Microsoft board motivated to hire new CEO before activist joins in early '14

ValueAct, which can claim its place on the board early next year, could throw a minor monkey wrench into the CEO selection process

Microsoft's board of directors wants to wrap up its search for a new CEO before the end of the year, Bloomberg said Wednesday, citing anonymous sources close to the action.

According to Bloomberg, the board's CEO search committee -- which includes co-founder and chairman Bill Gates and is led by John Thompson, a former Symantec CEO -- has already interviewed several candidates, been rebuffed by at least one, and is narrowing its choices.

The board hopes to have a Ballmer replacement before year's end.

While financial analysts have urged Microsoft to quickly pick a successor for Ballmer, if only to shorten the period of uncertainty about the new leader's direction, there is another reason for putting someone in place before the start of 2014.

In late August, Microsoft announced that it had reached agreement with ValueAct Capital, an activist shareholder that had been pressing for changes at Microsoft since earlier in the year.

Under the terms of the deal, Microsoft has given ValueAct president, G. Mason Morfit, the option to join the company's board of directors in early 2014, as well as said he could regularly meet with "selected Microsoft directors and management to discuss a range of significant business issues," according to a Microsoft statement at the time the agreement was made public.

In return for the board seat and other considerations, ValueAct has promised not to acquire more than 4.9% of Microsoft's outstanding shares, not to conduct any proxy fight, and not to "make any statement or announcement that constitutes an ad hominem attack on, or otherwise disparages or causes to be disparaged the Company or its affiliates or any of its current or former officers or directors," Microsoft's filing with the U.S. Securities and Exchange Commission (SEC) read.

If Morfit joins the board, he would be the first Microsoft director ever appointed under duress. As of July, ValueAct owned less than 1% of Microsoft.

But ValueAct's CEO, Jeffrey Ubben, who announced a $2 billion stake in Microsoft in April, had been agitating for a seat on the company's board. Ubben has also been linked to calls for Ballmer's ouster, and to general discontent among some shareholders that Microsoft was hoarding too much cash. Like many shareholders, ValueAct has reportedly expressed concern over several major mistakes by Microsoft, including falling behind in smartphones and tablets. At an investor conference, Ubben also called on Microsoft to make its lucrative Office software franchise more widely available on non-Windows platforms.

By beating the early 2014 date for Morfit's joining of the board, Microsoft's current directors can select the next CEO without outside interference. If the selection process drags into 2014, Morfit will have a voice -- albeit only one out of 10 -- on the board.

While any opposition to the CEO choice could be parried by a unified board -- assuming it is unified -- the risk of news leaking about divided directors, even if Morfit was the sole dissenting vote, would be embarrassing to Microsoft.

Candidates that have been interviewed, according to Bloomberg, included Tony Bates, who joined Microsoft after it bought Skype, and who now leads business development and evangelism; Stephen Elop, the former CEO of Nokia who will return to Microsoft once the acquisition closes early next year; Paul Maritz, a former Microsoft executive and most recently the CEO of VMware; and Alan Mulally, CEO of Ford Motor.

eBay CEO John Donahoe declined to be considered, as have others, said Bloomberg.

All but Donahoe have been previously mentioned as possible replacements for Ballmer, with Mulally identified by several media outlets as the current leader. In an interview with USA Today last week, Mulally brushed aside the speculation, but didn't confirm or deny an interest in the Microsoft job.

According to Ireland's online bookmaker, Paddy Power, Mulally was the second-likeliest choice, at odds of 3-to-1, behind only Elop, who was listed at odds of 4-to-11.

Industry analysts have urged Microsoft to choose an outsider as the new CEO, fearing that by staying in-house, the company would nominate a Ballmer clone who in turn would lack the motivation to dramatically change the company.

That fear rests on the premise that Ballmer's new "One Microsoft" reorganization and his devices-and-services strategy are not the best ways for the company to push forward, reverse its fortunes in mobile and stem the bleeding from projects like Bing.

In related news, Paddy Power recently began taking bets on when Bill Gates will step down as chairman. Today, the bookie had this year at 11-to-8 odds, meaning that someone would have to bet $110 to have the chance to turn an $80 profit. The odds improve for 2014 (6-to-5) and again for 2015 (2-to-1).

Last week, the Reuters news service said several prominent Microsoft investors, who collectively controlled 5% of the company, have asked the board to push Gates out of the chairman's chair. They reasoned that because Gates dominates the board, he could quash any attempt to bring in a CEO who would significantly shake up the company, which they believe is necessary, and that Gates will handcuff the new CEO to the in-place strategy and reorganization.

Microsoft's Nov. 19 shareholders meeting would be an opportunity for the firm to trumpet the new CEO, if one accepts the position by then.

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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