Microsoft Signals New Era With Thompson as Chairman

Story by Bloomberg
Written by Dina Bass and Peter Burrows

With Microsoft Corp. (MSFT)’s appointment of John Thompson as chairman to replace co-founder Bill Gates, the world’s largest software maker is looking to the veteran technology executive as the main outside voice in its new leadership structure.

Thompson was the lead independent director heading the board’s search for a new chief executive officer, resulting in the appointment of Microsoft insider Satya Nadella to replace Steve Ballmer, the Redmond, Washington-based company said in a statement today. While the naming of Thompson and Nadella, who were already involved in Microsoft’s transition, signal continuity, it’s also the biggest break in the company’s history as the Gates-Ballmer duo who have been in charge for more than three decades step aside.

The former CEO of Symantec Corp. (SYMC), Thompson, 64, is stepping in at a crucial point as Microsoft remakes itself to better compete with rivals including Apple Inc. (AAPL) and Google Inc. (GOOG) In picking Thompson, the board is betting that he’ll be able to use his experience running a security-software company to help turn around Microsoft.

‘Major Voice’

“Thompson’s going to be a major voice for the company,” James Staten, an analyst at Forrester Research, said in an interview. “They wouldn’t have made him chairman, if he didn’t have strong opinions about how to drive the company forward. And Satya is looking for strong partners on the board.”

In a video that Microsoft posted online, Thompson said he was “looking forward to working closely with Satya and other members of the board. The board is always focused on long-term success of this great company and takes seriously its responsibilities to shareholders to ensure long-term success.”

As Microsoft’s key products face decline, Thompson and Nadella will oversee a transition to a new organizational structure and integrate the $7.2 billion acquisition of Nokia Oyj (NOK1V)’s handset unit. The management transition at Microsoft follows the worst decline on record for personal computers in 2013, when shipments dropped 10 percent and are projected to languish through 2017.

Thompson 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.

Florida Roots

The son of a Florida postal worker and a teacher, Thompson joined International Business Machines Corp. (IBM) straight out of Florida Agricultural and Mechanical 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 in 2012. He wound up with a job as a sales representative for IBM in Tampa, Florida.

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.

After joining Microsoft’s board in February 2012, Thompson was involved in discussions 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.

The Chairmanship

Thompson helped to create an environment that sped Ballmer’s decision to retire, according to people with knowledge of the matter, and the director led the board in pressing the CEO on his strategy. Thompson listened to each board member and made sure Ballmer heard them, improving lines of communication and making strategy talks more productive, the people said.

The new chairman is only Microsoft’s second since the company was founded by Gates and Paul Allen in 1975. Some external candidates who discussed the CEO job with Microsoft expressed concerns they would lack independence if both Ballmer and Gates stayed on as directors, people familiar with their thinking have said. Gates and Ballmer together own 8.3 percent of the stock; Gates is Microsoft’s largest individual shareholder with a 4.3 percent stake.

A new director set to join the board next month is Mason Morfit, president of activist shareholder ValueAct Holdings LP. He’s eager to see Microsoft emphasize its business software and Internet-based cloud services rather than consumer technology, people familiar with the situation have said.

The nine-member board includes seven independent directors. Three of the seven have been on the board for more than eight years, including 33 years for David Marquardt, an early investor in the software maker.