Microsoft’s Frankly Speaking Thompson Guides Quest for CEO: Tech

Weeks before Microsoft Corp. (MSFT) Chief Executive Officer Steve Ballmer announced plans to retire, lead independent director John Thompson spelled out the board’s responsibility in an on-campus interview.

“Ours is not a role where we devise the strategy,” Thompson told Microsoft’s internal Channel 9 site on Aug. 7. “Our role is really to say, ‘Here’s what we think about what we’ve heard, here’s what we like, quite frankly, here’s what we don’t like.”

During Thompson’s almost 20 months on Microsoft’s board, directors were frank about what they didn’t like about the company’s performance under Ballmer, regulatory filings show. The board, in annual reviews, rebuked the CEO for poor results in Windows and tablets machines, even as it lauded areas such as server software and expense cutting. They paid him less than his maximum possible bonus.

Thompson combined candor with his experience as a 42-year technology industry veteran to lead the board’s discussion of company strategy, helping to create an environment that sped Ballmer’s decision to retire, according to people with knowledge of the matter. Thompson, 64, listened to each board member and made sure Ballmer heard them, improving lines of communication and making strategy talks more productive, the people said.

Photographer: Henrik Kettunen/Bloomberg

Microsoft has only had two CEOs - co-founder Bill Gates and Steve Ballmer, seen here - in its 38-year history. Close

Microsoft has only had two CEOs - co-founder Bill Gates and Steve Ballmer, seen here -... Read More

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Photographer: Henrik Kettunen/Bloomberg

Microsoft has only had two CEOs - co-founder Bill Gates and Steve Ballmer, seen here - in its 38-year history.

Diplomacy Skills

Thompson, the former CEO of Symantec Corp. (SYMC), will now have to bring those skills of diplomacy and focus to bear as he leads Microsoft’s board in search of a new CEO. The task is urgent, with Ballmer set to retire no later than August and the board working toward having his successor in place by the end of the year, according to people with knowledge of the discussions.

Microsoft has only had two CEOs -- co-founder Bill Gates and Ballmer -- in its 38-year history. As Ballmer prepares to exit, the Redmond, Washington-based company is getting ready to integrate Nokia Oyj’s handset business, which Microsoft agreed to buy for $7.2 billion to take on Apple Inc. (AAPL) and Google Inc. in smartphones and tablets. It’s also grappling with the transition from a software company to one with a bigger footprint in devices and services.

Gates, 57, remains chairman of the board and Microsoft’s third-biggest shareholder. He and Ballmer have been close friends since college and crafted the strategy that led to Microsoft’s PC dominance.

Potential Candidates

So far, directors have spoken with Alan Mulally from Ford Motor Co., Nokia’s Stephen Elop and Microsoft business development chief Tony Bates, as well as Paul Maritz, the company’s former No. 3 executive, the people said. Some candidates have declined to be considered, including EBay Inc. CEO John Donahoe, said two people. Ford reiterated yesterday that Mulally plans to stay on through the end of 2014.

Microsoft spokesman Frank Shaw declined to comment or to make Thompson available for an interview.

Against that backdrop, Thompson and the board are deliberating between an outsider with a fresh perspective or an experienced insider. In addition, they face decisions on whether to trim Microsoft’s many businesses and focus on becoming a purely enterprise or consumer technology company, or continue Ballmer’s attempts to straddle both.

Those who know Thompson say he is up to the challenge. “If I was to pick a guy to handle that kind of delicate situation -- well, John is great at it -- soft-spoken but very deliberate in what he says and when he talks, people listen,” said Ed Zander, former CEO of Motorola Inc., who served on the board of storage-drive maker Seagate Technology Plc with Thompson from 2009 to 2011. “He understands the challenge Microsoft has.”

Previous Struggles

Thompson also knows what it’s like to be at the head of a struggling incumbent. While at Symantec in 2005, he orchestrated the ill-fated $10.2 billion purchase of Veritas Software Corp., in an effort to push into data storage. When Thompson stepped down as CEO four years later, Symantec was contending with slowing growth amid an economic downturn and rising competition.

Thompson joined Microsoft as a director in 2012 as part of an expansion of the board. At the time, directors had already raised questions about Ballmer’s strategy, yet had been patient in waiting for it to bear fruit, said a person familiar with the matter. The addition of Thompson and Seagate CEO Steve Luczo that year gave the board more technology expertise and helped reassure longer-serving directors that they were correct to press Ballmer, the person said.

Building Consensus

Ballmer separately was mulling the timing of his departure. Thompson eased the process because he built consensus among different viewpoints and helped get the board and Ballmer comfortable with a retirement timeline, people familiar with the situation said. Thompson shored up communication between Ballmer and the board, making sure the CEO heard all voices, they said.

Thompson also has experience running a CEO search. In 2007, he played the lead role in helping United Parcel Service Inc. select Scott Davis to replace Mike Eskew, a popular 35-year company veteran.

“He’s already cut his eyeteeth on this for UPS,” said Stuart Eizenstat, a former deputy Treasury Secretary and UPS board member. “He was able to touch base with everybody, was able to bring everybody to a consensus we were all satisfied with and it proved to be a terrific choice.”

The son of a Florida postal worker and a teacher, Thompson joined International Business Machines Corp. straight out of Florida A&M University in 1971. The IBM interviewer said he was interested in a stereo, so Thompson spent the session trying to sell him one, Thompson wrote in a New York Times column last year. He wound up with a job as a sales rep for IBM in Tampa.

Technology Career

Thompson likes to tell people he spent “27 years, 9 months and 13 days at IBM” before joining technology-security company Symantec as CEO in 1999. He took the company from $600 million to $6 billion in sales over his decade-long tenure, before stepping down in 2009.

Thompson currently runs Virtual Instruments Inc., a San Jose, California-based maker of software that tracks application and hardware performance. On his second day there he realized the company was out of cash. Now, Thompson said he’s heading for an initial public offering.

It took some convincing to get Thompson to run a startup after a career at big companies. He accepted the job partially because board member Jim Davidson, a managing director at private-equity firm Silver Lake, told him he needed to oversee an IPO.

As Thompson recounted in a July interview, Davidson said, “John, you’ve had a wonderful career. But you’re going to declare yourself a failure if you don’t do an IPO at some point in your life.”

Microsoft Incursion

One thing Thompson has experienced is Microsoft’s aggressiveness. At IBM, he ran the OS/2 operating system business as it lost to Microsoft’s Windows in the 1990s. At Symantec, he fended off Microsoft’s incursion into the antivirus market. Upon joining the board, his friends from the IBM days reminded him of those stories and wondered why he would help his longtime rival.

“This is one of the true iconic companies, not just in tech, but in our country,” Thompson told Microsoft’s Channel 9, from its Skype office in Palo Alto, California. “If there’s an opportunity to serve in some small way to help this company use what I’ve learned over my 42 years in this industry, why wouldn’t I want to do that?”

Thompson doesn’t want the Microsoft CEO job and wouldn’t be leading the search committee if he did, said one of the people with knowledge of the matter.

Large Rolodex

With Thompson off the list, he must look for someone with similar stature. Because of the scope of Microsoft’s challenges, he’ll need someone who can tap the skills and expertise of others, said a person familiar with the situation.

Steve Miller, chairman of American International Group Inc. and a Symantec board member, said Thompson’s rolodex will help him in that quest.

“There’s probably only 10 individuals on the planet who can run Microsoft, given the size of the company and the complexity,” Miller said. “John would know all of them personally.”

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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