florida, where I love to walk on the beach, clearing and settling my mind. It's very therapeutic for me. During an hour's walk each day that weekend, I realized that I had to think differently about the IBM situation. What prompted my change of heart was what was happening at RJR Nabisco. Its management was shifted against my intentions, and it was getting high time for me to seek an exit.

I called Vernon Jordan, the Washington attorney who was a longtime friend as well as a director of RJR Nabisco, and asked his advice. It was clear that Jim Burke had already talked with Vernon, because Vernon knew I was on the IBM list. His advice was, as usual, to the point. He said, "IBM is the job you have been in training for since you left Harvard Business School. Go for it!"

On February 24, when I was attending a meeting of The Business Council in Washington, D.C., I secretly met with Paul Rizzo, who was at that time in charge of fixing financial problems at the request of the IBM board, in my hotel room. The discussion was very sobering. IBM's sales and profits were declining at an alarming rate. I was convinced that the odds were no better than one in five that IBM could be saved and that I should never take the position.

A consumer products company has long-term brands that go on forever. However, that was clearly not the case in a technology company in the 1990s. There, a product could be born, rise, succeed wildly, crash, disappear and be forgotten all within a few years. I was convinced IBM was not in my future.

In mid-March, I was back in Florida for a brief vacation. I was with Burke and Tom Murphy, two leaders in the search committee, alone at the living room of a headhunter's house in the same community near my home.

Burke introduced the most novel recruitment argument I have ever heard: "You owe it to America to take the job. IBM is such a national treasure that it is your obligation to fix it." He said he was going to have President Bill Clinton call me and tell me that I had to take the job.

Murphy reiterated that the challenge for the next leader would begin with driving the kind of strategic and cultural change that had characterized a lot of what I'd done at American Express and RJR.

It was a long, long afternoon. At the end of it, I said yes. It's almost hard for me to remember why. I suppose it was some of Jim Burke's patriotism and some of Tom Murphy's arguments playing to my gluttony for world-class challenges.

I drove home that afternoon and told my family of my own decision. One of my children said, "Yes, go for it, Dad!" The other more conservative child thought I had lost my mind. My wife, who had been quite wary of the idea originally, supported my decision and was excited about it.

At that time, I had just turned 51 years old. My IBM years from that day will be described later in this series. From tomorrow I'll come back to my younger days according to the format of "My Personal History."

4. My home town and my family

I have been frequently called a very private person. I don't mean to be secretive, but it's probably come from my long established priciple to protect my private life: I don't want to let private matters into my public workplace or get my family involved in my job. I rarely talk about my hobbies and family life.

But here, at the strong request from The Nihon Keizai Shimbun, I finally agreed to talk about my life of 60 years at the time of my retirement from IBM. So this is the rare opportunity to read my personal history in the media.

I was born on March 1, 1942, in Mineola, New York-a small town and the county seat of Nassau County, Long Island.

My father, Louis, was born and raised in Long Island, and started work as a milk-truck driver near the farm, developed his career with hard work and ultimately retired as a dispatching manager at a big local brewing company. He was always calm and quiet, not sociable but a very private man with a great love of learning and inner strength that needed no approbation or reinforcement from broader audiences.

My mother, Marjorie, was a secretary, sold real estate, and eventually became an administrator at a community college. She was enormously disciplined, hard-working, and ambitious for all her children. She trained them well to do their homework.

I was the second of four children. Elder brother Richard is 3 years older; my next brother, James, was 2 years younger; and Joseph was 10 years younger than me.

I don't know why I was named after my father. It's not unusual to have the father's name for the second or third son in America.

Our family name, Gerstner, probably comes from German immigrants, but I don't know its roots for sure. My grandparents lived in the Long Island area, but our parents seldom spoke about our family background. We were a warm, tightly knit, Catholic, middle-class family. We went to church together every Sunday.

Mineola is a typical small middle-class town in the suburbs, less than an hour train ride on the Long Island Railway from Penn Station in Manhattan. It's a residential area with not so big but moderate houses for population of several thousand, with no big factories or big mansions for rich people. A nearby highlight of our community was Roosevelt Field, a huge private airfield where Charles Lindberg in the Spirit of Saint Louis took off to cross the Atlantic on May 20, 1927. It was closed in 1951 when I was attending grade school and turned into government districts and a big shopping mall.

We were not a wealthy family, and we couldn't afford trips. But we made our own activities. Three elder brothers got together every day. We walked together to a field and found some other kids and played ball. We played catch in the backyard. We rode a train to New York City to the museums and the planetarium. We spent a month or two in the summer camping. I don't recall any serious fights among brothers. Of course there were some, as brothers would argue. But nothing lasted more than half an hour, and we forgot about it. We babysat for the youngest brother, too.

5. From grade school to high school

I was just a normal boy at grade school. I wasn't big, or small, or fat, or thin. I didn't get wide attention from my classmates.

I skipped a year in school. I don't remember the grade exactly, probably it was a young grade, the first or second grade. It was not uncommon when you're in the first or second grade to be held back or pushed ahead.

Public grade schools in the suburbs are sometimes named after streets, and mine was called Hampton Street School, one of the oldest schools in town (built in 1906), and about 10 minutes' walk from my house. I graduated from grade school at the age of 13 and entered Chaminade High School in 1955.

Chaminade, founded in Mineola in 1930, was and still is one of the best four year term high schools in the neighboring counties. It's private, Catholic and for boys only, and 98% of the students go on to college. You have to take an exam with stiff competition to get into this high school.

Education was a big priority in the Gerstner household, and my parents always taught their children how education was important in life. My mother especially was very ambitious for all her children. She drove us toward excellence, accomplishment and success. We, the Gerstner brothers, studied hard, prepared for the best high school, and all of us entered the same high school. My parents remortgaged their house every four years to pay for schooling.

When I was a freshman, my brother Richard was a senior. The school was about 3 miles from our house and we walked every day for four years. We were good friends and we got along well.

Chaminade was a very strong, classical academic institution in what we call in the U.S. liberal arts, or broad education. I studied four years of Latin, science and mathematics, and three years of French. It also had a very extensive, rich reading program. We read all the classics from Beowulf to Shakespeare to Dickens and poetry.

I usually did three or four hours a night of homework and read a lot of books as part of the school program. I also liked to read just on my own. One of my favorite authors was Ian Fleming, whose 007, James Bond series was very hot in late 50s. Such adventure novels were just good reads, and I've read all of John Le Carre's and some of Tom Clancy's.

Among the subjects, I liked literature, science and math. In fact, I got an 800 score on the math SAT, the highest score you can get.

Speaking of sports, I only played football at school, on the team called Chaminade Flyers for three years. I was mostly quarterback and halfback. We had a long tradition of good football and the Flyers was a strong team. I don't remember how many games we won in the league, but we won the championship one year when I was there. I was selected as an award-winner in my league, and in the fall of senior year, I won an All-Scholastic Award, which was given to an outstanding student of all-around performance, both academic and contributions to the school. I was on the football team and vice president of the student council.

In the fall of 1958, about half a year before graduation, there was a dinner party in New York City to celebrate all high school students in New York state who had won similar awards. I was invited to go there, and came across an interesting happening that changed my career to higher education. It was because of the football award.

6. To Dartmouth College

It was in 1958, the last fall of my high school years. A middle-aged man came up to me at the dinner party and said, "Would you be interested in going to Dartmouth to be a football leader?" I said no, as I was already scheduled to Notre Dame, a prestigious Catholic university, certainly not to play football.

Then he asked me how were my grades in school. I said I had a 96 average. Actually, I graduated second in my class. There was a student who had about a two-tenths of a point higher average than me. And the man said, "Oh, you should go to Dartmouth!"

He was an alumnus of Dartmouth College and he had the college send me an application with a substantial scholarship. It was about $1,800 a year when the tuition cost was $3,000. (I hear the tuition is now about $25,000. What a change! )

I had never visited Dartmouth; I knew it only by name. But I decided to go there because first of all, it had a reputation for being a very good Ivy League school, and secondly, it really helped my parents for me to take this big scholarship. It was a major benefit for our family finances.

I graduated from Chaminade in June 1959 at the age of 17, and went to Dartmouth in New Hampshire for the first time in September. My parents drove me the seven and a half hours with all my clothes and books in suitcases and trunks in the family car. We stayed in a local motel.

My parents stayed overnight, got me into my dormitory room, got me registered. They were very pleased because Dartmouth is physically attractive, surrounded by thick greens and hills and rivers up in New England. They were not status-conscious and the fact that it was an Ivy League school really didn't mean anything to them.

I was excited and impressed at this huge facility. Apprehensive, a little. It's an all-male school in the middle of the woods. Its main library has a big reading room in the basement where all the walls were painted with a dynamic and dramatic mural by a noted Mexican artist, Jose Clemente Orozco in the 1930s, and its Hood Museum had a worldwide variety of historic collections donated by many alumni. Hanover was a quiet college town where students were well treated by town people, and there were many student's lively activities all year round.

