Connors: We can imagine no scenario where breaking up our company increases shareholder value. The success we had in making enormous bets to make Windows successful, the enormous success we had with Office and the huge bet we made there, are really all about making an operating system work effectively with applications.
Further, when the Internet phenomenon happened, customers expected and we delivered browsing technology that allowed them not only to work on their individual personal computer, on their Local Area Network, but also to work seamlessly from that personal computer on the Web. So, when we think about our company, and the way we've worked across the company and across the industry, we see no way that shareholders would be better off if a forced breakup of our company was dictated.
If our company decided we wanted to organize things differently in order to increase shareholder value, that's something we could think about doing. If anybody reads the proposed remedy that came from the Department of Justice, and you go line by line [to understand] what they're asking us to do, their proposed remedy certainly does not have in mind helping consumers. It certainly doesn't have in mind helping shareholders. What the proposed remedy really describes are things that would help competitors. They wouldn't help shareholders; they wouldn't help consumers. So, we have no scenario we could paint that breaking up our company along the lines that the remedy proposes would be good for anybody other than a limited number of competitors.
Tom: I want to talk about one constituent of shareholders that's so critically important to any company, but particularly Microsoft over the last 25 years, and that is the human and intellectual capital that exists there in Redmond, Washington, and in Microsoft offices around the world.
The stock has been close to cut in half over the period of a series of announcements from the government and responses from Microsoft over the last six months or so. I'm wondering, as CFO of the company who's helping to outline the compensation plans, what is it that you need to do now to make sure that you hold on to the employee base, to the great human contributors that you have at Microsoft -- to make sure that they're able to sit through a downturn in the stock and stick with the company in a world where perhaps smaller and other technology companies hold more immediate promise?
Connors: That's a great question. It's really central to our future. Our stock is down, I think 41.2% from our all-time high as of today, not that I'm calculating it that precisely
David: Actually, I believe it's 41.21%, John.
Connors: That's right.
As part of our reaction to the remedies and the recent effect on our stock price, we decided a week ago Monday, on one particularly bad day, that we would give employees an additional stock option grant that amounted to just over 70 million shares given to our 35,000 employees. And that was a very strong and decisive action to say, "Hey folks, we believe in what we can do long-term. We believe in you. And here's an indication or a signal from us that's very, very tangible. That we want you to just continue to focus on building products that satisfy consumers... on building technologies that change the world."
And, with this stock grant, the message was, "Hey, we have a lot of good things in front of us. Shut out this external stuff, and just continue to do the job you need to do."
Tom: John, in terms of that stock grant, what do you make of the criticism that comes from some in the financial world? And actually, perhaps not directly at Microsoft, but Warren Buffett has been critical of the use of stock options as a compensation tool, or at least as aggressively as technology companies use them... although I think Buffett may be critical of it almost across the board.
What do you make of those who would say, "Well, you're just giving shares of the company. That dilutes the shareholder base outside of Microsoft's halls, and you're giving it to people who work inside the company at a time of difficulty?"
Connors: I think the first response I would have is we have always had a broad-based employee option program where a large majority of our employees get options. We basically built that into the psychology of the company -- that you're a shareholder.
Secondly, we are a company where our assets walk in and out of the door every day. We don't have to invest the kind of money in capital plants, we don't have to invest the kind of money in expensive things that aren't human-related. All value in our organization is a function of the people we hire and the technologies they build every day. And I think if you'll look at our track record of shareholder value we've created, for our employees as well as non-employee shareholders, it's been a very good program.
Most importantly, we really think the opportunities we have in the industry generally are probably greater in the next 10 years than any that we've seen in the past 25. And, for us to seize those opportunities and continue to be the technology leader that we plan to be, we've got to have the best engineers, and the best people in the world. One of the ways that you attract people in the technology industry is through broad-based option programs.
Given the rather unique circumstances we faced, we thought that giving a portion of our long-term ownership base to those employees was the appropriate thing to do. Now we've got to turn around and, over the next several years we've got to see increased value, so shareholders say we made the right decision.
Tom: OK, John Connors, the CFO of Microsoft. John, thanks for taking some time out to hang out with the Fools.
Connors: Hey, the only thing I've got to ask is... my Dad lives in Montana, and I've got to find out what radio station he can hear this on.
Tom: John, I think that would be radio.Fool.com on RealAudio or Microsoft audio.
Connors: I'm glad to hear you support our format.
Tom: Thanks a lot, John, and Fool on.
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