Sunday, September 1, 2013

Microsoft Moves Towards A Reboot? Questionable Corporate Governance?

Well, it surely didn't take long.  We wrote a few days ago about Microsoft needing a major corporate reboot that should involve radically changing the corporate structure.  A day later, comes the announcement that the Microsoft board "offered" a board seat to ValueAct Capital Management, blandly characterized as an "activist investor."

The problematic question is "Why?"  The follow-up question is "Why this investor?"  Reuters reports ValueAct owning a 0.8% stake in Microsoft, hardly a level that bespeaks meriting a board seat on its own. Is there unique expertise at ValueAct?  Co-founder Jeff Ubben ran Fidelity Management's Value Fund, and when he left, it had $4 billion under management when he left to join the merchant bank Blum Capital. Again, this is certainly a high level of asset management experience, but hardly unique or noteworthy.

Here's an interesting video in which Jeff Ubben talks about ValueAct's approach to active investment management:

ValueAct, according to Reuters, will be prevented from launching any proxy action against Microsoft while serving on the board.  But, in a sense, ValueAct has become a "senior equity shareholder" to other larger, non-insider equity owners of Microsoft.  Why?

Can their stake change while they serve on board?  Hopefully not.  They could turn out to be a source of ideas to restructure the company, which I would believe would be along the lines we wrote about, which is about a fundamental rethinking of how capital is allocated within a different corporate structure.  The problem is that the option of getting feedback and ideas from shareholders is always open to a savvy management with open communications with all of its shareholders.  Handing a board seat to a small investor in order to get ideas hardly seems like a "value."

Just like Steve Ballmer's announcement, the timing and content of this announcement are quite peculiar, and it should be explained by the company, beyond shareholders having to read a Reuters news story.

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