There were only two students from Chaminade to Dartmouth, and we agreed to live in the same suite with four bedrooms and a living room for eight students. We joined the same fraternity and we all got along well. It gets very cold in winter. We used to run a hose and flood the parking lot behind the fraternity house. It would freeze overnight, and we could play ice hockey. The more beer you drank, the better hockey you played.

The nearest girl's college was an hour and a half away by car, so we used to take "road trips," we called, to see girls on weekends. My friend drove a car with five or six boys-as many as we could pile in the car. I didn't have a car as I was a scholarship student. If you could afford a car, they wouldn't give you a scholarship. So I didn't go on as many trips as some of my fraternity brothers. It's true.

7. Chairman of judiciary committee

We had a wonderful college life. There was a winter carnival every year in February when we would make giant ice sculptures all over the campus. They were supposed to be humorous. Our fraternity club worked on Vikings with swords and elves with funny hats. There were many animals such as reindeer and lots of dragons. The carnival with its spectacular view was famous all over the East Coast and attracted many visitors and of course girls from nearby areas.

We played a lot of inter-fraternity sports like football and hockey. But I didn't join the football team because Dartmouth, as an Ivy League school, didn't have any athletic scholarships. Instead I rowed crew in my freshman year. We used to get up at 4 o'clock in the morning, and go down to the river to start rowing at 5:30 while it was dark and cold before dawn. But I had to quit rowing the next year as our practice time was shifted to late afternoon, which conflicted with my science laboratory.

I was in lots of clubs. I was on the student radio station and used to sell ads to the local merchants who would run their commercials on our radio station. I was also a member of the executive committee of the student council.

But I would say the major activity I had at Dartmouth was the judiciary committee, which was responsible for hearing cases of student misbehavior and assigning penalties. I can say that it was one of the most profound and important influences in my life.

Any academic misbehavior went directly to a faculty committee, while any social misbehavior, like drunkenness, having girls in the dormitory (girls were not allowed in the dormitory or fraternity house), running parties late after curfew, fights between students, theft or vandalism were judged by the judiciary committee, consisting of students.

I was elected to the committee in my junior year and appointed chairman by the dean in my senior year. As cases were reported either by students or by campus police or faculty, my job as chairman was to assign them members of the committee. An assigned member would go out to interview the students involved in the case, campus police and faculty as witnesses and prepare the report.

We would meet usually at about 7:30 on Tuesday night and run until 11 or 2-3 o'clock in the morning. The report would be presented, and the student would be allowed to come in to present his arguments and he would be asked to go back to his room to wait for the decision. After that, members would discuss the case from many aspects to reach a proper decision. It was really like a court. I always took the most difficult cases.

When we reached our decision, as chairman I had to walk out to the student's roomーhe was waiting up to hear the verdictーand tell him that he was guilty of a violation and would be suspended from school. Sometimes his worrying parents would be waiting to hear. The student might cry. You can imagine having your son thrown out of school, sometimes even in his senior year. Some students got very angry.

It was a really hard experience for me. At the same time it was a very maturing process because suddenly, at the age of 20 to 21, you had to make decisions that affected people's lives in a very big way. I made 8 to 10 decisions to expel as chairman.

Now, all of these decisions were subject to review by a committee of the administration. Within two days, I had to go to the dean's office and meet with a faculty committee and the head of the campus police, and I had to defend the decisions we made. Most of our decisions prevailed, but they overturned one in the two years I was on the committee. I don't remember which case it was, but as I recall they insisted on a more severe penalty than we gave the student.

8. Graduating from Dartmouth

As the chairman of the judiciary committee, I think I learned first of all the importance of not reaching conclusions too early in the analysis of a situationーthat the facts are not always as they appear when they're first presented to you and that it is important to do thorough analysis and to be fair-minded and hold your judgment until you've gotten as much information and hopefully as much insight as you can.

Many times, when the campus police brought somebody in, he had to be guilty. So we'd have to research and argue well; maybe it wasn't the way the policeman saw it; maybe it was a little different. The girl was in the dormitory only for five minutes and it was raining, and she was properly dressed, and there was a bunch of people around and so we're not going to throw somebody out of school for that. But under different circumstances, they got thrown out.

It was also a tremendous learning experience in managing small teams, because there were about six or eight of us on this committee. How to bring all of them to a common point of view, make sure that the work was well done-so it was good learning about team leadership.

The third thing I learned was the importance of being able to distill and summarize in verbal form a set of conclusions that you gave to the student as to why a decision was reached. I had to convince the faculty and the police chief that maybe there were some circumstances that warranted some leniency or no penalty at all.

I graduated in 1963, and about six years later I went back to Dartmouth as an alumnus. I was upstairs in the fraternity house and out walked a girl from the shower. I was shocked and ran down the stairs, saying, "What am I doing here?" 　What really struck me was I had suspended students from school for something that six or more years later was not at all a violation of any rule.

Because of the drastic changes in social mores that took place in the 1960s, all those campus rules changed. College students in the late '60s were very different from us, the older generation.

The universities had to respond to a change in society. Today most universities have co-ed dormitories. And my children lived in co-ed dormitories, too. I wouldn't characterize or make a value judgment that our older, traditional generation or "flower" generation and after was better or worse. But I would tell you that I think it was a lot easier to study when it was an all-male school at Dartmouth.

In the academic courses, I loved philosophy courses and got academic excellence awards for several courses in philosophy. Dartmouth graded from A to E, and I got As and Bs but only one C in mechanical drawing, an engineering course. I graduated with a Bachelor of Arts with a major in engineering science.

When I entered Dartmouth, I knew it had a strong engineering science department and I was thinking about being an engineer or a business person as my career. However, as I got into my engineering curriculum, I decided I didn't want to be a engineer. I wanted to go into business.

So I scheduled to go to the Tuck School at Dartmouth, its business school. But at that time, Dartmouth was not known as much for its graduate school. Its graduate students were mostly married and formed a tiny minority in the small college town. I decided I'd rather go to Harvard, which had a great reputation on the East Coast.

9. Harvard Business School

In the fall of 1963, I moved down to Boston as I successfully got approval to go to the Harvard Business School with a scholarship. There was a big difference between Hanover and Boston, from a small college town with one movie theater in the freezing mountains in New Hampshire to a port city with a big population and music halls and live theaters. It was like the difference between Sapporo and Tokyo in terms of temperature, culture and activity.

What I found in business school classes was hard work. The first year was especially hard. We had Saturday classes, which I hear are no more today, and we had to go to school six days a week.

At Harvard, all the classes were taught using cases. You read the case and discussed it. It was a very new learning experience for me because I had been trained in high school and college in what I would describe as classical education-reading, fact-gathering, analysis and thinking up the right answer. But in those case studies, there were no right answers. At first, it was a little frustrating for me to be in an environment where there was no right answer.

I'll never forget my first class, which was about some company where the manager had made a mistake and the professor asked the class: "What should the CEO do?" A student raised his hand and said: "Fire everybody!" The teacher looked at the student and said: "Really? Well, then, who's going to run the company?"

It's a very different learning process. I knew Harvard had a reputation for case studies, but I didn't know how they taught. After a while, I got very comfortable with it and enjoyed it.

Harvard also had a great writing course. You had to write a paper on a case every other Saturday. Papers were due to be dropped in a box like a mailbox, at 5 o'clock in the afternoon and they were graded the next week. These papers were limited in the number of page, about 8-10, so that you could learn how to write a brief summary and a brief analysis effectively.

Those papers had to be all typewritten with carbon copies, but I couldn't type. So I had to ask someone to type for me. There were big bulletin boards in the student lounge, saying "I'll type your papers." Most of these typists were wives of graduate students. It was a whole cottage industry.

By the way, mine was the first class at Harvard that accepted women as students, and there were only two female students--one went on to work for Chemical Bank and other went to work for Saks Fifth Avenue in New York City. Today almost half of the business school students are female.

At that time, many of the Harvard Business School students, like myself, came directly after graduating from college. But it would never happen today. Now, most of the leading business schools in America do not take you till after you've worked for a number of years.

In my class we had some students who had worked for four or five years. In fact, one of my best friends at Harvard, who I've kept in touch with over the years, was married and had a couple of children. We, single students, used to love to go over to his apartment and get a home-cooked meal. Several of us occasionally would babysit his kids.

There is a certain amount of basic knowledge that you learn at Harvard Business School, such as accounting, finance, manufacturing and organization. I would say that's useful, but you could learn that in a much more efficient and less expensive way.

The most important thing that you learn there is how to analyze and reach conclusions in very ambiguous circumstances, where there is no right answer, where you have to draw judgments with limited facts and limited time.

10. To McKinsey

One more important thing you learn at Harvard Business School is how to work in a team. Some students work alone, but that's rare. Most of us were in teams that would meet and discuss the cases collectively. Basically the whole working arrangement is teams of two, or three or up to six students.

