Update: Dick Brown out as EDS chairman and CEO

Embattled Electronic Data Systems (EDS) has a new chairman and chief executive officer. Dick Brown is being replaced as chairman and CEO by Michael H. Jordan, who retired as chairman and CEO of CBS in Dec. 1998.

Brown’s exit was mutually agreed upon by him and the EDS board of directors, EDS said in a statement issued Thursday afternoon. Brown joined EDS in December 1998.

Also coming out of retirement is Jeffrey Heller. He is the new EDS president and chief operating officer. Heller retired from EDS in February 2002. He was EDS vice chairman at the time.

EDS, in Plano, Texas, is the world’s second largest provider of IT services, behind IBM’s Global Services unit.

EDS has been struggling on several fronts for 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, which themselves had brought much criticism upon Brown: a steep earnings and revenue shortfall EDS had announced several weeks earlier 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 economic conditions globally, 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. But 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, versus the original expectation of $0.74 per share. Revenue for that quarter came in at $5.41 billion, versus the original forecast of between $5.8 billion and $5.9 billion.

Furthermore, the company announced plans to lay off between 3 percent and 4 percent 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 SA 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. It closed at $15.76 on the New York Stock Exchange Thursday.