When IBM delivered bad news on Tuesday, CEO Arvind Krishna didn't look for someone else to blame. He owned it.
Krishna, who is widely credited with turning IBM around since becoming CEO in 2020, said in a letter to investors that clients had redirected quarterly capital spending toward scarce infrastructure. Management underestimated the scale of that shift, contributing to the company's second-quarter shortfall.
"These conditions require our teams to execute perfectly, and this quarter we faltered," Krishna wrote. "We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected."
Though IBM's shares tanked in response, current and former tech executives told Business Insider that other leaders ought to emulate Krishna's candor. Owning a setback can strengthen a CEO's credibility longterm, they said, by showing that management understands the problem and is prepared to address it.
"He will develop more trust among his shareholders and employees and customers by being transparent," said former Cisco CEO John Chambers.
Leaders can gain more credibility from how they handle setbacks than from their successes, he added, though they need to move quickly. They should explain what happened, acknowledge what did not go as planned, and outline how they intend to get the business back on track.
"Rule 101 on setbacks: speed and be very visible," Chambers said.
Openness carries risks, though. Leaders facing a setback may not yet have complete answers, and acknowledging uncertainty can leave them vulnerable.
"You have to have the courage to say, 'Here's what I know. Here's what I don't know,' " Chambers said. "And that sometimes exposes you to critics."
Accepting responsibility
Gilad Bechar, CEO of Moburst, a digital marketing agency, described Krishna's remarks as "refreshing." He said CEOs often attribute disappointing results to outside forces such as tariffs or other macroeconomic headwinds.
"Usually you don't see Fortune 100 companies that are owning their situation like that," said Bechar. "They are very afraid of being this candid."
Krishna may have helped contain the damage by characterizing the shortfall as a forecasting error rather than as evidence that demand for the company's products and services had deteriorated, added Bechar. Showing that management understood what went wrong gives investors reason to believe the problem can be corrected, he said.
"If you're in control of the situation, you fully understand everything, and you just misjudge one specific element, it sounds like you're in a much better place," Bechar said.
Public-company leaders may be obligated to disclose material setbacks promptly, but accepting responsibility is a choice, said Jeffrey Puritt, the retired CEO of Telus International, a technology services provider now known as Telus Digital.
Krishna could have satisfied investors' need for information without explicitly owning up to management's mistake. By doing both, Puritt said, he demonstrated the accountability expected of someone in the top job.
"If you're the CEO, you get paid to take responsibility for the business's performance, win, lose, or draw," he said. Blaming others, Puritt added, would have been "a bit of a cop out."
'What you need to hear'
Krishna has spent more than three decades at IBM. He helped orchestrate the company's $34 billion acquisition of Red Hat, which closed in 2019, and became CEO the following year. Since then, he's led an overhaul centered on hybrid cloud, software, and artificial intelligence.
Rod Adkins, a former IBM executive who also spent more than three decades at the company, said transparency is consistent with Krishna's leadership style.
"He has always been what I would call an above-the-board executive," Adkins said. "He will deliver what you need to hear versus what you want to hear."
That approach is especially important at a company like IBM, whose technology supports mission-critical operations, such as banking transactions and systems used by healthcare providers, airlines, retailers, and government agencies.
"Part of the trusted brand is being authentic with your communications," Adkins said. "Transparency, especially today, is a very important leadership attribute."
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Sarah E. Needleman covers leadership and the workplace for Business Insider.Previously, she was a reporter for The Wall Street Journal for more than two decades, covering technology companies, entrepreneurship, and recruiting.In 2022, Sarah received an honorable mention with WSJ colleagues for their coverage of workplace misconduct at Activision Blizzard from the Society for Advancing Business Editing and Writing.Sarah graduated from Rutgers University in 1997 with a bachelor's degree in journalism. She lives with her husband, daughter, and fur child (an Australian labradoodle) in northern New Jersey.Have feedback or a tip?Contact Sarah on Signal at saraheneedleman.13, or email her at [email protected].Some of Sarah’s scoops, exclusives, and most-read articles include: 'Entitled,' 'complacent,' and 'sloppy': Inside the workplace tension at the world's largest HR organizationShe won a religious exemption from using AI at work. The Pope's remarks could fuel similar appeals.The CEO behind 'Grand Theft Auto' doesn't drink, smoke, or play video gamesPTO, parental leave, pensions: Even the most prized benefits are on the chopping blockGoodbye, middle managers. Hello, 'player-coaches' and 'org leads.'She used to manage 3 employees. Now she oversees 24. Welcome to the age of the megamanager.America's new sink-or-swim era is hereInside the AI divide roiling video game giant Electronic ArtsMeet your new office bestie: ChatGPT
