All Hail Steve Ballmer

There may be no company that brings up more extreme emotions than Microsoft (Nasdaq: MSFT  ) . The Apple (Nasdaq: AAPL  ) people cringe. Oracle (Nasdaq: ORCL  ) seethes. The EU starts to salivate. When a video clip of Steve Ballmer dancing around and hollering at a company event began to race around the Internet in 2002 (yeah, you know the one), the pleasure people felt watching it wasn't just because a pudgy guy looked a little ridiculous; they liked it because it was a pudgy Microsoft guy who looked ridiculous. Schadenfreude, pure and simple.

But for whatever competitive fear Microsoft strikes in the hearts of competitors, whatever bullying tactics it uses to cow regulators, suppliers, legislators, church choirs, or whatever else, Microsoft is a leader. Microsoft's actions provide plenty of cover for other companies. Big stock options packages? Microsoft paved the way. Hoarding cash? Microsoft could buy a small island out of its checking account. Like Maui.*

Many point to Microsoft's cash and state that it gives the company plenty of options. But as we've pointed out many times before, corporate cash isn't company money: it's shareholder money. If the company doesn't have a good use for that money, it should return it to shareholders in one form or another. The cashmongers like Microsoft and Cisco (Nasdaq: CSCO  ) aren't really doing their shareholders any favors by keeping umpteen billions of scratch lying around idle. These aren't investment companies.

Yesterday Microsoft CEO Ballmer released an open letter to employees noting that the company would be undertaking a $1 billion cost-cutting program, eliminating some employee benefits and changing how it sourced other things. The reality is that the company's expenses had grown over the last three years faster than its income, and Ballmer has elected to address cost issues now while the company can do them leisurely rather than waiting for a crisis.

Naturally, some employees grumble about the loss of some vaunted perks. However, it is unlikely that Microsoft's lack of stock price appreciation is lost on many of them. Hot towels in the company gymnasiums are nice. The rising stock price associated with a firmer bottom line and more cash generation is better.

Ballmer noted in the letter that some employees had suggested the company dip into its $56 billion to keep certain perks. Ballmer rejected this, noting that this money should go to the benefit of shareholders, stating, "we need to either invest in new opportunities or return it to them." The company is expected to announce within the month a plan to do the latter, through an increased dividend or a special disbursement, share buyback, or combination.

This is great. For while the special interest of employees is to spend a little more to keep things as they were, the interest of all Microsoft shareholders, including those employees, is for the company to generate extraordinary amounts of cash and to do the best thing it possibly can with that money. This doesn't mean shareholders should expect Microsoft employees to prepare for a Spartan existence: the benefits in Redmond remain exceptional, and are compensation for hard, profitable work. The key word, though, is profitable. Steve Ballmer recognizes his company is in business to make a profit, and if adjustments must be made to maximize its ability to do so, he's gonna.

I hope to see other companies that are treating their cash assets in less than ideal fashion follow Microsoft's lead.

* Yes, I am aware Microsoft couldn't actually afford Maui.

Bill Mann owns none of the companies mentioned in this story. It looks like a payoff is in store for Microsoft shareholders. Want to know what other companies generate cash for their owners? Try a free trial ofMathew Emmert's Income Investor.

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