Gates and Ballmer Speak Out

Microsoft's two top executives talk frankly about Bill Gates' decision to step away from the company and what it will mean for CEO Steven Ballmer

Business historians may look back at June 15, 2006, as a landmark day. That was when William H. Gates III, the most iconic business figure of this era, announced that in two years he'd step away from his day-to-day duties at Microsoft to focus his efforts on his philanthropy.

But for Gates, it was really just a long day, full of emotion. He had been pondering the move for nearly two years and shared his thinking with only a handful of very close confidants. One of them, Microsoft (MSFT) Chief Executive Officer Steven Ballmer, helped Gates think through the decision. And when Gates moves on, Ballmer will become only the standard bearer for a company that has become synonymous with Gates. Near the end of the day, the two executives chatted with BusinessWeek Seattle Bureau Chief Jay Greene about the move. An edited transcript of their conversation follows.

Has it been an emotional day?

Gates: There's a lot of emotion associated with a day where we look at what we've achieved, the team we've built, the work Steve and I have done together. A few days from now we'll get back to work with this new priority of doing a great transition. And two years from now, again, we'll have a milestone that lets us look back. And that will be pretty emotional too, maybe even more emotional than this was, because really this was just announcing the change.

What do you think your legacy is?

Gates: Well, I don't like to think in those terms. Microsoft will do far more in the years ahead than it's done in the past. I think Steve and are often most proud of the people we brought in, and the way they've been developed. We're most proud of the software that we've gone after is about personal empowerment. And we created an ecosystem where our partners in total are actually way bigger and getting more of the opportunity out there than we are in creating it. That's been super-good for us.

How do you think the company will change without your being here?

Gates: The company is always changing. Since 2000, when Steve took over, this company has more than doubled in size. So creating the processes and letting lots of people to step up and do things—getting beyond the myth of one person doing a high percentage of the things—we deal with reality every day. That's been the incredible success over these last six years. It's let us double our sales, double our profits. Investing in things like real-time communications, Xbox, IPTV, phones, the research group, stronger and broader than ever. So we're always changing. And the fact that my involvement in the company will be a bit different two years from now; that just underscores this theme about drawing out more people.

Ballmer: We're always working to evolve and improve. The thing that's amazing about Microsoft vs. I'd say any other technology company, in some senses is that we are multidimensional. Most companies do one thing. They do it really well. But rarely do you find companies in two different areas. We started on the desktop, with personal empowerment, and we got into the enterprise with our server business. And I think we are well down the road of getting into the consumer and entertainment business with Xbox.

We're at least a two-trick pony. Maybe you'll see us as a three- and four- and five-trick pony. Whatever people thought of the old days, how things went to Bill or to me on the business side, it really requires more delegated authority.

It's hard to imagine another company that has a leader as iconic as you. There is this "cult of Bill here," and this sense that so much needs to go through you. Do you think your departure will open things up for new ideas to emerge?

Gates: It will open up for people to recognize the number of great technical people that are in the company. Maybe that will show through all the more. That's been the reality for a long time. The notion that things have to come through me just goes back to people just not understanding how things really work here. There's an incredible number of people making autonomous decisions.

Ballmer: It's not like anybody is saying, "Oh, isn't this a great day." On the other hand, it's not a bad day. You have a lot guys who say, "Hey, this is a chance for me to do even more, for me to step up. The company needs us all." We all know, it's quite clear to us, our jobs are to continue to step up in many ways. And I think that's energizing to people.

So how does your job change?

Ballmer: I'm not going to pretend to be a 10-year visionary for the future. But I do intend to be the No. 1 champion of innovation and swinging for the fences and the breadth and depth of what we do in the company. There will be a lot of people who shape it. But I've got to make sure we have an environment here that lets them achieve those things and gives them the support and long-term commitment that lets us get to critical mass. I do think my job changes. I'm not saying I didn't do those things. I did. But the importance of my being a significant force on that basically accelerates, starting today.

As part of this exercise, I went through my calendar and planning and said, "O.K., how will my life be different? How will I spend my time differently?" I expect a lot more of my time on a percentage basis will be on the innovation front. People need support for what their doing. When it comes time to say, "Hey, we're taking a long-term interest in this, we're going to fund it, we're going to make sure it gets assigned the best people we can possibly find, we're going to stretch."

I've been able to turn to Bill—and I can for the next two years full-time—and say, "What do you think?" We've been co-leaders. I think the organization will want to know that the guy who is the leader really stands behind this. Because that's why I know we'll be successful. We'll have market impact. People don't just want to innovate. They want to innovate with impact.

Tell me how you told Steve about the change.

Gates: By the time we got to the real decision, which was this Tuesday, he and I had been talking for almost two years about the possibility that I'd want to shift my time priorities. And could that be done in a way that wouldn't hurt Microsoft? Microsoft would charge ahead full speed, and I could have a very strong ongoing connection with the company, including staying as chairman.

Those discussions started in the second half of 2004 and went on during 2005. In a March [2006] board meeting, I said I was getting close to a decision, and by mid-June I'd make that decision. So we knew we really needed to be prepared for it because it was a real possibility. Tuesday morning we had the board call.

Once Steve and I talked about, "Hey do I really want to do this? Was I serious about it?" in the first few meetings, then he really started to think about what is it that I do uniquely and how do we break those roles down? He'd come into my office and write them up on the board. Then I would go through my mail, go through my calendar, and think about these things. Steve had something on there called "expansionistic thinking," really seeing something out there that doesn't look big today. And it might not be obvious who should pick up that opportunity. And he put his name next to that, which I thought was brilliant.

Ballmer: And that really means nurturing. Bill is such a strong force on expansionistic thinking. It's never been quiet on that front.

When Bill told you he was thinking about doing this, did you have an "Oh, my God" kind of moment?

Ballmer: When Bill first talked to me about the possibility, I was mostly quiet. I knew if Bill was talking with me about it, it was an interesting thing. I tried to be a good partner and friend in terms of helping him think through if it would make good sense for him.

I went on vacation right after Bill first talked to me, and said, "What does this really mean if Bill chooses to go this way? What does it really mean for the company?" I wound up saying, "Yeah, I see how we can make this work." It wouldn't have been my preferred path to being thinking about this on this vacation. But as point of fact I came back and said, "O.K., the next discussion I have with Bill should really be more about testing out with him if he'll be really happy."

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