The experience of other CEOs who have hung around as directors of the company they once led has often not been happy. They invariably wish they were still running the show, and are perceived as either obstructing the new CEO, or attempting to second guess them, however much they may be trying to help.
But the principle of not cramping the new CEO by surrounding them with former CEOs has to be balanced with the unique knowledge and clout former executives might contribute. This is why it is likely Gates will continue as Chair for some time yet.
Another problem for Microsoft’s incoming CEO will be activist hedge funds demanding dividends and share buybacks, just as Apple has had to contend with in the last year.
With a US$2 billion investment in Microsoft, hedge fund ValueAct has placed its president, G. Mason Morfit, on the company’s board, where he is expected to strenuously press his views.
Carl Icahn’s insistence that Apple buy back US$150 billion of shares in 2014 would have seen the company’s accumulated cash pile wiped out.
Later, Icahn reduced his demands to a US$50 billion buyback. Apple had already committed to a US$100 billion buyback and dividend program following earlier hedge fund activism.
An enormous buyback that some hedge funds insist on would not help Microsoft. Rather, it would eliminate any realistic possibility of the company making strategic acquisitions, developing new technologies, or engaging in radical new product or market development.
According to Bill Lazonick, in the 13 years to 2010, US S&P 500 companies returned US$2.7 trillion dollars to shareholders through share buybacks, an average of US$6.5 billion per company. They distributed a total of US$2 trillion in dividends, an average of US$4.8 billion per company. This puts shareholder interests before the interests of employees, customers and the future success of the company.
That after a timid dance, the CEO of Apple Tim Cook is now standing up to Icahn and the hedge funds is heartening.
But the question remains: will the incoming CEO of Microsoft have the intelligence, energy and determination to turn the company around and restore its glory days of innovation and excitement? Or will they simply transition what is often perceived as an outdated company bereft of inspiration into a cash cow for the stock market to milk into extinction?
Thomas Clarke is Professor of Management and Director of the Key University Research Centre for Corporate Governance at the University of Technology, Sydney.
This article was originally published at The Conversation. Read the original article.
