Monday, June 22, 2009

No Accountability in The Boardroom

Activists typically target companies for various reasons. There is the natural underperforming company. Numerous companies have fallen within this realm and have subsequently become the target of a hedge fund or a shareholder activist.

Historically, activists have created pressure on companies to effect change. Sometimes the activist has controlled a majority interest within the company. However, occassionally the activist has controlled a minority interest. It is more difficult to lead an activist campaign through controlling a minority interest. It is more difficult but not imposssible. Ironfire Capital through owning less then 100 shares forced change at Yahoo.

Microsoft recently aanounced that a shareholder with 25% of the company shares can call a special meeting. Refer to:

The article makes reference to a comment by John Sethoof, the Deputy Counsel for Microsoft. In the article he states that "the ability for shareholders to call special meetings is important" and "proposing this new policy is our commitment to maintaining strong corporate governance practices".

No offense Mr. Sethoof, but, with the ability to sling crap like that comment you should consider a career in politics.

Lets briefly analyze these comments. The ability for shareholders to call a meeting is important. If it was truly important would the bar be set at 25% of the company?

This naturally leads to the next comment. Setting the New Policy or Standard at 25% of the shares is considered a commitment to maintaining strong corporate governance?

What this new policy is stating is simply this "Here at Microsoft we don't believe in accountability or TRUE Corporate Governance".

Currently, Mr Gates owns less then 25%. Mr. Ballmer owns less then 25%. According to information Mr. Gates owns 8% and Mr. Ballmer owns 4%. Refer to:

The largest institutions such as Capital Research or Fidelity also own less then 25%. According to the above article the largest institutional investor only owns 4%. Therefore, it would require Barclays, Fidelity, Vanguard and numerous other shareholders to call a meeting.

Microsoft shares have displayed a modest increase in value. They are currently trading at approximately $23 per share. This gives Microsoft a market cap of approximately $200 billion. Therefore, what Microsoft is stating is "if as a shareholder you own $50 billion worth of shares then our strong commitment to corporate governance is important".

Now, even if Microsoft drops to former levels of the mid to high teens, the company would still have a market cap of atleast $100 billion. Subsequently, this strong and important commitment requires a shareholder to own atleast $25 billion worth of stock.

To quote Charles Elson of the University of Delaware "It would be impossible to hit that number and that's exactly why they picked it".

Regardless of the fact that Mr. Sethoof states "Its important to the company". Regardless of the fact that "its the company strong commitment to governance". Regardless of the fact that Mr. Sethoof states "its attainable". The reality is that 25% demonstrates that Microsoft set a standard that will never enable a shareholder to hold The SLT or the Board accountable for its decisions.

Once again this demonstrates Mr. Ballmers TRUE attitude towards shareholders. To set a standard at 5% would be realistic and attainable. A 5% stake in Microsoft would still constitute as one of the largest shareholders. Based on the 25% standard this means no mutual fund or hedge fund will ever have the capacity to utilize this "important and strong commitment to corporate governance".

We suggest that all shareholders vote against this provision and demand a more attainable number that would actually place accountability on Ballmer and The Board.

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Wednesday, June 10, 2009

Is Bing What Microsoft Was "Searching" For

Within the past there has been various shifts within the search sector. Consumers have seen the rise and fall of former tech darlings Netscape and AOL. There was a shift to when IE was a popular search engine. Yahoo experienced a period when it was the favorite. Currently, the word Google is synonymous with search. Now, on June 3, 2009 Microsoft has released Bing.

According to a recent article with All Things Digital it states that Microsoft has gained share. Based on data accumulated by comScore, Microsoft has gained approximately 2%. It has increased share from approximately 9% to 11%. Refer to:

However, the primary question is will Microsoft be able to continue to drive share growth?

To achieve the desired results Microsoft is confronted with two fundamental issues. First, the company is required to create attention and drive consumers towards the product. Microsoft has very deep pockets. Reports indicate that the company has committed $100 million to advertising. Refer to:

The company has deep pockets to advertise and gain consumer attention, however, will it be positive or negative attention?

Microsoft through previous campaigns have failed to capture consumers through positive advertising. Consider the Seinfeld and Gates ads. The I Am a PC ads. These campaigns were considered terrible ads. The Gates and Seinfeld ads were according to reports nominated for the worst campaign.

The current Bing commerials and campaign are of the same poor caliber as previous campaigns. They fail to create excitement and a desire to use Bing. Refer to:

The next dilemma confronting Microsoft is the ability to retain attention and consumer loyalty. Microsoft has the ability to advertise and gain attention. However, does it have the ability to retain consumers?

Microsoft has become known for creating poor products. Remember Vista and Zune?

The biggest dilemma confronting Microsoft is if Bing will have the consumer loyalty to surpass Google. It will have to be a superior product that will cause consumers to leave Google and use Bing. Considering Google has over 60% of the market, it can easily be determined that Microsoft and Bing have a tremendous amount of convincing to acheive before Google has to feel threatened.

Hopefully for Microsoft and its shareholders Bing will produce some good results.

Hopefully, Bing will produce the results Microsoft has been searching for now for several years. Bottom line is it is going to take perhaps much more then $100 million in advertising to convince consumers to switch from Google to Bing.

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