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Microsoft: How financial reform is changing corporate governance

Apparently, corporate lieutenants are getting a lot more power, if The Daily Beast is to be believed. This story today claims that some senior Microsoft executives, unhappy with the share price under the leadership of Steve Ballmer, are secretly discussing an insurrection against the hard-charging CEO.

The story reports that these executives would like to "add board seats or replace current directors at the end of their term with CEO-ready candidates who could both provide Ballmer with guidance and be there to step into an interim role as CEO if he resigns."

I know Microsoft gives out a lot of stock options. But unless these executives are planning to bring in some very powerful institutional shareholders or have the support of the board--neither of which the story says they do--the notion of a successful executive coup d'etat is just silly.

It's not as if adding or replacing corporate directors is just a matter of making it happen. If it was, shareholders wouldn't have been fighting for years for the right to "proxy access," or the ability to nominate their own candidates to the board. As the confusing and admittedly dry world of corporate governance works now, voting in directors who weren't first nominated by the board requires an extremely expensive campaign that even deep-pocketed mutual fund and hedge fund managers often aren't willing to take on.

If that's the case, why might these executives be talking about this now, when Microsoft's stock price is about the same as it was five years ago? If the story's sources are indeed serious, it's likely because they have the support of one or several major shareholders, and possibly because they see a window in the financial reform bill President Obama signed yesterday. One thing the bill does is give the Securities and Exchange Commission the authority to make a rule about giving shareholders the right to put nominees on the ballot.

If that sounds convoluted, it is: The reform bill does not yet make proxy access reality, although the SEC has written a proposed rule that business interests are sure to fight at every turn. Even once shareholders get their way, they'll still need to own a certain percentage--as the rule is written now, 1% of Microsoft's millions of outstanding shares--to get their own nominees up for vote.

But this morning's story reveals more than just the extreme unlikelihood that disgruntled execs can single-handedly change the makeup of Microsoft's board. It notes that there are no obvious successors in the company, revealing a lot about the company's leadership bench. If there are all these senior executives who want to bring in outside directors who might one day replace Ballmer, why don't they want to nominate one of their own?

Perhaps because they just don't want to have to run around a stage like this:


By Jena McGregor

 |  July 22, 2010; 12:53 PM ET |  Category:  Corporate leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Microsoft has more problems than ineffective leadership. Microsoft has ignored the rule "Innovate or Die". Microsoft keeps putting out the same OS with useless, and sometimes disastrous, changes, but no real innovation, and poorly copies others product offerings (Bing, KIN, etc.).

Apple is on top these days because they made the hard decision several years ago to the switch to Intel chips and created a completely new OS, one that was not backwards compatible. These risky but necessary changes allowed them the freedom to innovate, to not just have new ideas but actually be able to create products that are appealing to consumers and work as well as any other of that genre of products. Apple is in a strong enough position that they seem to have taken a "buy it or not", "like it or not" attitude -- their advertising campaign seems quite low key, and I haven't seen many ads, especially on TV.

Posted by: ccs53 | July 23, 2010 7:18 AM

Ever time Ballmer opens his mouth the stock drops. He is an embarrassment, never understood why Gates let this guy hang around MS. Reminds me of an obnoxious relative, who comes to the party and won't leave.

Posted by: googleer | July 23, 2010 4:28 AM

"But I believe Bill Gates is still Chairman of the Board and still the holder of a large block of Microsoft stock."

Bill Gates owns less than 9 percent of Microsoft stock, his input is relatively meaningless. He doesn't work there any more (it just doesn't sink in, does it). He has NO involvement in day-to-day operations, and he is in NO position to make personnel decisions.

That's the "real world", and it does not revolve around Bill Gates.

Posted by: frantaylor | July 23, 2010 3:34 AM

Ballmer's time is over. There is no leadership, no vision. Bill G likes his friends but he's a hard-nosed realist. And one who can't help but notice that the value of a Microsoft share, of which he owns many, is the slightly lower now than it was in July 2005.

KIN was a debacle. WinPhone+Xbox increased their losses, as did Online(Bing).

A ship as big as Microsoft needs time to change direction and the direction it's on is not a good one. Even Bill can see that. And so can Steve (who didn't participate in the call today).

MS executives might want Ballmer to go but they're not the ones that will make it happen. The big institutional shareholders (plus Bill G) are the ones who will make it happen, if it does.

Posted by: vdev | July 22, 2010 8:58 PM

Ballmer's time is over. There is no leadership, no vision. Bill G likes his friends but he's a hard-nosed realist. And one who can't help but notice that the value of a Microsoft share, of which he owns many, is the slightly lower now than it was in July 2005.

KIN was a debacle. WinPhone+Xbox increased their losses, as did Online(Bing).

A ship as big as Microsoft needs time to change direction and the direction it's on is not a good one. Even Bill can see that. And so can Steve (who didn't participate in the call today).

MS executives might want Ballmer to go but they're not the ones that will make it happen. The big institutional shareholders (plus Bill G) are the ones who will make it happen, if it does.

Posted by: vdev | July 22, 2010 8:56 PM

I find the story hard to believe. Perhaps somebody in Microsoft's executive ranks is trying to accomplish the result by starting a wispering campaign. But I believe Bill Gates is still Chairman of the Board and still the holder of a large block of Microsoft stock. In the real world, it would be very hard to push Ballmer out without convincing Gates that it was a necessary decision.

Posted by: dnjake | July 22, 2010 7:10 PM

I have no idea how effective Ballmer might be at running Microsoft on the inside, but he just doesn't exude trust or credibility in his public performances. He comes across pretty much as 'my way or the highway.'

Posted by: Three3 | July 22, 2010 6:43 PM

I'm sorry but this post makes no sense. The topic, in theory, is about leadership. Where is Ballmer's leadership?

OK, this specific post relates to financial reform, but what does that mean within the context of leadership. The post dwells on executives who apparently seek to oust Ballmer. The executives are paid employees, they are not the owners. Theoretically the shareholders own Microsoft and could fire Ballmer. So why a sympathetic eye towards Ballmer vilifying nameless executives when the post should focus on the injured shareholders. The undisclosed story in nearly every media article is that shareholders of virtually every company are being denied their ownership rights.

For a blog that is dedicated to leadership, this blog is in LA LA land. When you look a Ballmer, Immelt, and Kindler you see corporate CEO's that are destroying shareholder value. These CEO are NOT leaders. Let's find some real leaders who are role ethical models in building companies for the benefit of their shareholders.

Posted by: SteveR1 | July 22, 2010 6:22 PM

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