Microsoft's Nadella: Is the Safe Choice the Right Choice?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks look set to cap a volatile week (relative to what investors have grown accustomed to) with another day of losses, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.84% and 1.1%, respectively, at 10:15 a.m. EST. Technology giants Google and Amazon.com are experiencing different fortunes today on the back of their Thursday afternoon earnings releases, respectively up 3.7% and down 7.2%. However, I'd like to focus on another technology stalwart in the headlines this morning, Dow component Microsoft (NASDAQ: MSFT  ) .

Microsoft's Satya Nadella. Source: Microsoft.

It's being reported that Microsoft is close to selecting company insider Satya Nadella to succeed Steve Ballmer as CEO. This would end the uncertainty surrounding the five-month search for Microsoft's next chief, but it may not entirely quell investors' frustration, particularly for those who were looking for a sign of a clean break with the "founders' era."

Ford CEO Alan Mulally, who was thought to be the top external candidate for the job, dropped out of the race earlier this month. According to The Wall Street Journal, Mulally was frustrated with the search process and concerned about serving under/on a board that includes the only other two CEOs the company has ever had (Ballmer and co-founder Bill Gates). Other candidates for Microsoft's top spot have reportedly raised the same concern with the tech giant's directors.

That appears to have had some effect on Microsoft's board, as the nomination of the new CEO may be accompanied by other changes. Bloomberg reported that directors are considering having Microsoft lead independent director John Thompson take Gates' position as board chairman.

I (along with, I suspect, many Microsoft investors) would prefer to see an outsider take over the company at a time when it faces a terrain shift in the technology industry away from PCs toward mobile devices. Still, Nadella, who heads the cloud and enterprise division (formerly named the server division), is arguably the best internal candidate for the job. But "cleaning house" on the board is, in my opinion, the only way this insider will be able to think like an outsider and act freely to alter the course of this supertanker. Anything less and the task of choosing a new CEO will be half-complete.

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  • Report this Comment On January 31, 2014, at 11:23 AM, techy46 wrote:

    Absolutely right choice. Microsoft doesn't need to be invaded by a marketer that places stock appreciation and return of profits to hedge funds in front of enterprise ecosystem growth and stability. Consumers and investors are nothing but a greedy mob of corporate raiders.

  • Report this Comment On January 31, 2014, at 4:31 PM, dshaclinton wrote:

    I have to agree, msft leadership has had a marketer leading it for the past 10 years, placing calculated bets, Alan Mulally would have been more of the same with added latency and potentially more risk averse. But in this business the organizations that are succeeding today are being led by the technologists who move ahead of the trends. Meanwhile, what hedge funds prefer is the specter of positive unpredictability and keeping the idea of selling off businesses units as a short term benefit to them while it reduces the capabilities for the long term. Don't believe the stock pickers, they have one single short term motivation - stock price.

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