What you really learn from working as a team is things like some people do the work and some don't at the meetings. Some people do the homework and tell you what they really think. Some people hold back and want to get other's ideas. Some people add their own ideas. Some people talk too much. Some talk when they don't have anything to say. A lot of behavioral dynamics.

It's a very good place to see and evaluate your teammates' personality and character. One of the things that I think most important to me in my career has been the ability to understand people and to motivate people, select people to put the right people in the right jobs and ask the right questions. So I think most of these experiences in the team had something to do with that.

At the end of the day, when you get to be the CEO of a huge enterprise, you can't do the work yourself. As much as you would like to enjoy designing and building computers or selling or accounting for computers, in your job as CEO, you have to rely on other people, and you have to pick and trust and evaluate other people as a team.

Now there has been a great debate in this country as to whether MBAs are useful and valuable. I don't think you can make a universal judgment in that regard.

First of all, there are some very good MBA schools and some mediocre MBA schools. The very best MBA schools have produced many leaders in this country. But you don't know whether that's because they went to the school or because they were great and very skilled before they were attracted and went to the school.

For me, Harvard was very important because I was a young man, 21 years old and I learned a lot from many work experiences in summer before I left Harvard.

When I was a first year student at Harvard, it wasn't really clear to me what part of business I wanted to go into. I worked that summer at General Motors in the Labor Relations Department during a very intensive negotiation between the union, the UAW, and the GM management. I remember watching a very impressive leader on the GM team. So I came back and said, "Okay, I either want to go into consulting or brand management." Those were the two hot fields at Harvard for many years. They were also two fields where you could learn a lot of different skills.

Next year, I applied for an interview with a bunch of these consulting companies and brand management companies, and narrowed it down to Proctor & Gamble, which was the leading brand company, and McKinsey.

In the previous summer, I had applied to McKinsey for a summer job, but I was turned down with a letter simply saying, "Thank you very much for applying."

But this time McKinsey made me an offer. I had lots of offers from other companies, but I chose McKinsey. I joined the company in the summer of 1965 at the age of 23.

Interestingly, a year after I got to McKinsey, I was in charge of the hiring from the MBA program. And I learned that the letter they sent me for the summer job was the one they send to the people they never want to see again. It was intended to say, "We really don't think we need to hire you, so don't apply again." Just recently when I spoke to the McKinsey top management that they sent me that turndown letter, they laughed.

11. McKinsey days

I joined the management consulting firm of McKinsey & Company in New York in June 1965. I was happy because I was very impressed with McKinsey's professional commitment. It was and still is a very professional firm where people have strong beliefs, a very constructive culture and a leadership environment that is very conducive to high quality work.

At that time, its operation was predominantly focused on North America, and it had probably two offices, in London and in Frankfurt. It was in the process of expanding in Europe, and Ken Omae started the Japanese office after I began at McKinsey.

My initial pay was $8,500 a year plus a bonus, which brought it to $10,000, I recall. It was in the top quartile for pay at the time. The consulting firms have always paid at the higher end of the scale.

My first assignment was an executive compensation study for Mobil Oil Company. I'll never forget my first day on that assignment. McKinsey had a big practice at that time of doing compensation studies for many companies. But I knew nothing about executive compensation and absolutely nothing about the oil industry. Thank goodness I was the low man on the totem pole, but in the McKinsey world one was expected to get up to speed in a hurry. Within days I was out meeting with senior executives decades older than me.

The newly hired people, called "new associates," are assigned to study in a team consisting of four or five people to do basically the research work. They read the documents, prepare summaries, do analysis and make up the charts. It's no different than a young person joining a law firm or investment banking firm, maybe even a newspaper. You do the low-level analytical fact-checking and fact-gathering work for more senior people.

I would say McKinsey is a very intense, challenging place, particularly for a young person who is not only dealing with solving normal and hard problems alike and dealing with senior executives, but also learning some of the basics, which I was at the time. So you are always feeling like you're pushing yourself, and you never feel totally comfortable.

In fact, after I was at McKinsey about two years, I had dinner with a partner who was my assigned mentor and he said to me politely but basically, "Maybe you ought to think about working somewhere else." I don't remember why he said so and how I responded, but it was a very difficult but valuable experience for me, and I'll never forget it. It has stayed with me all my life as the importance of having very honest, straightforward conversations with people in a constructive way, and the real value of mentoring.

Whatever his reasons, his words turned out to be helpful because two or three years later I was a partner, the youngest partner at McKinsey. Back then, just one out of seven associates they hired got named partner. The other six left the firm. So it's what's called "Up or Out." There was no easy success in McKinsey, and it was really a very intense environment for the associates.

At the same time, it was the place to learn the purpose of work, or the obligation as a citizen to do something to help society. When I was sitting in my office in the second or third year at McKinsey, Marvin Bower, Managing Director and founder came into my office and said, "What are you going to do to give back something?" I was a little purplexed and said, "I'm paying off my student loans as fast as I can." But he said, "No, no. I want something different. How about coming to a meeting today to help me with an organization committed to fixing public schools in America?" I said okay. You never turn your big boss down. So I went to the meeting, and now thirty-five years later, I'm still working on it.

12. Fastest promotion and to American Express

I got married to my wife in 1968, in my third year at McKinsey. I met her in New York City where I was working. She was a loan officer at a bank in New York City. We talked about everything.

I had a wonderful career at McKinsey. I was described as "a guy in a hurry" by one of my mentors. While I was at McKinsey, I started golfing, as I was increasingly invited to play golf. As a consultant, I probably worked on 30 companies directly and provided short-term advice for another 30 companies.

The most important thing I learned at McKinsey was the detailed process of understanding the underpinnings of a company. McKinsey was maniacal about deep analysis of a company's marketplace, its competitive position and its strategic direction. Consulting work is a combination of strong analytical skills, communication skills and the ability to help clients carry out change. A good consultant does good analysis, can communicate his or her results, and finally can help in the execution of the results.

I had three major clients that I worked with over many years that I think I played an important contributing role to their success. I was very close to the CEOs. And it was quite rewarding.

In nine years I advanced to the level of senior partner at McKinsey responsible for its finance practice and a member of its senior leadership committee that ran the firm. I was the partner in charge of three major clients, two of which were financial service companies, and my number one was American Express. I started to work on American Express in my fourth year after joining the firm, even before I became a partner.

I really enjoyed the corporate culture of McKinsey, where the culture revolved around the supremacy of the idea. It's all about creating great ideas, good insights. Whoever can contribute to the work, whoever helps advance the thinking, is the person everybody listens to. So it was often the most junior person that would lead the discussion at the meeting because he or she had done all the work, had been doing the thinking and had the good ideas. There was no hierarchy in McKinsey.

But when I reached my early 30s, it became clear to me that I didn't want to stay in consulting as a career. I basically said to myself, "I don't want to do this for another twenty or thirty years." Much as I enjoyed the intellectual challenge, the fast pace, the interaction with very senior people, I found myself increasingly frustrated playing the role of an adviser to the decision-makers.

I would come to a CEO with an analysis and an action plan that needed to be done, and then I had to cajole and convince the CEO to do it, and he might agree to do it, but then I left. I went back to my office and I was not involved in the execution, except as consultants can be helpful in execution. I said to myself, "I want to be the guy at the other end of the table who is hiring the consultants, making the decisions and carrying out the actions."

Secondly, it's not unusual for people to leave a consulting firm and go do something else. In fact, there are many McKinsey alumni all over the world doing everything from running companies to running for office. Ken Omae tried to run for Tokyo governor, too.

Like many other successful McKinsey partners, I had received a number of job offers to go work for clients of mine over the years as a consultant, and I turned them all down for one reason or another. None of them seemed attractive enough to leave McKinsey for. But the American Express one was very attractive to me, and I decided to go there in 1977. I was 35 years old.

13. Amex days

When I joined American Express in 1978, I believed it was a unique, wonderful company. I had worked as a consultant there for 8 years, and liked the people there. I knew them all. I thought it had a great future in the credit card business. It was really in the early stages of building its credit card business.

When consultants move into business, they are very often asked to take a planning job, "Go be head of strategy," or "Go be head of planning." I didn't want to do that. I wanted to go run something. So I was happy when I was offered the job of the head of the Travel Related Services group, which was basically in charge of the American Express Card, Traveler's Check and Travel Office business. With tens of thousands of employees, it was the principal organization inside of the company.

I don't remember how much money I was offered for the job. It was probably equal to what I was getting at McKinsey. It really wasn't the salary that attracted me; it was the fact that I was going to go in and run a huge part of American Express.

At the time American Express was facing one of the biggest challenges in its 130-year history. It had a very successful product called the traveler's check that it had invented at the end of the 19 th century. Then along came the credit card, which was not making a lot of money when I became the president of TRS.

