Is it Game Over for Microsoft?

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It’s 2014 and Microsoft Corporation (NASDAQ:MSFT) still has a “Now Hiring” sign in its window.

On Aug 23, 2013, Microsoft announced that CEO Steve Ballmer would retire in the next 12 months after nearly 14 years as CEO.

When I was in college in the 1990s, there was only one company everyone on campus wanted to work for and it was Microsoft.

It was daring and cutting edge and its then-CEO and founder, Bill Gates, was on the cover of every magazine.

But to get to Redmond, you had to first pass the on-campus Microsoft interview, which was notorious for asking brain teaser type questions. Microsoft added to its cool quotient by asking these questions.

The questions were puzzles. Who could forget these two infamous ones:

“How would you move Mount Fuji?”

“Why is a manhole cover round?”

This type of questioning was supposed to allow Microsoft to hire only the best, most creative type of employees. It also was supposed to weed out those who could respond well under pressure.

Microsoft didn’t just hire smart people, it hired those who could think outside the box.

Yet over 20-years later, when some of those 1990s hires would have risen through the ranks and should clearly be in leadership positions, not a single one of these best and brightest who passed that test and got a job at Microsoft is apparently capable of leading the company.

Jim Collins, the best selling author of Built to Last and Good to Great, has spent decades researching what makes companies stand out from the pack.

One of the key components is to grow your talent from the inside, especially senior management.

From “Building Companies to Last“:

“In more than 1,700 years of combined history, we found only four cases in our visionary companies in which an outsider was hired as chief executive- and that in only 2 of the 18 companies! In contrast, our less successful comparison companies were six times more likely to go outside for a CEO. Our findings simply do not support the widely held belief that companies should hire outsiders to stimulate change and progress.

Indeed, as great companies grow up, we see continuity and order in management tenure and succession. Insiders preserve the core values, understanding them on a gut level in a way that outsiders usually cannot. Yet insiders can also be change agents, building on the core values while moving the company in exciting new directions.”

Any insider candidate should have been on the short list at Microsoft, yet no insider candidate has been put forward.

Additionally, Microsoft should have been prepared for the transition from Ballmer to a new CEO for months. It’s not like the announcement came out suddenly due to death or illness.

Is Microsoft’s lack of succession planning, and apparent lack of any leaders in the upper ranks of management at all, a sign of even bigger problems?

Should shareholders beware?


MICROSOFT CORP (MSFT): Free Stock Analysis Report

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