Microsoft Should Avoid Corporate Superstars And Source Its CEO Internally

| About: Microsoft Corporation (MSFT)

Microsoft's (NASDAQ:MSFT) highly publicized CEO search has its Board of Directors bringing in big guns from across American industry. However, I think it's a mistake for the company to bring in a corporate superstar from the outside, even from the technology sector, as evidenced by recent big name blunders. Rather, I believe it should focus its search internally, and find someone who understands both the company's problems and its business intimately, but who also still brings freshness and progression. Because of the company's failure to anticipate how important Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) would become as competitors, it might look for the guy who raised his voice about that issue but was drowned out by the noise of yes-men.

Microsoft's Board is being tempted to pull in a big name corporate executive to head up its business following Steve Ballmer's announced retirement. It is tempted, because Microsoft can pretty much attract anyone from any industry. The names being rumored as potential heirs to Bill Gates' empire include the likes of Ford's (NYSE:F) Alan Mulally, Qualcomm's (NASDAQ:QCOM) COO Steve Mollenkopf and Nokia's (NYSE:NOK) former CEO Stephen Elop, among those publicly leaked or discussed on the rumor mill anyway. The list reportedly ran 100 deep at first casting of the net, and has been reduced to 20 serious candidates of impressive individuals now, according to Microsoft. Take note that Microsoft's Board has not ignored internal candidates in its search, but since it is a normal Board made up of several outside members, an externally sourced hot shot has a good chance of landing this job.

Let's see, in searching for evidence of why Microsoft should not go with an external non-industry exec, we have only to look at the recent near bankruptcy of J.C. Penney (NYSE:JCP). The iconic American department store almost disappeared thanks to the disruptive ideas and truly disruptive change brought on the cue of Ron Johnson, a formerly highly lauded Senior Vice President of Retail Operations at Apple. You can't get bigger hot shots than from Apple these days, but when you assume a rare genius from a highly successful focused individual, you are simply asking for too much. There are not many geniuses out there, and only they know who they are, since the rest of us are on a different plane of discernment, so ignorant to genius that we cannot even comprehend the degree of our dumbness.

It's logical to want to hire someone successful at a high level to take over a high level job. However, if you bring the great Alan Mulally in to run your software company, is his experience from Ford and Boeing (NYSE:BA) really going to serve him well enough atop the software giant that is transforming into a broader reaching hardware player, while fighting to stay relevant in software on new hardware medium? You can see how hitting the ground running with someone who intimately understands the business might be critically important.

So why not pay Mollenkopf enough to come over to this side of the tech sector? Okay, a breath of fresh air can be just that for a yes-man environment, but the guy walking into that environment is not going to necessarily get the right message from people fighting to be relevant in an organization with an existing culture with its habits and tendencies. If I went outside the company, I would probably look toward Apple or Google for someone, since those two are now most similar to today's transforming Microsoft. However, I would find my guy internally.

Someone from the inside, who perhaps has raised questions in the past and been trampled upon and beaten down, but who otherwise excelled in his work, is probably the guy you need to head up Microsoft. You might want to go through the pink sheet file and find someone who has been let go due to the most egregious of probably trumped up reasons to find the guy who was willing to say no and suffered greatly for it. If he was right in his protest, that's the guy you need to shake things up. Or maybe he's dwelling in the shadows, held down by the yes-men who never saw Apple and Google coming despite his constant warnings. Microsoft, you need to uncover that guy and give him a chance to right the ship, because he is the guy who understands the business intimately, sees its flaws clearly, and was willing in the past to suggest change despite an easier path available to him for success known as the yes-man parade route. Arrest your search for a hot shot externally sourced CEO and truly add value by promoting an inside guy with a clue and a chip on his shoulder. You know, like how Apple rehired Steve Jobs after firing him. He did alright in the end I think.



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If Microsoft makes the right decision here and gets real and constructive change, it should have a chance at closing the valuation gap with Google on the price-to-sales and P/E metrics, and closing the gap on Apple's 5-year growth forecast. Apple's PEG ratio is so much lower than the other two because its stock price does not account for its significant five-year growth outlook. Microsoft's next leader has a chance to create value through growth and valuation expansion, because the company is currently missing something, as evidenced by these metrics. I suggest Microsoft find its next leader from the inside, but from a pool of dissenters who saw the freight train named Apple coming.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.