Saturday, September 14, 2013

Microsoft's CEO Transition: A Play in Two Acts?

In the past few years, one of the biggest topics put forward by corporate governance gurus has been the importance of boards working on CEO succession.  This would include, of course, the development of potential internal candidates.

In the case of Microsoft, given Ballmer's thirteen years of leading Microsoft wandering in the desert, a board which was not asleep should have developed some concrete plans for succession. So, now this board is going to choose the single individual who can lead Microsoft beyond its bloated and dysfunctional culture to become a new tech industry leader?  Highly unlikely, and even more unlikely that such an individual exists.

Let's dismiss a couple of absurd suggestions.  The Messiah Returns: Bill Gates should come back as CEO.   Second acts for leaders of the same enterprise rarely work.  Steve Jobs, yes, seems to be an exception, but the Apple he left was not exactly the Apple he came back to, so he had to refocus the company's product development efforts, not gut the company first. Bill Gates would have to gut the company which has become bloated and dysfunctional under his hand-picked successor, all the while he was assenting to the foolish moves as a board member.  No, this is totally absurd and ridiculous, plus he's more interested in TED talks and philanthropy.

The Energetic Tech Leader: lots of names circulated in the press, including mad ideas like the CEO of LinkedIn. The problem is that Microsoft had a strong player of this ilk when Ray Ozzie was Chief Software Architect. He couldn't accomplish much in a brief spell.  Younger, internal candidates, I believe, would find the sprawling Microsoft empire difficult to get a handle on, no matter energetic they were.

Another peculiar feature of Microsoft---quick, name the past two or three CFOs of Microsoft. The CFO in this company seems more like a Treasurer or Chief Investment Officer of a bank than the strategic and operating partner of the CEO.  I've scratched my head over the past four of five incumbents trying to think of an area where they seemed to add value beyond signing the financial statements.  An incoming CEO would not have the advantage of getting briefed by a strong incumbent. A smart, new CEO would need to come in with a very strong partner from outside and upgrade the profile of the CFO if the company's capital allocation were ever to get better, which it probably won't under the current corporate structure.

I think that this drama is best viewed as a play in two acts.  Act One: costs have to be cut, fast and ruthlessly. The deadwood has to removed from the key bottlenecks. Stephen Elop seems to be the person for this job,  having done this recently at Nokia, and he is a former Microsoft executive.  When this tough job is done, and the portfolio is properly pruned and positioned, Act II would begin.  Assuming, in the meantime that the board were completely turned over, the separation of the company into distinct businesses would begin and then three or four new CEOs would emerge for the new businesses, as we have discussed before.

If Elop were able to achieve this agenda as a CEO, that alone would be a magnificent achievement.  Act II would be the beginning of not just an earnings rebound, but a story of real value creation. Then, Elop could move on or get kicked upstairs. Then, a totally different kind of CEO should be chosen by a new board for a Microsoft on a different journey.  Picking one person now and assuming that (s)he would get it all done alone, with this board and this corporate structure, is truly waiting for Godot.

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