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Microsoft May Be Undermining Nadella By Bringing Back Gates

Feb 5 2014, 5:45pm CST | by

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Microsoft May Be Undermining Nadella By Bringing Back Gates

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Microsoft May Be Undermining Nadella By Bringing Back Gates

Microsoft finally made Satya Nadella its new CEO on Tuesday, replacing the retiring Steve Ballmer. The shares fell slightly Tuesday and again on Wednesday, dropping under $36, in part because the news had been baked into the stock price.

There’s hope that Nadella, 46, only the third Microsoft CEO, will bring change and, possibly, more order to a company that is spread so widely that it’s almost impossible to say what it is.

As important to Nadella’s appointment after months of speculation, interviews and no doubt an expensive executive search process is what happened to Bill Gates, Microsoft’s co-founder and, until Tuesday, chairman.

Gates stepped aside as chairman to become a technology advisor. Gates, in a video, said he expected to spend a third of his time at Microsoft, a larger time commitment than he has given to the company since he stepped aside as CEO in 2000 and gave up his day-to-day commitment to Microsoft in 2008. He has been spending most of his time with the Bill and Melinda Gates Foundation, headquartered in downtown Seattle.

It may be a cosmetic change — or not. That will be one of the key questions for Microsoft going forward. According to the company’s 2013 proxy statement, Gates still owns 4.5% of Microsoft’s stock. He remains a director. He was deeply involved in the CEO search process.

Ballmer also remains a director, and he has a 4% stake in Microsoft. He’s famed for a huge, boisterous personality. And he leaves as the architect of a massive reorganization in 2013 that pushed Microsoft from mostly a software company into a “devices and services” company. Plus, he pushed the acquisition of Nokia’s handset business for $7.2 billion.

Most management experts will say it’s tough to manage a company with your predecessor still around. Better to make a clean break. Jack Welch left the General Electric Co. board when he retired in 2000.

It gets trickier when your two predecessors are still around. Each will have a perspective, perhaps even an agenda. So, one of Nadella’s biggest jobs may well be managing Gates and Ballmer.

It probably will help Nadella that John Thompson, who chaired the CEO search committee, is succeeding Gates as Microsoft’s chairman. Thompson is a retired CEO of Symantec Corp. and is now CEO of Virtual Instruments, a privately held Silicon Valley company that makes performance-monitoring tools for data storage networks and big computer systems. He spent years at IBM Corp. (NYSE: IBM) and has experience in corporate and board politics. And he’s no shrinking violet.

The Indian-born Nadella is described by most as low-key and widely respected. He did reorganize the Bing and MSN business into one unit. One Microsoft executive says, “He is energetic and hard driving and not one to sit around waiting for things to happen.”

He does have a daunting challenge managing Microsoft, let alone Gates and Ballmer. Microsoft was built around its Windows operating system and its Office suite of software. The Windows business, in particular, has stagnated as personal computer sales have declined.

The Nokia assets have to be merged into the company and fixed to compete effectively against Apple’s iPhone and Samsung’s phones, based on Google’s Android operating system. Microsoft’s online business, including Bing, has been a constant money loser for years.

Nadella ascended because of his success building Microsoft’s Server and Tools business into one of the company’s key pillars, generating more than a quarter of Microsoft’s revenue and 30% of operating profit.  Server and Tools includes Windows Server, Microsoft SQL Server, and perhaps most important for Microsoft’s future, Windows Azure, the company’s cloud-computing platform. The business grossed $20.3 billion in fiscal 2013, up 22% from fiscal 2011 — and $1.6 billion more than Windows.

Disclosure:  Charley Blaine formerly worked at Microsoft but currently owns no Microsoft shares.

Source: Forbes


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