Dick Brown out as EDS chairman and CEO

Embattled EDS has tapped a former CBS chairman and CEO as its new chairman and CEO, replacing Dick Brown.

Embattled EDS has tapped a former CBS chairman and CEO as its new chairman and CEO, replacing Dick Brown.

Michael H. Jordan retired from CBS in December 1998, the same time that Brown joined EDS after a stint as Cable & Wireless CEO. In a statement, EDS said Brown’s exit was mutually agreed upon by him and the EDS board of directors.

Also coming out of retirement is Jeffrey Heller to become EDS president and COO. Heller retired from the post of EDS vice president in February 2002.

EDS has been struggling on several fronts during the past year or so. Its stock price has shrunk, its sales have been below expectations and it is being investigated by the U.S. government. Several financial analysts had blamed Brown for the problems and said he had lost credibility.

In Thursday’s statement, EDS director Roger Enrico said Jordan and Heller have “the opportunity to move EDS forward unencumbered by past events.”

Chief among EDS’ problems is an ongoing investigation by the U.S. Securities and Exchange Commission (SEC), disclosed by the company in October. Back then, EDS said the SEC was looking at two issues: a steep earnings and revenue shortfall for its third and fourth fiscal quarters of 2002; and investment-banking bets EDS made on the value of its stock, which eventually backfired and cost the company about $225 million to settle.

EDS blamed the earnings and revenue shortfall on a variety of issues including tough global economic conditions, sagging new sales and lower growth on existing contracts due to a reduction in clients’ discretionary spending, particularly in Europe. It also cited increased internal spending to bolster its sales team.

Brown took the brunt of the blame, as he came out looking out of touch with his company’s performance due to the magnitude of the shortfall: EDS closed the 2002 third fiscal quarter with earnings of $0.18 per share, vs. the original expectation of $0.74 per share. Revenue for that quarter came in at $5.41 billion, vs. the original forecast of between $5.8 billion and $5.9 billion.

Furthermore, the company announced plans to lay off between 3% and 4% of its workforce in October, or up to 5,520 employees out of the total of about 138,000 the company had back then.

EDS has also been affected by the bankruptcy of several big clients, including WorldCom and UAL.

EDS’ troubles are blamed for its loss of a multibillion dollar outsourcing contract that Procter & Gamble was about to award it late last year. Just last month during its annual meeting with financial analysts, Brown had to open his remarks with the bad news that final negotiations between EDS and French company Alstom over a multibillion dollar outsourcing contract had collapsed, news that put a damper over the entire day and once again put Brown in a difficult position.

In February, EDS reported that earnings and revenue had fallen in its 2002 fourth fiscal quarter compared with the same quarter in fiscal 2001. EDS’ stock was in the $50 range in mid-2002 but is now in the $15 range.