Concerns Still Exist About Microsoft

Feb.10.14 | About: Microsoft Corporation (MSFT)

"Who's the boss?"

This is the question raised by a large shareholder of Microsoft stock (NASDAQ:MSFT) concerning the recent changes in structure at the company as reported by Stephen Foley and Richard Waters in the Financial Times.

"It smacks of a one-man company, which is quite frightening for a company of this size," continues the shareholder.

Bill Gates is moving on from the Chairman's position, yet will take on the position of advisor to the company of "technology and product direction."

I mean, Mr. Gates is not your ordinary consultant, since he was the co-founder of Microsoft and is "the emotional center of the company and people revere him." Furthermore, Mr. Gates is still on the Board of Directors and is Microsoft's fourth largest shareholder who owns 4 percent of the company.

Apparently, the Board believed that the new Chief Executive Officer, Satya Nadella, needed some support in this area. Mr. Nadella has been described as "a cerebral guy" by a former colleague, as reported in a "Person in the News" profile by Richard Waters in the Financial Times. He is, Waters reports, "the quintessential engineer."

Guess Mr. Nadella needed some support in "technology and product direction."

After all, Waters writes, Mr. Nadella has a lot of other things to do.

First, "Running Microsoft has also become insanely complicated 'because of the range of products (it produces)'"

Second, Mr. Nadella will inherit an organization "with a company-wide reorganization that is halfway to completion and the task is daunting."

Third, he will also take over "one of the thorniest parts of the Ballmer legacy, the acquisition of the struggling Nokia handset business and its 35,000 nervous employees."

Yes, Mr. Nadella has "daunting task" ahead of him.

Guess he needs some help.

Yet the help is coming from a person that missed the boat on several major developments in the computer industry. As another major shareholder is quoted as saying in the Foley/Waters article, Gates "did not see the rise of mobile devices, he did not see even the internet…and Microsoft failed to foresee the rise of touchscreen computing that allowed Apple and Google to vault ahead."

The Board also seemed to believe that Mr. Nadella needed support in other areas…like strategic planning. The Board, in its wisdom in responding to criticisms about Mr. Gates being the Chairman of the Board, chose another person, John Thompson to fill the position of Chairman.

Mr. Thompson is a veteran of Silicon Valley. He is currently the Chief Executive Officer of a San Jose, California computer software firm called Virtual Instruments. Formerly, he spent 10 years as the Chief Executive Officer of Symantec (NASDAQ:SYMC) a computer security company and 28 years at IBM (NYSE:IBM) in sales, marketing, and software development.

According to James Socas, the former head of corporate development at Symantec, "John has a tremendous level of strategic insight." This from Verne Kopytoff at CNN Money.

Kopytoff writes "During his tenure at Symantec, Thompson had to tackle a number of issues that parallel Microsoft's predicament."

Thompson sounds like just the right guy to help give Microsoft the vision it needs.

Mr. Nadella certainly has a lot of help available to him.

The problem that seems to exist at Microsoft is that it is unable to tell a clear story. That is, with all the articles floating around about Nadella…and Gates…and Thompson…not to mention Ballmer who will still be on the Microsoft Board of Directors…there appears to be a lot of uncertainty surrounding the re-structuring at Microsoft…especially within the investment community.

Microsoft investors have had a rough thirteen years, the time period that Steve Ballmer has been the Chief Executive Officer of the company. The most fundamental cause of discontent has been the fact that the price of Microsoft stock has basically flat lined the time period Ballmer has been in charge. Oh, the company has produced lots and lots of cash, but, Ballmer really has done very little with it…in the eyes of the financial community.

In most cases, the change in the leadership of a company, particularly a company that is facing shareholder discontent, is a time to make sharp decisions, to clear the air, and provide the investment community with hope that a new, clear direction will be forthcoming from the new leadership.

In this case, the Microsoft Board has flubbed their chance.

All these articles and comments and grousing would not be forthcoming if the Microsoft Board had done its duty.

There is real concern, given the performance of the Board over the past several years, including the current situation, that the Microsoft Board is somewhat dysfunctional. It stated that it would have a new CEO chosen within a couple of months. The search dragged for five months. Then we get all this uncertainty about what the choice means, what the new position of Bill Gates means, and what the role of the new chairman will be. This is not the way to go forward. In a real sense, the appointment of Mr. Nadella, to many, seems almost the side-show.

The question remains, "Who's the boss?"

The response of the stock market has not been encouraging. The price of Microsoft stock since the announcement of Mr. Nadella as the new CEO has not been robust. The stock was around $36.50 when the choice was leaked. Since then the stock price has reached a high of about $37.75 and a low of about $35.75. Today the stock opened a little above $36.60.

This is not what was wanted. The bounce that often accompanies an announcement like this was not achieved. I hope that the changes that have been made turn out very good for Microsoft. It sure has not been an auspicious start.

Disclosure: I am long MSFT. 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.