The CEO Change That's Needed Now

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The tech world is in upheaval right now: Steve Jobs is taking a (permanent?) vacation from running Apple (Nasdaq: AAPL  ) and Eric Schmidt is stepping down as CEO of Google (Nasdaq: GOOG  ) . Nokia (NYSE: NOK  ) snagged a new leader out of Redmond, and you know all about the game of corporate musical chairs that Mark Hurd and others played around Hewlett-Packard (NYSE: HPQ  ) and Oracle (Nasdaq: ORCL  ) last summer. Even little Advanced Micro Devices (NYSE: AMD  ) is getting in on the action by kicking out the best leader it's had since Jerry Sanders III. There are serious changes going on at the top of some of the largest and most important tech shops in the world.

But the one leadership change that would do the most good is nowhere in sight.

Change where it's needed most
Steve Ballmer is still firmly attached to the throne at Microsoft (Nasdaq: MSFT  ) , and I can't think of a single upheaval that would do more good for shareholders than replacing Ballmer as soon as possible.

Why, pray tell, am I so down on Redmond's anointed leader? Let me count the ways:

  • A great leader should be able to improve the business, but Ballmer's reign has taken Microsoft in the opposite direction. Despite having several cash-cow franchises such as Office and Windows generating massive amounts of income to fund new innovations, Microsoft has lost out on almost all the new technology gold rushes of the past decade.
  • During that span, Microsoft has seen some of its biggest successes (Windows XP) but also plenty of half-baked failures that seemed like rush jobs (Zune, Vista). There was a strong comeback with Windows 7, which actually looks a lot like a Vista service pack, or what Vista should have been to begin with. That only proves my point: Rushing never helps.
  • The company is bleeding talent. It's not because Google or Nokia or anyone else is necessarily looking for Microsoft's finest minds, but because Ballmer is actively getting rid of them. I don't know the complete back stories to the departures of Stephen Elop, Kevin Johnson, J Allard, Robbie Bach, or Bob Muglia, but it's starting to smell like Steve is getting rid of anyone who might question his authority or pose a challenge as a CEO candidate. It's not pretty.
  • All of this might be forgivable if only Ballmer would accept his failures with some humility. But no, the man clearly believes he's a rock star and perhaps invincible. He's known for dismissing serious competitors like Apple and Google, tossing office chairs across the room, and opening keynote speeches with YouTube-worthy chanting and dancing sessions. Would Bill Gates ever be caught dead doing any of these things? How about Steve Jobs? Those guys are rock stars of business and technology, but they don't have to act like it. And ignoring competition is the surest way to get run out of business, as Blockbuster learned the hard way.

Grab the Ballmer by the horns
Ballmer is supposed to be a great salesman, and few Microsofties have been around the company longer than he has. But those qualities aren't enough to make up for rampant arrogance, technical and business blind spots, and a general lack of vision.

I'm not the first Fool to say that Steve Ballmer needs to go, and I have a feeling I won't be the last. But the longer time drags on, the deeper Redmond becomes mired in Ballmer's shortcomings. Whoever might step in to take the reins next will have an increasingly messy and difficult job to clean up the fallout from the past decade (and counting), making it ever more unlikely that an actual suitable successor would feel inclined to meet the challenge.

Bill Gates is still the chairman of Microsoft's board, which ain't stacked with dummies. It would be in their best interest -- and shareholders' -- to make a difficult decision and send Ballmer out to pasture. But will they do it? I'm not holding my breath.

Want to read more about Microsoft? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Anders Bylund owns shares of Google and AMD but holds no other position in any of the companies discussed here. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor recommendation. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (8) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2011, at 4:14 PM, ddentino wrote:

    To comment about Ballmer and to be respectful would be impossible. Get him outa there!

  • Report this Comment On January 29, 2011, at 7:53 PM, techy46 wrote:

    I disagree. Microsoft, guided by Steve Balmer, has done an outstanding job moving their enterprise software architecture forward to the top of the stack while continuing their absolute superiority in desktop, laptops and servers. Meanwhile they have made two missteps in consumer technology, which isn't really their marketplace, in misreading the adoption of low performace and low wattage processors ARM/QCOM) in smart phones and tablets. Apple is a consumer "gadget" enterprise while Microsoft is an business software enterprise. It is much better that Microsoft has protected their home turf while Apple has innovated the consumer space. The smart phone and tablet space, although hyped and sexy, is NOT the ultimate prize. That space will evolve towards increased functionality and processor complexity and come to Intel and Microsoft over the next two years while Apple struggles with decrasing margins and increasing competition. A full fleged Acer Netbook, Atom dual core, 1mb mem, 160 Gb drive, 10" screen with a full list of options for $248 at Walmart right next to a diskless iPad for $500. You're totally wrong in trying to push Microsoft into the social media race just because it make good press.

