Microsoft Seeks to Reassure Workers Spooked by CEO Search

Aug. 27 (Bloomberg) -- Bloomberg View Columnist Matthew Klein examines his list of six areas where Microsoft fell short during the Steve Ballmer era and what the company needs to do to correct the problems going forward. He speaks on Bloomberg Television's "In The Loop."

Microsoft Corp. (MSFT) is telling employees that a reorganization plan by departing Chief Executive Officer Steve Ballmer will go ahead, seeking to reassure senior managers who are concerned that the search for a successor will throw turnaround efforts into disarray.

Some members of Microsoft’s senior leadership team e-mailed their staff on Aug. 23 to say they remain committed to Ballmer’s vision and the reorganization, said three people with knowledge of the matter. Some Microsoft executives have seen an increase in outside job offers since the July restructuring plan and others may be tempted to leave after stock grants and bonuses are awarded in late August, said the people, who asked not to be identified because the communications were private.

Even as it hunts for a CEO who may change tack, Microsoft’s board needs managers to stay focused on the reorganization plan, the biggest shift in more than a decade. Ballmer is emphasizing hardware and Internet-based services, shifting away from software for the declining personal-computer industry and putting Microsoft on better footing to compete with Google Inc. (GOOG), Facebook Inc. (FB) and Apple Inc. (AAPL) in mobile devices and online advertising.

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Steve Ballmer, outgoing chief executive officer of Microsoft Corp., watches a demonstration at the 2012 International Consumer Electronics Show (CES) in Las Vegas. Ballmer said on Aug. 23 that he intends to retire within 12 months after leading Microsoft since January 2000. Close

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Photographer: David Paul Morris/Bloomberg

Steve Ballmer, outgoing chief executive officer of Microsoft Corp., watches a demonstration at the 2012 International Consumer Electronics Show (CES) in Las Vegas. Ballmer said on Aug. 23 that he intends to retire within 12 months after leading Microsoft since January 2000.

“They need to change everything, everything,” said Ivan Feinseth, chief investment officer of Tigress Financial Partners LLC in New York. “They need to be better in social, mobile, analytics and cloud, and they really have very little to offer in those areas.”

Ballmer Departs

Ballmer said on Aug. 23 that he intends to retire within 12 months after leading Microsoft since January 2000. During the CEO’s tenure, Microsoft has battled to stay relevant as consumers have shifted from using its core Windows software for PCs toward mobile devices from Apple and others. Facebook and Google have also pushed ahead in social networking and online advertising, areas where Microsoft remains weak.

Tony Imperati, a spokesman for Redmond, Washington-based Microsoft, declined to comment on the executive e-mails.

Microsoft can ill afford to wait and see if a new CEO alters the Ballmer plan. With the company behind in mobile and tablets and as core revenue from its flagship Windows product shrinks, the stock is down about 37 percent under Ballmer’s watch. Last month, Microsoft also reported sales and profit that missed analysts’ estimates.

Microsoft shares declined 2.6 percent to $33.26 at the close in New York.

Photographer: Kevin P. Casey/Bloomberg

A sign sits on display outside a building on the Microsoft Corp. campus in Redmond, Washington. Close

A sign sits on display outside a building on the Microsoft Corp. campus in Redmond, Washington.

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Photographer: Kevin P. Casey/Bloomberg

A sign sits on display outside a building on the Microsoft Corp. campus in Redmond, Washington.

While embarking on a new CEO search, Microsoft will also have to contend with retaining employees and tamping down unease that for some began with the July reorganization.

More Uncertainty

“There’s going to be more confusion near-term,” said Sid Parakh, an analyst at McAdams Wright Ragen in Seattle. “It just seems like now there’s the question of how’s the new person going to look at these changes. From an employee perspective, they are at a point of ‘OK, now what do we do here?’”

Microsoft executives and workers in the process of moving into new divisions and roles don’t know if they will be asked to shift again under new management, said one of the people with knowledge of the matter. Some executives unhappy with their new roles may leave after the stock grants and bonuses at the end of August, said another person.

Some Microsoft executives are also getting more feelers from recruiters and companies to leave since the reorganization and expect that to accelerate as the next CEO remains to be chosen, said another person with knowledge of the matter.

Calming Nerves

Ballmer’s reorganization, which put all of Microsoft’s hardware into one unit and shifted the Windows and Windows Phone operating systems under the same executive, was undertaken with the knowledge that a new CEO might end up at the company’s helm, said another person with knowledge of the matter. It didn’t make sense to put the changes on hold for as long as a year until a new CEO was in place, the person said.

The same day as Ballmer’s retirement announcement, Microsoft’s leadership team held a previously planned meeting, after which some senior executives e-mailed their staff to say they are committed to the restructuring, said the people with knowledge of the matter. Microsoft’s board also stressed in statements that day that a new CEO will execute Ballmer’s strategy.

Microsoft had already been coping with a string of executive departures before Ballmer announced retirement plans. In July, Xbox chief Don Mattrick left to take the CEO job at Zynga Inc. (ZNGA) Steven Sinofsky, former head of the Windows division, exited the company last year after clashes with executives including Ballmer, people familiar with the situation said at the time. Office division chief Kurt DelBene is retiring as a part of the reorganization. Chief Financial Officer Peter Klein left on June 30.

Heightened Concerns

The turnover has left Microsoft with senior leaders who haven’t been senior for very long. Of the four executives running the engineering units created in the reorganization, three have less than three years’ experience at the helm of a Microsoft division.

Given that Ballmer spurred the new management structure, his departure is intensifying concerns of employees who were just coming to grips with the reorganization, said a person with knowledge of the matter.

The board can minimize disruption by replacing Ballmer in four to six months, rather than the full year, said Pat Becker Jr., a fund manager at Becker Capital Management Inc. in Portland, Oregon, which owns Microsoft shares. That may enable a new CEO to get a more successful product lineup ready for Christmas 2014.

“Someone starting near the first of the year would be able to make some decisions in time for the next holiday season,” he said. “Then again maybe that’s too much to expect -- expecting someone to turn around a company like this that quickly.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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