1 Key Roadblock in Microsoft's CEO Search

Looking at one of the most critical -- but overlooked -- overhangs in Microsoft's search for its next leader.

Jan 13, 2014 at 12:15PM

On August 23 of last year, Microsoft (NASDAQ:MSFT) CEO Steve Ballmer sent an email to employees titled "Moving On," in which he formally announced he would be retiring from the world's largest software maker within the next 12 months.

Although Microsoft provided no official timetable, early reports claimed Microsoft hoped to finds its next leader by the end of 2013. Fast forward to today, and Microsoft's CEO search remains under way with a number of notable business leaders having excused themselves from the search process along the way.

Msft

Source: Microsoft

Here's one reason why.And while it's certainly for the best that Microsoft doesn't rush through the hiring process, there seems to be a growing sense that the search for its next CEO isn't necessarily progressing as quickly as Microsoft had originally hoped.

Two's a crowd...
As one of the most high-profile technology companies in the world, the role of leading Microsoft would be a dream role for many executives across the business world. And to be sure, Microsoft has interviewed plenty of them -- over 100, according to John Thompson, the Microsoft board member in charge of its search committee. 

So, why hasn't it found the right candidate?

According to recent reporting from several trusted news outlets, Microsoft's board itself is a big problem in the eyes of many candidates. More specifically, the presence of founder and chairman Bill Gates and current CEO Steve Ballmer is what has many would-be interviewees concerned. You see, it's unclear at present the degree of influence that Gates or, especially, Ballmer would have on the board and its oversight of Microsoft's next CEO.

This might seem trivial, but it's an understandably big concern for a prospective candidate, especially considering that the next CEO's first major responsibility will be developing a sensible long-term strategy for Microsoft. Imagine the new CEO concludes Microsoft needs to make a major departure from its strategy and has to sell the changes to a group that includes the person responsible for setting that course originally.

Not exactly the picture of empowerment, is it?

A tall order no matter how you slice it
Whoever ends up inheriting Ballmer's role will have his or her work cut out for them, as Microsoft must forge ahead with no truly attractive option in sight at gaining a firmer foothold in mobile computing. Glancing at Microsoft's various divisions, it quickly becomes evident that the segments that are its most essential financial drivers are also under threat by the companies that dominate mobile.

Segment

Operating Profit

Windows

$9,504

Servers & Tools

$8,164

Online Services

$-1,281

Microsoft Business Division

$16,194

Entertainment & Devices

$848

Source: Microsoft 10-K. Figures in millions, $USD.

With Windows and Office representing such a vital portion of its operating profits, what can Microsoft do to extend both franchises to the new paradigm in computing that is mobile, especially when Apple and Google power the overwhelming majority of mobile devices?

Google gives Android away, and it's open source to OEMs, which largely negates the point of paying Microsoft a licensing fee for Windows. This problematic dynamic is exactly why Microsoft has pushed into producing its own hardware as well, with the Surface and through its Nokia handset acquisition. However, with Microsoft's somewhat limited success in making its own devices, it will probably need to develop a more grandiose plan if real inroads are to be made.

A good CEO is hard to find
By far the most well-known name associated with Microsoft's CEO search was current Ford CEO Alan Mulally.

After previously indicating he was leaning toward staying at the helm of Ford, Mulally recently confirmed that he had withdrawn his name from consideration for the Microsoft top spot. People familiar with Mulally's thinking conveyed that a major factor influencing his decision were the same concerns regarding Microsoft's board cited above.

Rest assured, Microsoft will eventually land a very skilled candidate to help usher the software giant into the post-PC era in a more meaningful way. However, given the problems above, it will truly take a one-of-a-kind leader to overcome all of the problems facing Microsoft, both internal and external.

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Fool contributor Andrew Tonner owns shares of Apple and Ford. The Motley Fool recommends Apple, Ford, and Google. The Motley Fool owns shares of Apple, Ford, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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