Many financial service companies were coming into the traveler's check business, and hundreds of banks were beginning to offer credit cards through Visa and MasterCard, which would compete with the green Amex card. And many TRS people thought the credit card was a threat to their money-making traveler's check. "Well, why would people carry traveler's checks if they got credit cards?" They thought they had two products conflicting with each other.

So the number one task I took on was to build the card business while at the same time preserving the franchise of the Traveler's Check. I thought TRS had great potential to become a dynamic and prospering enterprise by focusing on the global marketplace and by developing a wide range of new products and services no matter how tough the competition it faced.

I stayed at Amex for 11 years, a time of great fun and satisfaction. Our team grew TRS earnings at a compound rate of 17% over a decade (its net income increased a phenomenal 500% from 1978 to 1987); expanded the number of cards issued from 8 million to nearly 31 million; expanded the overseas card business to issue cards in from 11 to 29 currencies, and built whole new businesses around the Corporate Card, merchandise sales and credit card processing industries. By 1988, Amex had grown to become the fifth largest direct-mail merchant in the U.S.

We also developed specific services, such as replacing a lost card within 24 hours, as well as a general culture focused on quality.

Last year Professor John Kotter at Harvard Business School wrote of my years at Amex as a case of entrepreneurship in large enterprise to show how I introduced the concept of "entrepreneurial management."

Actually it was not so easily or smoothly accomplished. I had to face and overcome many obstacles and resistance including the cultural revolution.

I well remember the stumbles in my first months when I reached out to people I considered knowledgeable on a subject regardless of whether they were two or three levels down in the organization. My team went into semi-revolt!

14. Eight principles

When I got to Amex, I understood the hierarchy as a normal business practice that you had to have somebody in charge of a group at a large corporation. I did try to be more respectful of the chain of command. I understood I needed to do that.

But if I was working on an important problem where intellectual input was really important, I would tend to organize a meeting where I had lower and middle-level people come, because they had all the facts and they knew the information I needed, and we would sit around in a conference room and frankly discuss the problem. Their boss would likely attend, but I still would talk to his staff. Sometimes I didn't even invite the boss.

I intentionally posed blunt, intimidating questions to encourage staff to probe the company's strategy for weaknesses and paradoxes. I sent a message in the organization that we were going to be more free-wheeling about problem solving.

I also sent a message that I expected the bosses to be problem-solvers, to think hard, know the facts, and not just be presiders over a process. I've long had disdain for people who view their role in an organization as presiders or administrators, to keep the process working, to hold the meetings, to sign the approvals. They are opposed to substantive contributors.

Thus began a lifelong process of trying to build organizations that allow for hierarchy but at the same time bring people together for problem-solving irrespective of where they are positioned in the organization.

To develop a more entrepreneurial culture, we discouraged unnecessary bureaucracy, and established a program to recognize and reward intelligent risk-taking among all employees. I always had a place in my management structure for people with great minds that contribute a lot of great ideas, even if they can't administrate or run the day-to-day apparatus.

I also reorganized and reassigned people constantly. What I try to do is get people focused on opportunities and threats outside the company, not focus on internal structure and ossification or politics. I frequently moved managers among divisions in order to break down the internal teams and to reduce the fierce intramural rivalries. I tried very hard to say, "You're not a card man or a travel man or traveler's check man. You're a TRS person."

Later I codified the TRS business proposition into eight principles, that it will offer premium, top-of-the-line products and that quality service will be its principal competitive weapon and that we should stay close to the customers and value employees. I had them translated into fourteen languages and mailed my desk cards with them to all 4,4000 TRS employees all over the world.

It was also at Amex that I developed a sense of the strategic value of information technology. Think about what the Amex card represents. It is a gigantic e-business, although we never thought about it in those terms in the 1970s.

Millions of people travel the world with a sliver of plastic, charging goods and services in many dozens of countries. Every month they receive a single bill listing those transactions, all translated into a single currency. All of this is done for the most part electronically with massive data processing centers around the globe.

15. Becoming CEO of RJR Nabisco

I was promoted to President of American Express in 1985 after great success in expanding business. The media frequently listed me as one of the strongest candidates for Chairman and CEO of Amex. But in early 1989, a man who was four or five years older than me was CEO. I was 47 and there was no likelihood that I would become CEO. We disagreed on the diversification strategy. I had lots of job offers and began to think seriously of new career development.

I left American Express on April 1, 1989, to accept what Business Week called at the time the "Beauty contest of the decade." RJR Nabisco, a huge $17 billion packaged goods company that had been formed a few years earlier through the merger of Nabisco and R.J.Reynolds Tobacco Company, was rated the ninth most-admired company in America when the headhunters called me.

It had just gone through one of the wildest adventures in modern American business history: an extraordinary bidding contest among various investment firms to take the company private through a leveraged buyout (LBO). The winning bid was made by the private venture firm Kohlberg Kravis Roberts & Co. (KKR), and soon after they sought me out to become chief executive of the now private and heavily indebted company. They called me and said, "We have to have a CEO to come and run the company."

I hadn't been closely following the bidding contest, but it was widely written up in the newspapers as "the job of the decade," and I said to myself, "Okay, you're not going to be the CEO of Amex because you have a young boss; this is an opportunity to take on the biggest challenge in America." So I went to RJR Nabisco.

RJR Nabisco was not a single company. It was a holding company that was created out of acquisitions having four or five different cultures and different management systems.

I knew something about consumer businesses because of the Amex card. I knew something about finance because I had been the head of McKinsey's finance practice. I somewhat expected the kind of brand management I had wanted to do in Harvard days. Most Nabisco brands ranked No.1 or 2 in market share.

But I spent very little time on the day-to-day management of the brands. I spent almost my entire time selling off assets, bringing down debt, raising cash and restructuring debt obligations. The company's debt was $26 billion, more than most developing countries, ranking 10th, behind the Philippines and ahead of Morocco, the analysts said.

For the first few months it looked like we were going to have an opportunity to build companies. Then all of a sudden, the whole LBO market collapsed. We had one debt instrument that was paying 21% interest. The early LBOs were financed with more conservative money, but they were financed with junk bonds with 21% interest at the end.

And suddenly we had to sell off a lot more assets than we thought, because the original LBO plan assumed a great marketplace. Actually we had to sell off three times more assets to pay down the debt, as the debt was fixed and the value of the assets we had went down dramatically.

16. Leaving RJR Nabisco

In the late 1980s there was talk of the Japan threatーpeople said Japan was doing everything right while the U.S. was doing everything wrong; they said U.S. corporations were unresponsive and not very entrepreneurial, not very effective.

And then came the idea of breaking up these corporations and having owner-managers really own them and run them like private companies-that was the birth of the LBO boom. A lot of sleepy old companies were transformed and revitalized through LBO, which I believe was good thing.

The KKR people were very smart and had some very successful LBOs. But nobody can bat a thousand. They couldn't be successful in everything they did. RJR Nabisco didn't happen to work as they expected.

From 1989 to 1993 I was immersed in a whole new set of challenges. I really spent most of my time at RJR Nabisco managing an extraordinarily complex and overburdened balance sheet. In hindsight, KKR had paid too much for the company, and the next four years was a race to refinance the balance sheet while trying to keep some semblance of order in the many businesses of the company.

It was a wild scene. We had to sell $11 billion worth of assets in the first 12 months. We had lender and creditor committees galore and, of course, the clean-up from the profligate spending of the prior management. For example, when I arrived we had 32 athletes on our payroll-all part of "Team RJR Nabisco."

This was a difficult time for me. I love building businesses, not disassembling them. However, we all have an opportunity to learn in everything we do. I came away from this experience with a profound appreciation of cash in corporate performanceー"free cash flow" as the single most important measure of corporate soundness and performance.

I also came away with a greater sense of the relationship between management and owners. I learned at KKR that the KKR model was no stock options for CEOs until the CEO put a lot of his own money into the company. I owned in total 2.4 million shares and had options for 2.6 million more.

The importance of managers being aligned with shareholdersーnot through risk-free instruments like stock options but through the process of putting their own money on the line through direct ownership of the companyーbecame a critical part of the management philosophy I brought to IBM.

By 1992 it was clear to all that while the company itself was doing quite well, the LBO of RJR Nabisco was not going to produce the financial returns the owners had expected. It was clear to me that KKR was headed for the exit and so it made sense for me to do the same. In fact, I got out a little ahead of them, because it was easier for me to leave.

But I would've probably stayed at RJR another couple of years. I wanted to transform the company into a real brand management company. I was not talking to headhunters by the end of 1992, when all of a sudden the IBM offer came as I showed in the second installment of this series.

By the time I got out of RJR, its stock price had come all the way down and I didn't make a big financial success either. But again, the money didn't matter to me. What is important to me is a big challenge for the future, not the financial implications.

17. The first day in IBM

IBM announced the leadership change on Friday morning, March 26, 1993. A press conference began at 9:30 at the Hilton Hotel in New York. I knew my life was changing forever when I walked to the podium and three dozen photographers surged forward, and I had to conduct an entire press conference through nonstop, blinding camera flashes.