  • Report this Comment On January 29, 2011, at 9:14 PM, daveshouston wrote:

    Take a close look at this chart.

    Here is a plot of Microsoft’s stock price from the beginning.

    Ballmer took over in the year 2000.

    Rather dramatic to compare before Ballmer's reign began in 2000 vs. after 2000 when he was in charge.

  • Report this Comment On January 29, 2011, at 9:24 PM, daveshouston wrote:

    Like many hi-tech companies, Microsoft has long had a program for rewarding outstanding employees with stock options.

    Prior to 2000 there were many Microsoft millionaires who made it big on stock options. In effect, Bill Gates was able to pay lavishly with other people's money. Salaries were low and stock options were high. No one complained because the stock seemed to only go up.

    When an employee receives a stock option award the strike price is today's market price and he or she must hold it for a period of time until it vests (usually several years). If the stock goes up in price the employee can exercise the option to buy the stock at yesterday's price and then sell it at today's price.

    Microsoft employees made tons of money on option grants in the 1990's. The 2000's have belonged to Apple and Google employees. Microsoft employees have the options but they're going nowhere. That's probably the biggest reason why key employee's have been bailing out (along with a lack of confidence in the company's direction).

  • Report this Comment On January 29, 2011, at 9:45 PM, techy46 wrote:

    Microsoft and the US Dept of Justice reached a settlement at the end of 2001 of an anti-trust case begun in 1997, that required Microsoft to devulge proprietary IP. That settlement was set to expire at the end of 2007 but was extended 2 more years. It was that case and the resulting pursuit of Enterprise computing rather than consumer electronics that handicapped Microsoft for the years from 2001-2009 and the ensuing EU cases against them haven't helped much either.

  • Report this Comment On January 30, 2011, at 7:06 AM, AtlantaXX wrote:

    techy46 is as blind as Ballmer. Everything you said echoes the arrogance, lack of vision, and shortsightedness that has gotten MSFT into this mess. Who cares if I can get an Acer for $268 - it doesn't do anything I need it to do as efficiently, easily, or simply as an iPad. Do we need to mention battery life? That's worth an extra $250+. That's what Microsoft never gets - the operating system is meaningless to a user. The iPad takes the OS and moves it to the background - all you get is the ability to do things. Do them easily. Do them all day long. And if you think the consumer space is separate from the business space, then you are guilty of Microsoft's second biggest mistake. In today's world, the line between the two is all but gone from a users perspective. When someone gets an iPhone, their next question is usually "how do I get my work email on here?" When they get an iPad, the first thing they usually say is "Wow, I want this for work so I don't have to travel with that bulky battery eating laptop." Don't you get it? Microsoft makes nothing more than bloated software that makes no sense in today world.

  • Report this Comment On January 30, 2011, at 10:07 AM, daveshouston wrote:

    @ techy46 - please take a look at this graphic

    The iPad is arguably the most important introduction since the PC. Businesses are snapping it up just as fast as consumers. Almost every employee who moves around needs a 3G equipped iPad (eg: industrial salesman, doctor in the hospital, truck driver, appraiser, realtor, etc.).

    Visualize where your Acer netbook would reside if added to the graphic.

  • Report this Comment On January 30, 2011, at 1:11 PM, 123Ready wrote:

    It's not just at the top of the MSFT organization where you see departures. Many of the front level employees are either leaving or being targeted for "proactive" attrition...which, in my estimation, should be illegal in most cases under the guise of harassment policies.

    I'm hearing from insiders that many employees are quite stunned at how their direct line management is suddenly focusing on personal behaviors as their primary MO, rather than fostering an environment of productivity, challenge, and opportunity for personal career growth and, notwithstanding, the future of the business (vision).

    If this is the case, only time will tell; but it does appear there's a sense of invincibility in the ranks there to do what ever they wish with the cash hoard on reserve. As the economy improves, I suspect they will see a mass exodus.

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