Steve Ballmer: Missing In Action?

Aug.20.14 | About: Microsoft Corporation (MSFT)

Summary

Steve Ballmer announced that he has resigned from Microsoft's Board of Directors, less than one year after he resigned as the company's CEO.

Mr. Ballmer oversaw a company that produced large cash flows through retained earnings but did not invest them well, and the company's stock price remained flat during his tenure.

His departure, along with Bill Gates dropping off the board in February, clears the decks for new CEO, Satya Nadella.

Steve Ballmer announced his resignation from the Board of Directors of Microsoft (NASDAQ:MSFT), less than a year after he resigned as the chief executive officer of the company. I think this was a good move for Mr. Ballmer… and it was a good move for the company. I am glad to see him go.

Mr. Ballmer contributed greatly to Microsoft when he was not in charge. After he took over in the year 2000, the stock of Microsoft flatlined for his 13-year tenure at the top. Revenues grew, and the company continued to earn more than 15 percent on its shareholder equity and threw off tons of cash.

Still, the stock price remained relatively constant.

The basic reason for this in my estimation is that Microsoft, under the leadership of Steve Ballmer, failed to wisely invest its retained earnings. The performance of the company came from the sustained competitive advantages that had been created under Bill Gates and were basically a legacy to the company.

No further value was created in Mr. Ballmer's 13 years at the helm, which meant that all of the retained earnings earned during this time were essentially squandered. One can just note here that the use of retained earnings is one of the key things Warren Buffett looks for when sizing up a company for investment.

So, something had to be done about getting Mr. Ballmer out of the driver's seat. And, it took a long time, because a friendly board of directors is not likely to move on a chief executive who is reporting such returns, even though the chief executive is not creating any additional value for the corporation during his reign.

It is also important for Mr. Ballmer to leave because it frees up the new chief executive officer, Satya Nadella. It is awfully hard for a new CEO to do what he really needs to do when the previous CEO is sitting on the board, looking over his shoulder.

In this respect, it was a good thing for Bill Gates to step down as the chairman of the Board in February. So, Mr. Ballmer's departure is good news.

But… Mr. Ballmer still is the largest shareholder of Microsoft… and in his resignation letter, he stated that he would not completely distance himself from Microsoft: "Count on me to keep ideas and inputs flowing." Uh-oh!

Well, there will be greater distance now between Mr. Ballmer and Mr. Nadella, even though we might like to see some more. So, hopefully Mr. Nadella can more independently charter out Microsoft's future.

And Mr. Ballmer will be "an involved team owner "of the Los Angeles Clippers the NBA basketball franchise… "among other interests." Hope these distractions are sufficient to keep him away from Microsoft.

Oh, by the way, is there any way for me to be able to engage in a short sale of the Los Angeles Clippers?

Disclosure: The author is long MSFT.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.