Linked by David Adams on Fri 13th May 2011 04:54 UTC
Microsoft In business school the first thing they teach you about CEOs is: it is the CEO’s job to increase the shareholder value of the company. Since taking the position Ballmer has decreased shareholder value, as reflected by stock price, by -56.63%. That. Is. Not. Good . . . Microsoft should be searching for a new CEO right now.
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I beg to differ
by wirespot on Fri 13th May 2011 07:47 UTC
wirespot
Member since:
2006-06-21

[...]it is the CEO's job to increase the shareholder value of the company.


No, it's not. Share value is an extremely narrow, short term, and often misleading criteria on which to value a CEO.

To all the armchair critics, I recommend reading a couple of posts from Ben Horowitz (of Andreessen-Horowitz venture capital firm) about how they go about valuing a CEO. They're written in an accessible language and will help you understand more about the factors at play:
http://bhorowitz.com/2010/05/30/how-andreessen-horowitz-evaluates-c...
http://bhorowitz.com/2010/04/28/why-we-prefer-founding-ceos/

From one of those posts:
[...]innovations are product cycles. Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles. Our experience shows--and the data supports--that teaching a founding CEO how to maximize the product cycle is easier than teaching the professional CEO how to find the new product cycle.


It's debatable whether Ballmer can be considered a "founding CEO" in Horowitz's acceptance ie. capable of breaking new ground in technology. But that doesn't make him a bad CEO. Strictly from a shareholder point of view, Ballmer is doing an excellent job, by optimizing Microsoft processes and adapting as best as possible to the shifting technological landscape. Simply put, he's holding the fort.

A side note: the linked article calls the Skype aquisition "the final nail" in the coffin. It may be exactly the contrary, a sign that Ballmer has figured a new product cycles, or that he's listening to the right people (disclaimer: Horowitz is the recipient of the $8.5B):
http://bhorowitz.com/2011/05/10/microsoft-buys-skype/

It's understandable that shareholders want the kind of revolutionary jump in profits that Google or Apple are demostrating. But it would come with huge risks, any technological breakthrough is an insane bet in the beginning. Some of them don't work out. Are shareholders willing to take those risks, or do they prefer Microsoft share price to trot steadily along with NASDAQ for another decade?

Since Ballmer is still CEO, I think we already have our answer. The only way Ballmer will be replaced is if someone were to get share majority and turn the company around by force. Likely? I think not:
http://finance.yahoo.com/q/mh?s=MSFT+Major+Holders
http://finance.yahoo.com/q/ks?s=msft
(To put figures in perspective: there's 8.43B outstanding MSFT shares, 7.44B in float, of which the largest holder, Bill Gates, has 580M ie. ~6.88%, and they're spread among ~1800 institutions, none of which have more than 3.6% individually. Microsoft is a very "public" company, very much its own animal. Good luck to anybody attempting to force a CEO and strategy change on it.)

Reply Score: 4

RE: I beg to differ
by tylerdurden on Fri 13th May 2011 08:19 in reply to "I beg to differ"
tylerdurden Member since:
2009-03-17

No, it's not. Share value is an extremely narrow, short term, and often misleading criteria on which to value a CEO.


Actually it is the only criteria to value a CEO of a publicly traded corporation.

Welcome to the wonderful world of corporate stock market capitalism.

Reply Parent Score: 3

RE[2]: I beg to differ
by wirespot on Fri 13th May 2011 08:43 in reply to "RE: I beg to differ"
wirespot Member since:
2006-06-21

Say a CEO makes the share value (or margins) of his company inflate artificially (for the short term, of course). In doing so, he sacrifices important assets and damages the company's prospects for the long term. Is that a good CEO? Is that what Ballmer should do?

PS: Please add arguments to your statements and/or links to resources that do that. I've done my research and documented my point above; where's yours? Alternatively, if you have better credentials than Horowitz and your opinion alone is valuable on its own, please provide them.

Reply Parent Score: 3