The CEO-Board Relationship: What Can the New CEO Learn?

“A leadership transition is a delicate balance between continuity and disruption. The most important thing for the Microsoft board right now is to make sure that Satya Nadella is fully supported without being hamstrung,” Forrester analyst Ted Schadler told InformationWeek’s Michael Endler. “Bill Gates leaving and Steve Ballmer staying on as a board member would accomplish that.”

Microsoft critics frequently contend that the company’s culture is fractious and overly political, and that its strategies protect cash cows, such as Windows, rather than challenging industry-wide status quos. These observations are particularly pointed when it comes to the company’s board of directors.

Last August, Microsoft’s board averted a proxy battle by agreeing to give ValueAct Capital president G. Mason Morfit a board seat and the right to attend regular meetings with Microsoft executives. ValueAct, a San Francisco-based investment firm that manages more than $14 billion in assets, had accumulated just under a 1 percent stake in Microsoft at the time. It had been pressuring the software giant to take steps to increase shareholder value.

Pressure from ValueAct may also have led to former CEO Steve Ballmer’s earlier-than-expected retirement from that position — though Ballmer has denied ValueAct had any role in his decision.

Microsoft’s new chairman, John Thompson, a former CEO of Symantec, has been described as a charismatic leader. But his own career has been marked with missteps.

In the 10 years under Thompson’s watch, Symantec’s revenue rose tenfold to $5.9 billion. However, he also oversaw Symantec’s acquisition of Veritas in 2004. The acquisition was designed to merge two fast growing industries: storage and security. But there was no overlap between the companies’ customers, analysts say, and Thompson left Symantec in far worse shape because of it.

Observers note that Nadella has no experience running an independent company, much less one with 130,000 employees. Does anyone expect Gates to be whispering into Nadella’s ear? And what is Steve Ballmer’s motivation to support the new arrangement? People tend to forget that Ballmer’s in line to become Microsoft’s largest stockholder later this year, eclipsing Gates himself. And there is the question about the board: Why did it take almost six months for the board to come up with the current solution? If Nadella was the “first and unanimous” choice, why did it take so long to choose him? Gates had to convince the board to put Thompson in charge as chairman. Nadella and Thompson had to develop a good working relationship. Thompson and Gates had to come to a meeting of the minds. Ballmer had to buy into all of this.


“Chief executives and boards must of course have a great working relationship if they are to lead the company together,” says Wharton’s Michael Useem, co-author with Ram Charan of Boards that Lead. “New CEOs normally inherit a board not of their own making, and their challenge in concert with the board chair or lead director is to quickly establish a strong relationship. Microsoft’s new CEO Satya Nadella and board chairman John Thompson are no doubt working together to ensure that existing differences within their boardroom are surfaced and that all directors are on board with the company’s direction.”

“Nadella comes into a situation, now rather common for new CEOs, where they inherit a board and a senior management that is not of his choosing. He has a voice to shape the positional power but not the power to change its composition, “ Paul Winum, senior partner and global practice head of RHR International, told Chief Executive.

“I expect he has already sat down with the board to learn explicitly what the expectations are. Specifically, what are the metrics that can be reviewed at the end of the year? Believe it or not oftentimes some of these things are left fuzzy. Some boards tend to be very muscular and hands-on and try to have a direct voice into management issues. I should hope that Nadella has already had a discussion about the differentiated roles of the board and himself in executing the strategy.

“Nadella, like many CEOs in a similar situation must find a way to transition from subordinate to peer-to-peer in his relationships,” Winum continues. “The key in this situation is to manage his relationship with John Thompson, Microsoft’s chairman. This will make all the difference.”




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