As visible as American Express and RJR Nabisco had been, this was something altogether different. I was now a public figure. This wasn't just any companyーeven any very big company. IBM was an institutionーa global institutionーand its every move was watched by the outside world. I was taking on a daunting challenge, and I'd be tackling it in a fishbowl. Taking on the job of IBM CEO was almost like running for public office.

After the press conference was a series of internal IBM meetings. We then raced from Manhattan by helicopter some 30 miles north to the company's worldwide headquarters in Armonk, New York. I will not forget my first impression. It reminded me of a government officeーlong, quiet corridor after long, quiet corridor of closed offices. Not a single indication in the artwork or displays that this was a computer company. There was no computer in the CEO's office.

I was ushered into a large conference room to meet with the Corporate Management Boardーroughly the top 50 people in the company. It was very obvious that all the men in the room were wearing white shirts, except me. Mine was blue, a major departure for an IBM executive! (Weeks later at a meeting of the same group, I showed up in a white shirt and found everyone else wearing other colors.)

I spoke for 40 or 45 minutes. I started out explaining why I'd taken the jobーthat I hadn't been looking for it, but had been asked to take on a responsibility that was important to our country's competitiveness and our economy's health.

I then dealt with what I described as my early expectations: "If IBM is as bureaucratic as people say, let's eliminate bureaucracy fast. Let's decentralize decision-making wherever possible, but we must balance it with a central strategy and common customer focus. If we have too many people, let's right-size fast; let's get it done by the end of the third quarter."

I also remarked that we had to stop saying that IBM doesn't lay people off. In fact, since 1990, nearly 120,000 IBM employees had left the company, some voluntarily and some involuntarily, but the company had continued to cling to the fiction of no-layoffs.

Perhaps the most important comments I made at that meeting regarded structure and strategy. At the time, the pundits and IBM's own leadership were saying that IBM should break itself up into smaller, independent units. I said, "Maybe that is the right thing to do, but maybe not. Is there not some unique strength in our ability to offer comprehensive solutions, a continuum of support?" In hindsight it was clear that, even before I started, I was skeptical about the strategy of atomizing the company.

I went on to summarize my management philosophy and practice such as:

* I manage by principle, not by procedure.

* Don't hide bad informationーI hate surprises.

* Move fast. If we make mistakes, let it be because we are too fast rather than too slow.

* Reduce committees and meetings to a minimum.

* No committee decision-making.

I then proposed 90-day priorities and an assignment for the next 30 days. I asked for a 10-page report from each business unit leader covering customer needs, competitive analysis, technical outlook, key issues long- and short-term, and the '93-'94 outlook.

18. AAs, and my brother's advice

On April 1, 1993, I began my IBM career. IBM's stock stood at $13.

An IBM car picked me up at my home in Greenwich, Connecticut, at 6:45 a.m. and drove me to one of the many office complexes IBM owned in Westchester County, New York. There was a meeting of all the country general managers outside the U.S.

Arrayed around a long conference room were all the nobles of IBM's offshore, geographical fiefdoms. Behind them was a double row filled with younger executives. The meeting was an operations review and each of the executives commented on his business. I noticed the backbenchers were scribbling furiously and occasionally delivered notes to the people at the table. It looked like a U.S. Congressional hearing.

At a coffee break, I was told these people were the executives' AAs. I encountered IBM's solidly entrenched and highly revered administrative assistants program on my very first day. Hundreds if not thousands of IBM middle and senior level executives had assistants assigned to them, drawn from the ranks of the best and brightest of the ups-and-coming managers. AAs organized things, took notes, watched, and at times did secretarial duties. Several such assignments in a career were de rigueur if one wanted to reach IBM senior management. What they didn't do was learn the guts of business or develop leadership competencies.

The next two weeks were filled with meetings with my direct reports, interviews with candidates for the CFO and HR jobs and visits to key IBM sites. One of the most important meetings occurred my second day. I had asked my brother Dick to come by and talk to me about the company.

Dick had been a fast-rising star at IBM for many years, having joined the company right out of college. He had served in Europe and, at one point, had headed up the powerful Asia/Pacific region. My guess is that he had been on track to become one of the top executives, but he was tragically cut down by undetected lyme disease at the height of his career. He had gone on medical leave about six months before John Akers left, but several executives had asked him to come back and do some consulting for the company. His most important task was working with an executive to figure out what to do with the mainframe business.

We went our separate ways in adult life but we always enjoyed each other's company at family gatherings. I never felt any sense of rivalry as each of us climbed the corporate ladder.

Nevertheless, it had to be a poignant moment as he came into the CEO's office and saw me sitting where, quite realistically, he might have sat had health problems not derailed his career. He came extremely well prepared. In fact, his was the most insightful review anyone gave me during those early days.

In particular, he argued against the premise that the mainframe was dead and against a seemingly hysterical preoccupation in the company to allocate all its resources to winning the PC war.

He also gave me a few tips that he labeled "brotherly advice":

*Get an office and home PC. Use the internal messaging system; your predecessor didn't and it showed.

*Publicly crucify shortsighted proposals, turf battles and backstabbing. This may seem obvious, but these are an art form in IBM.

*Expect everything you say and do to be analyzed and interpreted inside and outside the company.

*Find a private cadre of advisors who have no axes to grind.

*Call your mom.

There was a very watchful group in IBM waiting to see if I was setting him up as my own force behind the throne. I didn't want to do that to him and to me. We talked several times over the next several months, but briefly.

19. First rough days

On April 15, I made my first official visit to a non-headquarters site. I had chosen it carefully: the company's research laboratory in Yorktown, New York. If there was a soul of IBM, this lab was it. It contained the intellectual fervor that had led IBM over decades to invent most of the important developments that created the computer industry.

It was important because I knew this was my greatest immediate vulnerability. Would the researchers reject me as an unacceptable leader? Some in the company were calling me the "Cookie Monster" because of my previous job at Nabisco.

I spoke from a stage in an auditorium. The house was full, and my remarks were broadcast to an overflow of employees in the cafeteria. Other IBM research facilities around the world picked up the broadcast as well.

I gave what soon became my stump speech on focus, speed, customers, teamwork and getting all the pain behind us. I underscored the importance of research to IBM's future, but said we probably needed to figure out ways to get our customers and our researchers closer together so that more of IBM's great foundry of innovation was aimed at helping people solve real and pressing problems.

There was applause, but I'm not sure what they were thinking.

Perhaps the most traumatic event of my first month at IBM was the annual shareholders' meeting on April 26 in Tampa, Florida. IBM stock had dropped from a high of $43 in 1987 to $12 the day of the shareholders' meeting. That was less than half its price at the previous year's meeting.

There were 2,300 shareholders waiting impatiently for the show to start when I walked out onto the stage and noticed a sea of white hair-obviously, a lot of retirees in Florida owned IBM stock. I made a brief speech which asked for some patience, but made it clear that I was going to move quickly, make all changes necessary, and return the company's focus to the customer.

I got polite applause, and then the fireworks started. Shareholder after shareholder stood up and blasted the company and frequently the Board of Directors, all of whom were sitting in front of me in the first row of the auditorium. It wasÇÅmassacre. The Directors took direct hit after direct hit. The shareholders showed little patience for anything other than a fast recovery. It was a long, exhausting meeting.

The day after the annual meeting, I flew to Europe to meet with the mightiest of all noble-IBM Europe, Middle East and Africa (we call it "EMEA"). I visited France, Italy, Germany and the United Kingdom, all in one week. It was dawn-to-midnight business reviews with senior executives, employee "town hall" meetings and customer visits.

EMEA was a giant organization operating in 44 countries with more than 90,000 employees. Revenue had peaked at $27 billion in 1990 and had declined since.

While I learned a lot on this trip, perhaps the most important messages were internal. It was clear that at all levels of the organization there was fear, uncertainty and an extraordinary preoccupation with internal processes as the cause of our problem and, therefore, tinkering with the process would provide the solutions we needed.

From my first week, I started to send employees "Dear Colleague" letters from my office PC. The reaction was overwhelmingly positive, and for me a source of comfort, support and energy. At the same time, I got e-mail messages so frank, so candid, so blunt.

"Gimme a break. Do some real work. Get the new products on the market. Find new markets. Do things that will keep you from having to trash more and more people every 6 months."

"I heard that in preparation for your visit to the site, the route you would take was planned and the halls you would walk down or see had their walls painted and new carpeting laid. I was wondering if you knew whether or not this was true."

20. Operation Bear Hug began and MC abolished

In late April we had a meeting of the Corporate Management Board, the group of 50 top executives I had met with on March 26, when I was announced as the new CEO.

I shared with them my observations after three weeks on the job. I said I had seen a lot of positive things going on, but there were troublesome areas, including loss of customer trust and a mindless rush for decentralization.

