Monday, April 6, 2009

Letter to the Board

In this post we are going to simply post a copy of the letter we have forwarded to Microsoft's Board of Directors.

Attention: Board Of Directors

Events have fatally undermined investor confidence in Microsoft (MSFT) CEO Steve Ballmer. With Microsoft share price now down in 5 months, and stagnant for a deacde, we call upon the MSFT Board of Directors to immediately seek the resignation of CEO Mr. Ballmer. Absent prompt action to remove Mr. Ballmer, we will have no choice but to call upon MSFT shareholders to join us at MSFT upcoming annual meeting in voting against Mr. Ballmer, and the Board of Directors which is responsible for CEO succession.

According to the Microsoft website the Board of Directors “oversees the company's business affairs and integrity, works with management to determine the company's mission and long-term strategy, performs the annual CEO evaluation, oversees CEO succession planning, oversees internal controls over financial reporting, and assesses company risks and strategies for risk mitigation”.

Based on the above definition the Board has failed to deliver on its mandate. The company has failed to display a long-term strategy and based on Mr. Ballmer’s decisions during his tenure the Board has failed in correctly evaluating the CEO and pursuing a succession plan.

It has been communicated by reporters, analysts and Microsoft employees that Mr. Ballmer is required to resign. It is the fundamental responsibility of the Board to ensure that it acts within the best interest of shareholders.

During Mr. Ballmer’s tenure an acquisition of Yahoo was pursued. Mr. Ballmer pursued a 65%premium bid for Yahoo valued at $45 billion. An analyst with Goldman Sachs stated this was the stupidest move in the company history. According to a recent report the company commands only 8% of the search sector. This is despite massive spending with acquisitions and R&D.

The largest dilemma with the Yahoo bid decision was the lack of strategy and correct communication. During a meeting with analysts Mr. Ballmer when confronted with acquiring Yahoo stated that Microsoft prefers organic growth. Less than one year after this statement Mr. Ballmer pursues a Board approved 65% premium bid for Yahoo.

Microsoft has engaged in massive R&D spending. Pacific Crest Securities analyst Mr. Barnicle states that Microsoft is required to examine its R&D spending. Despite the massive expenditure the company fails to be innovative. Microsoft mobile, and MSN are all failing within their respective sectors.

Mr. Ballmer during his tenure deployed $40 billion towards share buybacks. Despite this massive expenditure the shares have remained flat. The most disconcerting event with this failed expenditure is the announcement by Mr. Ballmer that Microsoft intends to deploy an additional $40 billion through to 2013 on share buybacks.

During Mr. Ballmer’s tenure the company shares have remained flat and stagnant for a long-term period of approximately eight years. In 2004, at a shareholder meeting when confronted with a stagnant share price Mr. Ballmer indicated that the company had plans and subsequently the shares would take care of itself. Despite this statement and Mr. Ballmer’s plans, the shares have continued to remain flat and fail to create shareholder value. During Mr. Ballmer’s tenure Microsoft has lost $300 billion in shareholder value.

During Mr. Ballmer’s tenure he has presided over massive spending, poor decisions, poor execution of plans, failed to communicate strategy to shareholders and employees, has failed to create shareholder value and is responsible for Microsoft losing $300 billion in market value. This subsequently leads to a no-confidence with Mr. Ballmer.

While we believe shareholders are entitled to a full explanation of what the board knew, when it knew it, and whether it approved of Mr. Ballmer’s disastrous decisions, it is more important in our view that the board do what is necessary to restore investor confidence. Removing Mr. Ballmer as CEO is necessary first step in this challenging process.

According to a recent poll of Microsoft employees conducted by GlassDoor, only 44% of the company employees approve of Mr. Ballmer. A review of the blogs Mini-Microsoft and MSFTextreme will aptly demonstrate the resignation of Mr. Ballmer is required for the future success of the company.

Corporate governance at Microsoft serves several purposes:

•To establish and preserve management accountability to Microsoft's owners by appropriately distributing rights and responsibilities among Microsoft Board members, managers, and shareholders.

•To provide a structure through which management and the Board set objectives and monitor performance.

•To strengthen and safeguard our culture of business integrity and responsible business practices.

•To encourage the efficient use of resources, and to require accountability for stewardship of those resources.

The campaign has obtained feedback from Microsoft employees. The primary consensus of employees is that Mr. Ballmer is required to resign. The campaign obtained this comment from a Microsoft employee.

"The elephant in the boardroom is Ballmer's relationship with Gates. Ballmer is the best friend and college buddy of the founder, chairman and biggest shareholder of the company. Ballmer probably can't be fired unless Gates wants him to be fired. And Gates is a loyal friend. Ballmer is also a board member and major shareholder, with 4 percent of the company (Bill Gates himself owns less than 10 percent). It's an unhealthy situation for Microsoft and its shareholders."

Regardless of the fact that Mr. Gates and Mr. Ballmer are friends, Microsoft is a business. Subsequently, the most significant word within the above statement is the word “Boardroom”. It is a boardroom that is required to act within the best interest of its shareholders. Numerous shareholders are demanding the resignation of Mr. Ballmer. During his tenure the shares have remained stagnant.

Based on the detailed duties of the Board of Directors it seems evident that it has failed to execute effectively in respect to its duties. Shareholders have witnessed a tremendous loss in value and the shares have remained stagnant. The current management has failed to set objectives, realistically monitor performance and engage in efficient use of its resources. Therefore, this results in the immediate and necessary resignation of Mr. Ballmer. Failure to encourage his resignation will therefore result in the current Board of Directors being held accountable for failing to act in the interest of Microsoft shareholders and its employees.

To offer support in the form of shares for voting contact

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