Big-hitter investors want Gates out as Microsoft chairman

Reuters report claims three of the firm's top 20 investors fear Gates will block hiring the kind of CEO they think Microsoft needs

Bill Gates
Microsoft chairman Bill Gates.

A trio of the top 20 investors in Microsoft, anxious about the selection of the company's next CEO, have asked the board to push Bill Gates out of his chairman's spot, according to a report by Reuters.

The likelihood of the board bending to the investors' wishes is slim -- very slim, said one analyst. "The chance that Gates is pushed out is about the same as Congress reopening the government today," said Jack Gold of J. Gold Associates, in an interview Wednesday.

Reuters' story has received significant play in the media, a sign of the interest not only in Microsoft, but also in its attempt to recast itself as a "devices-and-services" company, a strategy inaugurated by current CEO Steve Ballmer, who in August announced he would step down during the coming year.

According to the news service, the three investors -- who have not been identified -- collectively own more than 5% of Microsoft's outstanding shares. Gates, who along with Paul Allen founded Microsoft in 1975, owns approximately 4.5% of the $280 billion firm and remains the largest individual shareholder.

Ballmer owns about 4% of Microsoft, and is the second-largest shareholder.

By Reuters' account, the three investors are worried that as chairman, Gates will prevent the board from making the drastic changes they believe are necessary, and handcuff the new CEO to the in-place strategy. Gates is on the special search committee tasked by the board to recommend Ballmer's replacement.

John Thompson, a veteran of IBM, and from 1999 to 2009 the CEO of antivirus vendor Symantec, is the leading independent director on Microsoft's board and the head of the search committee.

Coincidentally or not, Thompson recently granted an interview with the Wall Street Journal (subscription required) during which he rejected the idea that Gates was the one calling the shots in the CEO search. "I have enormous respect for Bill," Thompson said last week. "But I didn't accept the role on the board or the role as the lead independent director to be Bill's pawn."

Industry and financial analysts have questioned the devices-and-services strategy, which Ballmer said was necessary to compete in the hottest segments of technology -- smartphones and tablets -- and to transform its existing software businesses into Internet-delivered services to both consumers and corporations.

Since Ballmer's late-August announcement that he would step aside, Microsoft has several times said it will stick to the new strategy, and to the massive company restructuring that began in July, no matter who is appointed CEO.

That may be bluster. "Any new CEO will come in and decide whether the strategy makes sense," said Gold. "Unless the new CEO is a clone of Ballmer, there will be a difference."

In August, several other analysts agreed that Microsoft must find its next CEO outside its current and former ranks to really change. Who the board selects will be the first and best indicator of whether the strategic shift and reorganization can remake the once-dominant technology company, they also said.

Gates, many believe, dominates the board, which is largely composed of executives from non-tech industries. His status as co-founder also carries serious weight on the board. That dominance has been criticized recently, too; analysts and pundits have argued that Gates, who drove the development of Microsoft's biggest OS flop so far, 2007's Vista, made plenty of other mistakes in his 30 years.

But the investors' demands have little chance. "In truth, the only way that this happens is if the downsides for Gates and Ballmer are higher than the upsides," Gold added. "And how that happens is only if there's a stockholders' revolt, led by these investors."

Gold thought that unlikely in the short term. But stranger things have happened.

"If you eliminate the existing chair and limit the influence of Ballmer on the selection process, you're more likely to get someone that can take Microsoft in a needed new direction, which would be the best outcome," said Gold.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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