And I announced Operation Bear Hug. Each of the 50 members of the senior management team was to visit a minimum of five of our biggest customers during the next three months. The executives were to listen, to show the customer that we cared and to implement holding action as appropriate. Each of their direct reports (a total of more than 200 executives) was to do the same. For each Bear Hug visit, I asked that a one- to two-page report be sent to me and anyone else who could solve that customer's problems. I wanted these meetings to be a major step in reducing the customer perception that dealing with us was difficult. I also made it clear that there was no reason to stop at five customers. This was clearly an exam in which extra credit would be granted.

Bear Hug became a first step in IBM's cultural change. It was an important way for me to emphasize that we were going to build a company from the outside in and that the customer was going to drive everything we did in the company. It created quite a stir, and when people realized that I really did read every one of the reports, there was quick improvement in action and responsiveness.

On the same day, there was a meeting of the Management Committee. The MC (its inside-IBM name), with the very top six members including CEO, met once or twice a week, usually in formal, all-day meetings with lots of presentations. Every major, important decision in the company was presented to this committee. A seat on the MC was the ultimate position of power that every IBM executive aspired to as the apex of his or her career.

The rise and fall of the MC symbolized the whole process of rigor mortis that had set in at IBM. It seemed to me an odd way to manage a company-apparently centralized control, but in a way that ultimately diffused responsibility and leadership.

The MC was part of IBM's famed contention system, in which the recommendations of powerful line units were contested by an equally powerful corporate staff. This approach may very well have been a brilliant innovation when it was created, but over time, IBM people learned how to exploit the system to promote their own agendas.

So in the early 1990s a system of true contention was apparently replaced by a system of prearranged consensus. Rather than have proposals debated, the corporate staff, without executives, worked out a consensus across the company at the lowest possible level. Consequently, what the MC most often got to see was a single proposal that encompassed numerous compromises.

I've been told that the AA network emerged as the facilitator of this process of compromise. Much like the eunuchs of the federal Chinese court, they wielded power beyond their visible responsibilities. Too often the MC's mission was a formality-a rubber-stamp approval.

At my first MC meeting, I told the members that it was unlikely this structure would continue. I wanted to be more deeply involved personally in the decision making of the company, and I was uncomfortable with committees making decisions. The MC, a dominant element of IBM's management system for decades, died in April 1993.

At that time, the standard format of any important IBM meeting was a presentation using overhead projectors and graphics on the screen. During such a presentation at one meeting by a senior executive and his team, I stepped to the table and switched off the projector. I simply said, "Let's just talk about your business."

It had an unintended, but terribly powerful ripple effect. An e-mail about my hitting the Off button was crisscrossing the world. Talk about consternation!

21. Mainframe price cut

IBM's sustainability, at least in the short term, depended heavily on the mainframe. More than 90% of the company's profits came from these large "servers" and the software that ran on them. The fate of the mainframe was the fate of IBM, and at the same time, both were sinking like stones.

One of the first meetings I asked for was a briefing on this business. The mainframe team documented a rapid decline in sales, and more importantly, a precipitous drop in market share in the last 15 months. I asked why we were losing so much share, and the answer was, "Hitachi, Fujitsu and Amdahl are pricing 30 to 40% below our price."

I asked the obvious: "Why don't we lower our price so they don't keep beating us like a drum?" The answer: "We would lose substantial revenues and profits at a time when we need profits badly."

It became clear to me that the company, either consciously or unconsciously, was milking the S/390 and that the business was on a path to die. I told the team that, effective immediately, the milking strategy was over and instructed them to get back to me with an aggressive price reduction plan that we could announce two weeks later at a major customer conference.

On May 18, 1993, we began what may have been the most important meeting of my entire IBM career: the IBM Customer Forum. Nearly 175 chief information officers of the largest U.S. companies were coming to hear what was new at IBM. They represented many of the most important customers IBM had-and they could make or break us.

I met with several of them at dinner and they shared the same perspective I had heard in Europe. They were angry at IBM-perturbed that we had let the myth that "mainframe was dead" grow and prosper. The PC bigots had convinced the media that the world's great IT infrastructure-the back offices that ran banks, airlines, utilities and the like-could somehow be moved to desktop computers. These CIOs knew this line of thinking wasn't true and they were angry at IBM for not defending their position. They were upset about mainframe pricing for both hardware and software. They were irritated by the bureaucracy in IBM and how difficult it was to get integration-integration of a solution or integration across geographies.

Early the next morningACI threw out my prepared speech and decided to speak extemporaneously from the heart.

I began by telling my audience that a customer was running IBM. I promised that everything at IBM would begin with listening to our customers and delivering the performance they expected. I shared with them some of my bad experiences with IBM as communicated to me by my CIOs when I was at American Express and RJR Nabisco. And I made the big mainframe pricing announcement: that mainframe prices, both hardware and software, were coming down very quickly.

The price of a unit of mainframe processing moved from $63,000 that month to less than $2,500 seven years later, an incredible 96% decline.

This program, probably more than any other, saved IBM. Over the short term it raised the risk of insolvency as it drained billions of dollars of potential revenue and profits from the company. Had the strategy not worked, I would have been the CEO who had presided over the demise of the company-Louis the Last. However, the plan did work. IBM mainframe capacity shipped to customers had declined 15% in 1993. By 1994, it had grown 41%, in 1995 it grew 60%, followed by 47% in 1996, 29% in 1997, 63% in 1998, 6% in 1999, 25% in 2000, and 34% in 2001. This represented a staggering turnaround.

22. Four major decisions in the summer of 1993

After all the customer and employee and industry meetings in the first few months, I made four critical decisions in the summer of 1993.

The first one was to keep the company together and not spin off the pieces. I can't tell you exactly when I decided to do so, but I believe it was the first strategic and the most important decision I ever made in my entire business career. I had always talked about our size and breadth as a distinctive competitive advantage. I knew that if IBM could serve as the foremost integrator of technologies, we'd be developing extraordinary value.

So we stopped all the internal activities that were creating separate business processes and systems for each of these units, all of which were enormous drains of energy and money. I remember that the response from our executive team was mixed-great joy from those who saw the company as being saved, and bitter disappointment from those who saw a breaking apart as their personal lifeboat to get off the Titanic.

The second major decision was to restructure IBM's fundamental economics. The relationships between revenue, gross profit and expenses were all wrong. The revenue was slowing because the company was so dependent on the mainframe, and mainframe sales were declining. Gross profit margin was sinking because we had to reduce mainframe prices in order to compete. The only way to stabilize the ship was to ensure that expenses were going down faster than the decline in gross profit.

Our financial team determined that IBM's expense-to-revenue ratio was wildly out of range with those of our competitors. On average, our competitors were spending 31 cents to produce $1 of revenue, while we were spending 42 cents for the same end. When we multiplied this inefficiency times the total revenue, we discovered we had a $7 billion expense problem!

We would cut in half our annual dividend to shareholders, to $1 a share from $2.16. Second, we would reduce expenses by $8.9 billion. Unfortunately, this latter decision meant we would have to reduce our employment by 35,000 people, but this was a matter of survival, not choice.

Thirdly, in 1993, we began what ultimately became one of the largest reengineering projects ever taken by a multinational corporation. IBM truly needed a top-to-bottom overhaul of its basic business processes. It would last a decade and, as it unfolded, change almost every management process inside the IBM Corporation.

When I'd arrived at IBM, I did expect I'd find the best internal IT systems in the world. But they weren't. The systems were antiquated and couldn't communicate with one another. We were running inventory systems, accounting systems, fulfillment systems, and distribution systems that were all the mutant offspring of systems built in the old days and then adapted and patched together to fit the needs of one of twenty-four independent business units

Today IBM has one CIO. Back then we had 128 people with CIO in their titles-all of them managing their own local systems architectures and funding home-grown applications. We saved $2 billion in IT expenses by the end of 1995. We went from 155 data centers to 16, and we consolidated 31 internal communications networks into a single one.

The fourth action program we kicked off that summer represented a scramble to sell unproductive assets and raise cash. Only a handful of people understand how precariously close IBM came to running out of cash in 1993. We sold much of the corporate airplane fleet. We sold the corporate headquarters in New York. We sold the bulk of the fine-art collection at Sotheby's for $31 million. We sold 8,000 acres of undeveloped land.

23. Creating a global enterprise

What we had done thus far was to put out the fire. Now we needed to rebuild the fundamental strategy of the company. That strategy was going to revolve around my belief that the unique opportunity for IBM was an ability to integrate all the parts for our customers.

However, before I could integrate for our customers, I first had to integrate IBM! IBM is arguably the most complex organization anywhere in the world outside government. It is not just its sheer size ($86 billion in 2001 sales), nor its far-flung reach (operating in 160-plus countries).

What drives IBM's unique complexity is twofold. First, every institution and almost every individual is an actual or potential customer of IBM. We had to be prepared to serve every institution, every industry, every type of government, large and small, around the globe. The second complexity factor is the rate and pace of the underlying technology. In the information technology industry, product cycles that used to run for ten years dwindled to nine or ten months. New scientific discoveries overwhelm planning and economic assumptions on a regular basis.

