Steve Ballmer, the larger than life ex-CEO of Microsoft, introduced himself to the LA Clippers fans last week in typically captivating fashion, following his $2 billion purchase of the basketball team. As Clippers fans now look ahead to a future of promise after the controversial ownership of Donald Sterling, Ballmer returned the same day to the company he joined back in 1980 to hang up his Microsoft jersey, and make a graceful exit from his role on the board.
Ballmer’s resignation puts an end to a situation where the former CEO was still part of the board. The widely-held belief and governance principles dictate that a newly anointed CEO should be given breathing room from the old guard, in order to prosper. Microsoft’s long-time nemesis, IBM, has established that principle as a rule, and it is worth noting that the new Chairman at Microsoft, John W. Thompson, spent 28 years at Big Blue. And so Ballmer has set his affairs in order, embarked on a new adventure into basketball, and stepped aside. Ever-committed to the company, his final act as a board member was to pave the way for the success of the new management going forward.
Ballmer is the largest individual shareholder of Microsoft, owning 333,253,907 shares, around 4% of the company’s stock, as reported in May this year. Those 333 million shares mean he still has a $15 billion stake in the company, and this in part may have motivated his decision to step aside from his duties on the board. Ballmer will not be constrained in selling his stake as an outsider. His Harvard classmate and Microsoft founder, Bill Gates remains on the board and is helping steer the company’s new technology challenges.
Ballmer’s letter to Nadella explaining his resignation from the board revealed the passion he still has for the company, but also the expectations he holds as a shareholder.
“In the mobile-first, cloud-first world, software development is a key skill, but success requires moving to monetization through enterprise subscriptions, hardware gross margins, and advertising revenues,” Ballmer writes. “Making that change while also managing the existing software business well requires a boldness and fearlessness that I believe the management team has. Our board must also support and encourage that fearlessness for shareholders to get the best performance from Microsoft. You must drive that.”
Ballmer’s record as CEO of Microsoft leaves Nadella a lot to live up to. For the fiscal year of 2000, which ended six months after Ballmer was appointed CEO, Microsoft’s revenues stood at $22.96 billion. When Ballmer announced his retirement 13 years later, revenues for the fiscal year 2013 had more than tripled to $73.73 billion.
Despite his numerous achievements, Ballmer came under fire from Wall Street analysts for the company’s stock performance. When Ballmer took charge of Microsoft in 2000, the share price hovered at around $60 per share, and over his tenure that price dropped to as low as $30 per share after the tech bubble burst, and now stands at around $45. But Ballmer could hardly be blamed – that $60 per share price represented 45 times earnings for Microsoft. He warned analysts in 1999 that this represented an unsustainable standard. For a stock with a market capitalization of Microsoft’s, currently $371.66 billion, only miraculous growth could have kept shares trading at that level.
Wall Street used this drop in value to scapegoat Ballmer, and since he announced his decision to retire from his role as CEO a year ago the company’s stock has risen 39%. The emergence of Google and Facebook and some misses in the mobility space did not help him either. But the stock’s rise happened largely due to the shift in a strategy shift initiated by Ballmer himself, and could be viewed in a way as a backhanded compliment from Wall Street to the former CEO. As the largest shareholder in Microsoft, that rise in share price has put an extra $4 billion on Ballmer’s net worth – enough to buy two LA Clipper franchises.
The company’s last quarterly earnings report revealed significant progress in making the mobile-first, cloud-first strategy work. Microsoft earned $23.4 billion in revenue over the three months ending June compared to $19.9 billion a year earlier. That figure was boosted by a 147% increase in commercial cloud revenue. Some may forget that it was Ballmer who was responsible for driving the company away from the PC-first era, and into cloud-based products, hardware and more diverse offerings. When Gates ended his day-to-day involvement in 2008, Ballmer replaced almost every division head at the company, and began the shift to new pastures. Ballmer oversaw the acquisition of Skype in 2011 and took Microsoft Office online. It’s on these achievements, and many more, that Nadella can now build his tenure as CEO.
Ballmer clearly still loves the company, and even went as far as to declare he “bleeds Microsoft” in his resignation letter. That passion will now be enjoyed by the LA Clippers and the NBA, and it is basketball’s gain. While Nadella may ultimately score the final points in Microsoft’s turnaround, it’s worth remembering that Ballmer previously kept possession, set up the play and has now passed him the ball.