Microsoft CEO Pick Leaves Losers Grappling With Fallout

Now that there’s a winner for the chief executive officer position at Microsoft Corp. (MSFT), those who lost out on the job will need to decide whether to stick around.

With Microsoft’s board disclosing today that it picked Satya Nadella as CEO, that leaves internal candidates such as Executive Vice President Tony Bates and Chief Operating Officer Kevin Turner among those who failed to get promoted, people with knowledge of the search have said. Stephen Elop, the former CEO of Nokia Oyj who was set to join the software maker after it closes a $7.2 billion deal for Nokia’s handset unit, was also on the shortlist, among others.

While there’s no telling how long some executives might stick around were a better offer to come along, the conclusion to Microsoft’s search may not spark an immediate exodus, said people with knowledge of the matter. The CEO candidates were informed that they didn’t get the role last week, said people familiar with the matter, who asked not to be identified because the information is private, giving the executives time to work out some next steps.

Turner plans to stay at the Redmond, Washington-based company, said a person close to the COO. And while Bates and Elop both have ambitions to be CEO, they are also set to continue at Microsoft for the time being since success in their current jobs may be the best way to attract other offers, said people close to the executives, who asked not to be identified because the information is private.

Photographer: VIEW/Demotix/Corbis

Microsoft Corporation Chief Operating Officer Kevin Turner, right, speaks to customers during the opening of Microsoft's store at Times Square in this Oct. 25, 2012 file photo in New York City. Close

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Photographer: VIEW/Demotix/Corbis

Microsoft Corporation Chief Operating Officer Kevin Turner, right, speaks to customers during the opening of Microsoft's store at Times Square in this Oct. 25, 2012 file photo in New York City.

Monetary Incentives

Some of them have other incentives to remain. Elop will make roughly $25 million if he stays at Microsoft for 18 months, as per Microsoft’s acquisition agreement with Nokia. Turner holds 1.4 million Microsoft shares while Bates has 601,777, according to data compiled by Bloomberg.

By choosing Nadella -- a 22-year Microsoft veteran -- as CEO, executives can also anticipate relative stability in their roles, said James Staten, an analyst at Forrester Research in Cambridge, Massachusetts. If Nadella wants to make changes, they should come relatively quickly as he knows Microsoft’s executives well.

“He’s already formed opinions about the people who will now be working for him,” said Staten.

Elop and Bates didn’t return requests for comment. Peter Wootton, a spokesman for Microsoft, declined to comment or make any of the executives available.

In Demand

Even if there are no immediate departures, some of the candidates have been in demand for other jobs before. Bates, who was formerly at Cisco Systems Inc. and ran the Skype unit at Microsoft, was considered for the CEO post at Intel Corp. before the chipmaker named Brian Krzanich to the post last May, said people familiar with that search.

Source: Microsoft Corp.

Satya Nadella, chief executive officer of Microsoft Corp., is seen in this undated handout photo released to the media by the company. Close

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Source: Microsoft Corp.

Satya Nadella, chief executive officer of Microsoft Corp., is seen in this undated handout photo released to the media by the company.

“I could see Tony leaving,” said Matthew Hedberg, an analyst at RBC Capital Markets. “He’s not a lifer at the company like some of the others.”

Chuck Mulloy, a spokesman for Intel, declined to comment.

After three years as CEO of Nokia, Elop will probably also eventually consider CEO options that come his way, said a person close to him.

That Nadella may initially have some stability in the executive ranks may be a boon as Microsoft shifts away from software to focus on computing devices and cloud services. Microsoft has been struggling to catch up with rivals including Apple Inc. and Google Inc. in mobile as consumers gravitate away from using its software on personal computers.

Last month, Microsoft posted record fiscal second-quarter sales that exceeded analysts’ estimates. Results were helped by strong sales of the Xbox game console and cloud services.

“The quarterly results, despite the horrible market, are a tremendous reaffirmation of the present leadership,” said Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management. The lack of an exodus “is a healthy thing.”

To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net; 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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