Thus the company evolved over the years in two directions: powerful geographic units and powerful product divisions. Missing from this structure was a customer view. The geographic regions protected their turf and attempted to own everything that went on in their region. The technological divisions dealt with what they thought could be built, or what they wanted to build, with little concern about customer needs or priorities.

I declared war on the geographic fiefdoms. I decided we would organize the company around global industry teams. We broke our customer base into twelve groups such as banking, government, insurance, distribution and manufacturing. We assigned all of the accounts to these industry groups and announced that the groups would be in charge of all budgets and personnel. The response from the country managers was swift and predictable: "It will never work." And: "You will destroy the company!"

During a visit to Europe I discovered, by accident, that European employees were not receiving all the company-wide e-mails I regularly sent to employees worldwide. After some investigation, we found that the head of Europe was intercepting messages at the central messaging node. When asked why, he replied simply, "These messages were inappropriate for my employees. They were hard to translate."

I summoned him to Armonk the next day. I explained that he had no employees, that all employees belonged to IBM, and that from that day on he would never interfere with messages from my office. He grimaced, nodded, and sulked as he walked out the door. A few months later he left the company.

I also created a Worldwide Management Council (WMC) to encourage communication among our business. The WMC had thirty-five members and was to meet four or five times a year in two-day sessions to discuss operating unit results and company-wide initiatives. In my mind, however, its primary purpose was to get the executive team working together as a group with common goals-and not to act as some United Nations of sovereign countries. These meetings represented a chance for our top executives to grab one another and say, "I've got a great idea, but I need your help."

24. Reviving the brand-PR effort

All our efforts to save IBM would have been for naught if the IBM brand fell apart. I have always believed a successful company must have a customer/marketplace orientation and a strong marketing organization. That's why my second step in creating a global enterprise had to be to fix and focus IBM's marketing efforts.

IBM won numerous awards in the 1980s for its ingenious Charlie Chaplin commercials, which had introduced the IBM personal computer. By the early 1990s, however, the company's advertising system had fallen into a state of chaos. As part of the drive toward decentralization, it seemed that every product manager in just about every part of the company was hiring his or her own ad agencies. IBM had more than seventy ad agencies in 1993, each working on its own, without any central coordination. A single issue of an industry trade magazine could have up to eighteen different IBM ads, with eighteen different designs, messages, and even logos.

In June 1993 I hired Abby Kohnstamm as the head of Corporate Marketing for IBM. She had worked with me for many years at American Express. What we had to do here was so important and urgent that I wanted someone who knew me and how I managed, and with whom I could speak in shorthand.

There had never been a true head of marketing in IBM. Some people in the business units at first tried to ignore her. IBM was built on technology and sales. Marketing was not considered a distinct discipline, and it was not being managed as such. I told Abby to take sixty days to do a situation analysis.

Her research found that despite our well-chronicled problems, the overall IBM brand was still strong. Customers believed that if they bought an IBM product, it would be a good one. As I had expected, our biggest strength was as a unified brand, and not as each of our parts. Consequently, the marketing mission would be to articulate why customers would want to do business with an integrated IBM.

Stage one was weaning IBM executives off the luxury of having their own advertising budgets, their personal agencies and the discretion to order up an ad anytime they wanted. One month there'd be no IBM advertising in important industry magazines; the next month we'd have so many pages that it seemed as if we were sponsoring a special issue. The latter was especially true in November and December, when marketing departments wanted to spend leftover dollars in their budgets.

Abby's job was to get control of the spending and the messages. She decided to consolidate all of IBM's advertising relationships into a single agency-not just in the United States, but around the world. Despite the fierce kicking and screaming of many local managers, the first campaign debuted in 1994 under the theme "Solutions for a Small Planet." The innovative TV spots-featuring an international cast, from Czech nuns to old Parisians speaking in their native language with all the dialogue subtitled-were highly acclaimed.

The campaign reaffirmed important messages: IBM was global, and we were staying together as a world-class integrator.

In conjunction with the creative work, we completely overhauled our budgeting and media buying. We saved money through the consolidation, but we immediately doubled our investment in marketing and advertising, and we've sustained that level of investment over the years. A later advertising campaign coined the term "e-business" and helped establish IBM as the leader of the most important trend in the industry.

25. Big bets on network

In the early 1990s the fortunes of the lead horses were all related to the PC. Of course, that included PC makers like Dell and Compaq. But without question the dominant leaders were Microsoft, which controlled the desktop operating system, and Intel, which made the microprocessors.

So there was IBM, the company that had led the prior phase of computing and had invented many of the industry's most important technologies, crawling out of bed every morning to find its relevance marginalized by the darlings of desktop computing. The people who had built the systems used by multinational corporations, universities and world governments were now following the lead of purveyors of word processors and computer games. The situation was embarrassing and frustrating.

IBM had entered the PC business in the 1980s with a lack of enthusiasm for the product. We had consistently underestimated the size and importance of the PC market. We had never developed a sustained leadership position in distribution. Finally we couldn't manufacture PCs in the world-class manner in respect to cost and speed to market.

Perhaps the most difficult part of the business that needed to be overhauled during my tenure at IBM was the PC segment of our portfolio. Over the course of nearly fifteen years, IBM had made little or no money from PCs. We sold tens of billions of dollars worth of PCs during that time. There were times when we lost money on every PC we sold, and so we were conflicted-if sales were down, was that bad news or good news?

As with all things in life, luck plays a big part. I got lucky twice at IBM. The first time was at a meeting in 1993 with Dennie Welsh, a long-term IBMer, who was running the services organization. The second time was the arrival of the Internet and the big bet we made on the networked world.

Dennie was a big man, friendly, quick to laugh, but intense. He was a former army pilot and air defense officer who'd made his IBM career in the unit that built highly technical systems for United States government projects, including the Apollo moon program. He was in the control room at Cape Kennedy for Neil Armstrong's historic Apollo XI launch to the moon.

It was our first private meeting, but he didn't waste much time on small talk. He envisioned a company that would literally take over and act on behalf of the customers in all aspects of information technology-from building systems to defining architectures to actually managing the computers and running them for the customers.

My mind was afire. Not only was he describing something I'd wanted when I was a customer, but this idea meshed exactly with our strategy of integration. I believed very strongly that customers would grow increasingly impatient with an industry structure that required them to integrate piece parts from many different suppliers.

So we made a big bet to build not just the largest but also the most influential services business in the industry. Our second big bet was that stand-alone computing would give way to networks. The PC would be pushed off center stage. Very fast, high-bandwidth networks would allow many of the PC's functions to be performed by larger systems inside companies and the network itself.

On November 13, 1995, I gave my first major, inside-the-industry keynote speech at the huge Comdex trade show in Las Vegas. A big part of my message was that something called network-centric computing was about to end the PC's reign at the center of the computing universe. "For fifteen years, the PC has been a wonderful device for individuals. But ironically, the personal computer has not been well-suited for that most personal aspect of what people do: We communicate. We work together. We interact," I said.

26. After 9.11

In my nine-year tenure at IBM, I sent hundreds of memos and letters to IBMers. Some of these were sent during times of crisis, such as the time of the tragic events of September 11, 2001. Here are excerpts:

9/11/2001 05:07 PM
Dear Colleague:

Scores of IBM colleagues have reached out to me and the company's other senior leaders to ask how they can help in response to today's catastrophic events in the U.S. Both as individuals and as an institution, there's a great deal we can do-and are already doing.

As individuals, we can answer the calls that are going out for blood donations.... But perhaps the greatest contribution we can make is as a company. I don't need to tell you that the object of this kind of attacks is to disrupt and paralyze.... In the past few hours we've heard from major customers who will need our help to resume operations, and IBM teams gearing up to respond.... We now have an important institutional role to play in the restoration of the infrastructures that have been devastated. The best thing we can do at this point is stay focused and remain ready to assist if called on.... And as I wrote to you earlier today, continue to exercise discretion and use your best judgment as you conduct business.

Finally, we are doing everything possible to locate and account for our colleagues in New York City and Washington, D.C. Our efforts will continue around the clock. We will keep you updated.

9/13/2001 01:17 PM
Let me update you on what we are doing to help customers. You may be surprised to learn that more than 1,200 IBM customers were located in the World Trade Center or within a two-block radius. Hundreds of them have already contacted us since Tuesday morning. Currently, we're managing or have already resolved 20 full-blown emergency situations. We're providing thousands of square feet of data center capacity; re-creating data processing environments that were destroyed; and relocating customers' operations to IBM facilities.

I continue to receive hundreds of notes from IBMers all over the world. I trust you understand that I cannot respond to each of them, but I want you to know that I read every one. I have been deeply moved by the outpouring of concern and, most of all, your compassionate offers to help in any way possible.... Your concern and self-sacrificing spirit make me so proud our company and our colleagues. Let's stay focused, and stay together.

