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Microsoft's CFO Checks Out

By Jay Greene Microsoft's (MSFT) stock price has barely budged for more than two years, hovering between $20 and $30. So now, Microsoft's chief financial officer is moving on. John Connors, who took over as CFO in January, 2000, when the stock was trading above $54 a share, is leaving to work for a Bellevue (Wash.) venture-capital firm.

The Jan. 11 announcement surprised analysts who came to know Connors as a down-to-earth manager of Microsoft's increasingly complex financial operations. Connors, a native Montanan, says he wants to focus on developing businesses in the Northwest. Friends say he also wants to spend more time with his four children, ages 8 to 15.

Guessing has begun as to who'll succeed Connors. "There are a couple of qualified internal candidates for that job. There could be qualified external candidates as well," Connors says. Internally, fingers are pointing to a handful of finance execs who worked alongside him.

A SKEPTICAL STREET. Near the top of the prospects' list is Scott Di Valerio, the current corporate controller. He came to Microsoft in 2003 from Disney (DIS), where he was vice-president for corporate controllership. Before joining Disney, Di Valerio was CFO of Mindwave Software. Or Microsoft could turn to outsiders, a move it has made only once before in picking a CFO, with its first finance chief Frank Gaudette.

While Microsoft still has its fans on Wall Street, the new CFO will face a big task in convincing investors that Microsoft has plenty of growth left. "That's clearly one of the challenges facing the next CFO," says Sanford C. Bernstein & Co. analyst Charles DiBona.

Connors' legacy at Microsoft will include his oversight of the largest cash dividend in corporate history -- a $32 billion special dividend payout in December. It was money shareholders had long clamored for as Microsoft's cash pile climbed past $64 billion.

During Connors' tenure, Microsoft switched the way it compensated employees, issuing stock awards, which have immediate value, instead of stock options, which have value only if the share price climbs. On his watch, Microsoft also decided to treat its stock options as an expense, a decision that put the software giant at odds with many in the tech industry.

ADOLESCENT NO MORE. But if Connors is remembered best for engineering the dividend, Microsoft's lackluster stock performance during his tenure runs a close second. In the past five years, the shares have slid 51%, to $26.70, though that includes the $3-a-share value decrease from the dividend. The Nasdaq fell 44% in the same time period.

During Connors' run as CFO, Microsoft began the transition from feisty growth company to a more mature, value-oriented business. Instead of revving up sales from its Windows and Office software franchises, Microsoft increasingly has focused on wringing ever more efficiency out of its business. It's working to squeeze $1 billion in costs to increase shareholder value.

Toward that objective, Connors oversaw the reengineering of Microsoft's finance operations. A trusted confidante of CEO Steven A. Ballmer (Ballmer took the top job just a week after Connors started as CFO), Connors helped parse the company into seven different business units, each with its own CFO. That way, each group took more responsibility for managing its business and controlling spending. "I know he enjoyed the challenge of setting up the structure," says Bernstein's DiBona. But driving those cost efficiencies "can't be as much fun."

VC CRASH COURSE. For his next act, Connors will join Ignition Partners, a venture-capital firm launched by several former Microsoft execs. It has about $750 million under management right now, largely invested in small software and communications companies.

"He gave us a call," says Brad Silverberg, a partner and founder of Ignition, and a former Microsoft exec who worked closely with Connors. "He mentioned it might be time for him to do something else." Connors is expected to zero in on investments in enterprise software and the services sector.

The firm hasn't earmarked specific companies on which Connors will focus yet. He'll likely start in April and learn the ropes of venture capitalism. And questions about guiding a company through the thorny transition to a mature value company? That's all behind Connors now. Greene is BusinessWeek's Seattle bureau chief

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