Microsoft CEO Search Rattles Boards From Ford to Ericsson

It wasn’t long after Ericsson AB Chief Executive Officer Hans Vestberg was identified as a contender for the top job at Microsoft Corp. before phones were ringing off the hook at the telecom supplier’s Stockholm offices.

The Jan. 15 revelation was the main topic in at least one hastily convened meeting the next morning, according to a person who attended and isn’t allowed to speak publicly on the matter. A Stockholm-based senior engineer said he scanned headlines first thing that day and was shocked by the news, even as he took pride in the prospect of Vestberg running Microsoft. The candidacy is likely to be discussed at an Ericsson board meeting before the end of the month, another person said.

Vestberg joins a growing list of executives whose staff were jolted by news that their boss is being wooed by another company -- in this case, to succeed Microsoft’s Steve Ballmer. Alan Mulally of Ford Motor Co. and EBay Inc.’s John Donahoe have also been tipped for the job in recent months.

Such exposure can cause frustration in the executive suite and confusion in employee ranks, diverting energy from the day-to-day execution of business. It might result in infighting among deputies seeking to fill a void left by the departing or distracted executive. To board members, it can also seem like their CEO has been double-dealing.

“The process of finding a new CEO at Microsoft is dragging out too long,” said Bill George, a Harvard Business School professor who’s on the boards of Goldman Sachs Group Inc. and Exxon Mobil Corp. “It’s become unseemly to have these candidates exposed without any closure.”

Peter Wootton, a spokesman for Microsoft, and Ola Rembe, a spokesman for Ericsson, declined to comment.

‘Trust Issues’

“When names start showing up in the press, it instantly creates trust issues,” said Ron Lumbra, co-leader of the CEO and board-services practice for the recruiting firm Russell Reynolds Associates in New York.

Other executives who have been the subject of reports they’re in the crosshairs of another company include Hewlett-Packard Co.’s Meg Whitman, Oracle Corp.’s Mark Hurd and Foot Locker Inc. CEO Ken Hicks.

“It’s an awkward and inelegant moment for the CEO,” said Jeff Sonnenfeld, senior associate dean at the Yale School of Management in New Haven, Connecticut. “The relationship is always going to be a little different after that. The board, if they are surprised, might have some trust issues.”

Ford Frustrations

Ford directors were frustrated in December when Mulally’s candidacy at Microsoft distracted from the global debut of the automaker’s redesigned Mustang sports car, according to a person briefed on the matter. Mulally, 68, had said last year that he would remain at Ford at least through 2014.

Less than a week before Ford introduced a redesigned F-150 pickup at the Detroit auto show, Mulally told the Associated Press that he wasn’t going to Microsoft and had “no other plans to do anything other than serve Ford.” Directors urged him to clarify that he was staying at Ford once it became clear he was out of the running at Microsoft, the person said.

Questions over how soon Mulally might leave had created the risk of a return to the executive infighting that characterized the pre-Mulally Ford. He cultivated a more collaborative culture at Ford, which had long been marred by backbiting and dysfunction.

“There was no change from our previously announced plans. Alan remains absolutely focused on continuing to make progress on our One Ford plan,” Ford said in an e-mail.

Getting ‘Crazy’

Even when an offer isn’t forthcoming, the individual revealed as a contender could benefit from the attention. “Being named as a candidate may actually help the executive more than hurt,” said Ron Robertson, a partner in the Ottawa, Canada, office of recruiter Boyden Global Executive Search.

Last month, Qualcomm Inc. announced Chief Operating Officer Steve Mollenkopf will ascend to the CEO job in March, earlier than planned. The announcement came the day after he was identified by Bloomberg News as a possible successor to Ballmer. Current CEO Paul Jacobs said in a Jan. 8. interview in Las Vegas that the disclosure “accelerated” the appointment.

In other cases, an executive’s reputation could be at risk when his or her candidacy is made public before being dropped from the search.

Some boards are looser than others, and if one is serious about keeping the quest quiet it has to limit the search committee to “a very tight group,” said Peter Crist of Crist/Kolder Associates, a search firm in Hinsdale, Illinois.

With leaks becoming more common, some executives rebuff any advances “because of fear their name will be revealed,” Lumbra said. “It’s not a good thing for the quality of the search.”

100 Names

The increasingly public nature of the Microsoft CEO search was another deterrent for Mulally, a person with knowledge of his thinking said. When Ford Executive Chairman Bill Ford was recruiting Mulally from Boeing Co. in 2006, the meetings were discreet, sometimes on a private jet and at Ford’s home near Ann Arbor, Michigan, this person said.

Russell Reynolds’s Lumbra said he’s gone so far as to schedule meetings in neutral third cities, away from anyone who might recognize the person being courted and in hotels where none of the participants has a reservation.

Microsoft lead director John Thompson, who’s heading the search, wrote in a December blog post that the board had narrowed the possible choices from a list of 100.

Soothing Concerns

Oracle co-President Hurd, whose name surfaced in the Microsoft hunt, has said he’s not interested in joining the Redmond, Washington-based software maker, according to a person with knowledge of his thinking. Hurd, 57, was also approached by Blackstone Group LP as a potential CEO for Dell Inc. when it was considering a bid for the personal-computer maker last year, a person with knowledge of the matter said. Deborah Hellinger, a spokeswoman for Oracle, declined to comment.

Vestberg is one of several possible choices under consideration by Microsoft, according to people familiar with the search. The executive, with a background in finance, may not be the best fit to run the world’s largest software maker, according to an Ericsson board member who said Vestberg isn’t likely to depart any time soon.

At EBay Inc. in 2005, when Whitman was CEO, she had to soothe employees’ concerns after she interviewed for the same job at Walt Disney Co. Whitman, 58, withdrew her name from consideration after meeting with her board, an EBay spokesman said at the time. Whitman, who left EBay in 2008, became CEO of Hewlett-Packard in 2011.

Pace Quickening

When activist investor Bill Ackman started a campaign for a new CEO at J.C. Penney Co. in August, Foot Locker’s Hicks, Bon-Ton Stores Inc. chief Brendan Hoffman and Hudson’s Bay Co.’s Bonnie Brooks all emerged as possible hires. The retailer stuck with Mike Ullman, a former CEO who returned to the retailer in April to replace former Apple Inc. executive Ron Johnson.

The rate of chief executive replacements is quickening, adding to the risk of disclosures. U.S. corporations were on track last year to switch CEOs at the fastest pace in five years, as they grapple with shifting customer tastes, competition from upstarts and restive shareholders.

Through the third quarter, 43 companies in the Standard & Poor’s 500 Index were operating with new chiefs, according to Spencer Stuart. That suggests 2013 will surpass the 49 of 2011, the biggest for turnover since 2008.

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