9/21/2001 11:41 AM
In addition to our $5 million contribution to the September 11th Fund, IBM immediately took over management and hosting of its Web site. Already, the fund has received more than $100 million in pledges....

We've seen that over the last two weeks, just as surely as we have seen it in the millions of dollars and thousands of hours IBM poured into the recovery from disasters like the 1995 earthquake in Kobe, Japan, and many others over the years.... When the need was the greatest-when our customers, colleagues, and communities needed it most-you stood tall. I have never been prouder to call myself your colleague.

I believe corporations succeed only if they operate in a healthy and vibrant society. They need the communities where their customers and employees live to be strong.

My strongly held belief is that corporations can and should play a role way beyond simply writing checks. Corporations can do certain things better than all the other parts of our society. As we reengineered the rest of IBM, we reengineered our philanthropic philosophy as well, focusing on the use of technology as a way of solving social problems.

27. Japan and Japanese friends

Japan has been an important part of my business career ever since my McKinsey days back in late 60s. I went to Japan to help Ken Omae on a couple of occasions when McKinsey opened its office in Tokyo in early 70s. At that time, Japan was close to its heyday of huge growth and economic success.

Then at American Express, we built a very big presence in Japan in the card business and travel business in late 70s and early 80s. I spent a lot of time in Japan with Japan Airlines and Japanese banks on credit cards and traveler's checks.

And then, at RJR Nabisco, we had interest in Japan. I also got involved in The Trilateral Commission, which is a group of people who worry about and discuss public policy issues among the U.S., Europe and Japan. I remember meeting the wonderful U.N. ambassador of refugees, Ogata Sadako-san, and a number of senior Japanese executives through the commission.

And now IBM is one of the few companies in the world that has a Japanese director on our main board, not advisory board. I have known Ben Makihara about fifteen years, and he is a close adviser as well as a friend. I joined the IBM board in 1997.

I have always had a great respect for the leading Japanese companies, the innovativeness of the global companies in many areas like consumer electronics, automobiles, information technology, shipbuilding and steel. And I have grown to appreciate some of the more domestic-centered companies, including some department stores. They are spectacular retailers. The quality of presentation, in the way they present their merchandise, the way they make you feel warm and the services you get.

I think Japan is a very well-educated, sophisticated, coherent country. People are industrious, work hard and save money. I believe that Japan during its great period of growth was an extraordinarily interwoven country. The government, industry, regulators and everything moved as one. It was, as we used to call it, "Japan Inc." It worked like a hugely successful, integrated enterprise.

Then came a series of economic, social and political problems. And I'm not going to tell you what those are. Your readers know better than I do. But I think it was a time when people were waiting for an integrated solution.

Back in the 1970s and '80s, the Japanese companies that I dealt with did seem to have a process of decision-making that was slower than the U.S. But in the last five years, I have seen a remarkable change in many Japanese companies where they move quickly, they are more directly in their communications, they are more transparent and the decision-making is not slower.

What happened in the last five years is that the good business leaders have said, "We're going to go solve our problems ourselves. We're not going to wait for the entire country to move forward. We're going to take those necessary steps to become globally competitive."

And that's what I find fascinating about Japan today. There are many Japanese CEOs I have met and have been very impressed by. I've played golf with some of them. I drank sake with many of them and I've done business with many of them. And I think they're as good as any in the world as business executives.

We have an extraordinary group of IBM leaders in Japan. IBM Japan led by Chairman Kakutaro Kitashiro and President Takuma Ohtoshi is one of the best-run IBM country subsidiaries. They are just world-class. If I ever think about getting a group of 8-10 people in IBM to work on some really important worldwide issues, Kitashiro-san would be one of those people.

And Shiina Takeo-san is a very special person, an extraordinarily perceptive individual. He cares a lot about Japan and about IBM Japan. Every hour I've spent with him has been very interesting and insightful.

28. Personal leadership

Personal leadership is the most important element of institutional transformation. Great institutions are not managed; they are led. They are not administered; they are driven to ever-increasing levels of accomplishment by individuals who are passionate about winning.

The best leaders create high-performance cultures. They set demanding goals, measure results, and hold people accountable. They are change agents, constantly driving their institutions to adapt and advance faster than their competitors.

Personal leadership is about visibility-with all members of the institution. Great CEOs roll up their sleeves and tackle problems personally. They don't hide behind staff. They never simply preside over the work of others. They are visible every day with customers, suppliers and business partners.

Personal leadership is about communication, openness and a willingness to speak often and honestly, and with respect for the intelligence of the reader or listener. Leaders don't hide behind corporate double-speak.

Most of all, personal leadership is about passion. Great leaders were and are all passionate about winning. They want to win every day, every hour. They urge their colleagues to win. I don't recall the word "passion" ever being spoken during my classroom time at Harvard Business School. But all great business executives-CEOs and their subordinates-have passion and show it, live it, and love it.

Who wants to work for a pessimist? Who wants to work for a manager who is always pointing out the weaknesses in your company? We all love to work for winners and be part of winning. I believe managers at all levels of a company should strive to develop the emotional side of their leadership skills.

"Win, Execute, Team"-those three words captured the commitments I teed up at an early manager's meeting-and they summed up the most important criteria I thought all IBMers needed to apply in setting their goals.

Win-business is a competitive activity.

Execute-this is all about speed and discipline. Successful people would commit to getting things done-fast and effectively.

Team-this is a commitment to acting as one IBM, plain and simple.

When IBM's Board of Directors considered who would succeed me, passion was high on their list of necessary attributes. Sam Palmisano is an extraordinary executive-a man of many talents. However, he would never have had my recommendation if he hadn't have a deep passion for IBM, for what it stands for, for what it can be, for what it can do. He has an emotional, 24-hour-a-day attachment to winning and to achieving ever-increasing levels of success.

I now realize that I was always-even to the end-an outsider. My most senior colleagues-Sam Palmisano and others-who worked side by side with me and deserve as much credit as I do for IBM's renaissance, share a perspective I will never have. They have lived their business careers at IBM. They have seen it all: the glory days, the agony days, the turnaround days. Their roots are deeper than mine, their experience richer.

I know Sam has an opportunity to make the connections to the past as I could never do. His challenge will be to make them without going backward; to know that the centrifugal forces that drove IBM to be inward-looking and self-absorbed still lie powerful in the company. Continuing to drive change while building on the best of the past is the ultimate description of the job of CEO of IBM.

29. My plan after retirement

Now about my plans after retiring from IBM. I'm going to try to divide my life in the next 10 years into three categories.

The first one is to make a contribution to society and turn my energies to things that I had an interest in when I was a CEO but I didn't have enough time to do. There are two: one is fixing public education in America, which I've been working on for 35 years and the other is cancer research, in which I've had a 20-year interest.

I co-chair Achieve, an organization created by U.S. governors and business leaders to drive high academic standards for public schools in the United States. Now I'm preparing to launch a national commission dedicated to teacher quality. We'll focus on issues of recruitment, retention, compensation and especially quality. We'll present concrete actions that will, when enacted, improve teaching and learning.

I'm now the vice-chairman of the Memorial Sloan Kettering Cancer Institute, which is no doubt the finest cancer center in the U.S. My younger brother died of cancer, and there aren't many people in America who get to be as old as I am who haven't had somebody in their family affected by cancer.

The second one is that I want to keep my hand in the business world because that's what I love and do.

Last week I agreed to take the post of the chairman of Carlyle Group, a global private equity firm with more than $13.9 billion under management, effective January. Carlyle is a world-class firm with an outstanding record of achievement-a record built on a strong, global business base and a team of creative, focused professionals. This is an exciting time to be in private equity, and I look forward to sharing my perspective and experiences with Carlyle and, most importantly, helping to grow its already successful business.

I've gone on two advisory boards: the DaimlerChrysler and the Sony boards. DaimlerChrysler is trying to create the first truly global automobile company, and Sony is moving into a totally new age of networked entertainment. Both companies are trying to do incredibly unique things. And I like both companies' CEOs. So it's a combination of interesting companies and interesting CEOs.

I've turned down a number of requests to join boards in the last year, and I do not plan on going on any public boards.

And then I'm going to work with and help small companies.

The third one is personal. For the last 10 years, I have been fishing in trout streams in the U.S. and New Zealand, salmon rivers in Alaska, Canada and Scotland, namely all over the world. I used to go out fishing with my friends and sometimes with my wife. I'm going to do more fishing after retirement. I'm also going to do a little traveling with my wife and children.

And I may go back to school to learn. I've talked with a major university about studying archaeology and Chinese history for six months.

I think the most important thing in my life is my family, and then my church and then my job.

I don't like the word "power," and it rarely enters my thought process. To me, I like the word "ideas," and I like the phrase, "making a difference." I admire people who make a difference: their initiative, their commitment and their passion. I like to figure out the right thing to do and work hard to do it.

I believe my wife is very happy with all my future plans. (End)