Two Words, Microsoft: Succession Planning

When outgoing CEO Steve Ballmer announced his pending retirement in August, investors responded by immediately driving up Microsoft's (NASDAQ: MSFT  ) stock price nearly 8%, leaving little doubt that shareholders thought it was time for a change. At the time, Ballmer said he'd hand over the reins within a year, which seemed like plenty of time to find the right successor.

You'd have thought that Microsoft wouldn't announce such a dramatic change in its executive management team, and by extension the ushering in of an entirely new era, without having some notion of who would be next in line. But with every passing day, it's becoming evident that Microsoft didn't have the first clue of who would succeed Ballmer, or even where the search should begin, and shareholders are beginning to pay the price.

Another one bites the dust
It wasn't long ago the laundry list of names mentioned in Microsoft's CEO discussions seemed endless. When it made the decision to go all in with its shift to becoming a devices and services company by acquiring its partner Nokia's (NYSE: NOK  ) mobile business for a cool $7.2 billion, ex-Microsoft exec Stephen Elop was part of the deal. Naturally, that started the CEO rumor mill churning at warp speed.

But talk of killing off Bing and selling Xbox, along with rumors that Microsoft employees are less than enamored with Elop, have pretty much squelched talk of having the former Nokia leader take the helm. Hopefully, Elop really is out of the running to take over Microsoft; his stint as CEO of Nokia doesn't exactly instill confidence. But he should add value as Microsoft shifts its business focus to devices.

By most accounts, the leading candidate both internally and for investors was Ford CEO and turnaround expert Alan Mulally. The notion of Mulally at the helm of Microsoft, with Elop leading its mobile efforts, certainly had a nice ring to it. But at least for the time being, Ford announced that Mulally would stick around until the end of 2014. With that said, there's still some banter that Ford's board wants more assurances, so Mulally may still be an option: Let's hope so.

More recently, Qualcomm COO Steve Mollenkopf's name was added to the short list of Microsoft CEO possibilities. Turns out that getting associated with the Microsoft talks was good timing for Mollenkopf, as the following day he was named the next CEO of Qualcomm. Outgoing Qualcomm CEO Paul Jacobs wasn't shy about why he sped up the succession process: "The timing is a little faster than we originally planned, but the key thing is to make sure we kept management continuity." Did you hear that, Microsoft?

The problem
There's talk about a few internal candidates for Microsoft's soon-to-be-vacant CEO job, including former Skype CEO Tony Bates and cloud boss Satya Nadella. But the reason for Microsoft's stock increase the day Ballmer announced he was leaving wasn't because investors wanted more of the same. No, along with (finally) focusing on mobile and cloud-related solutions, shareholders want someone who will light a fire under what had become a stagnant company.

Qualcomm's Jacobs hit Microsoft's current CEO search problems on the head when he talked about the need to keep management continuity. That's called "succession planning," something companies large and small recognize is a key aspect of long-term success. So how is it that Microsoft, a company that's on the cusp of growth in exploding markets like mobile and cloud computing, get caught flat-footed?

Final Foolish thoughts
Certainly a decision of this magnitude, particularly with Microsoft in the midst of a company-changing transformation, shouldn't be made hastily. But as we move into 2014, the pressure to find Ballmer's successor is going to ratchet up even more, and Microsoft shareholders will bear the brunt of its CEO-search fiasco.

The angst Microsoft followers are feeling surrounding its CEO search can't be a surprise to Ballmer and its board of directors; they had to know this was coming. Then again, with (apparently) little to no succession plan in place before or after Ballmer's announcement, Microsoft's leadership team may be as baffled as anyone else.

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