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Insider Nadella Named Microsoft CEO, as Expected, With Gates Stepping Down as Chairman to Help Him

Can the pair turbochange the software giant and inspire its huge and much-bruised employee base?


Satya Nadella, the quiet and self-effacing Microsoft enterprise chief, prevailed over much splashier outside candidates and was named CEO of the software giant today.

He is only the third CEO since the company’s founding, replacing Steve Ballmer. The first Microsoft CEO, of course, was co-founder and chairman Bill Gates.

As part of the changes at the top and perhaps even more significantly — at least from a symbolic perspective — Gates will be shedding his chairman role at the company, to be replaced by director John Thompson, former CEO of Symantec.

Instead, Gates will be spending more time helping Nadella, as Re/code had reported several weeks ago, especially in the technology and product area, with the title of “technology advisor,” working full-time several days a week at Microsoft.

But he still owns a four percent stake in Microsoft and will remain a powerful director; Gates will also continue to be deeply involved in his philanthropic efforts via the Bill & Melinda Gates Foundation.

Among the major issues to deal with: Mobile; shifts to the cloud in the enterprise space; and how to move the huge behemoth that is Microsoft more quickly, to better compete with more nimble rivals such as Google.

Indeed, much has changed since Gates stepped away from Microsoft. His more active role brings him back to the company on a daily basis, six years after he changed roles.

Even so, he has remained a potent and emotional icon to employees. They are in dire need of inspiration, after a bruising restructuring that was soon followed by the long and chaotic search for a CEO.

Among the many candidates considered: Ford CEO Alan Mulally, who had had the inside track for quite a while, along with current Microsoft execs strategy head Tony Bates, COO Kevin Turner and Stephen Elop, who is returning to the company after it bought a part of Nokia.

The news of the appointment was widely expected, coming almost six months after Ballmer said he was stepping down from the post. Re/code and others had reported late last week that the internal choice of Nadella was imminent.

The move is widely considered a safe choice by Microsoft, which some investors think needs a more drastic change at the top. Nadella is clearly a more considered executive, having been a loyal soldier at the company since 1992. His jobs included trying to fix the Bing search engine to compete with Google and, more recently, moving its enterprise business to the cloud.

His enterprise focus is a worry to those on the consumer side of the business, so it will be key for Nadella to ensure the various execs who run those divisions are on board with his leadership.

Among the key ones in the company: Bates, who runs business development and evangelism; Elop, who is set to be in charge of devices; Terry Myerson, who runs its important operating systems group; CFO Amy Hood; general counsel Brad Smith; and applications and services head Qi Lu.

It will be interesting to see what happens to Turner, as well as advertising and strategy head Mark Penn, the well-known political operative who has been — to say the least — an internally controversial Ballmer appointment.

The addition of Gates as his wingman will only help, as well as shifting the dynamics of the board, which is in much need of such a shake-up. (Nadella will also become a director, by the way.)

As I wrote last week:

In many ways, the change is still not a bad idea, because Gates has been pretty ill-suited to the tasks of the job. I’ll say it if no one else will — he’s a terrible schmoozer of investors, is not someone who cottons to kissing up to Wall Street and, well, he’s still awkward around the niceties required in such a job. (By the way, this is the part of Gates I like!)

Thompson’s rep with investors is much better, although still not perfect either. But he certainly has the chops to do the job, having been a public company CEO.

Perhaps more significantly, having Gates in the chair seat also maintains some of the dysfunction clearly present in the board, due to his history at Microsoft, his massive wealth from his ownership of the company and — for lack of a better way to say it — the Bill Gates of it all.

That dynamic combined with the continued presence of outgoing CEO Steve Ballmer on the board — who may remain in the short term, but seems set to go when his latest term is up — obviously has to change.

Also not helping: Gates and Ballmer have a complex and difficult interpersonal relationship — imagine anyone in a long-term marriage and you’ll quickly grok what that means — that adds to the board issues.

Thus, a new chairman with a power base away from Microsoft’s origins, while moving Gates to a much more productive role, seems like a pretty good idea to many.

More board change is expected, including the eventual departure of Ballmer — who also still owns four percent of the company — and the addition of new board members.

So much change. Even with a steady pick like Nadella, it’s going to be a whirlwind time at Microsoft going forward.

There will be a 12 pm PT Webcast by Nadella and, presumably, Gates.

Until then, here’s the full press release from Microsoft:

Microsoft Board Names Satya Nadella as CEO

Feb. 04, 2014

Bill Gates steps up to new role as Technology Advisor; John Thompson assumes role as Chairman of Board of Directors.

REDMOND, Wash. — Feb. 4, 2014 — Microsoft Corp. today announced that its Board of Directors has appointed Satya Nadella as Chief Executive Officer and member of the Board of Directors effective immediately. Nadella previously held the position of Executive Vice President of Microsoft’s Cloud and Enterprise group.

“During this time of transformation, there is no better person to lead Microsoft than Satya Nadella,” said Bill Gates, Microsoft’s Founder and Member of the Board of Directors. “Satya is a proven leader with hard-core engineering skills, business vision and the ability to bring people together. His vision for how technology will be used and experienced around the world is exactly what Microsoft needs as the company enters its next chapter of expanded product innovation and growth.”

Since joining the company in 1992, Nadella has spearheaded major strategy and technical shifts across the company’s portfolio of products and services, most notably the company’s move to the cloud and the development of one of the largest cloud infrastructures in the world supporting Bing, Xbox, Office and other services. During his tenure overseeing Microsoft’s Server and Tools Business, the division outperformed the market and took share from competitors.

“Microsoft is one of those rare companies to have truly revolutionized the world through technology, and I couldn’t be more honored to have been chosen to lead the company,” Nadella said. “The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform. A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly.”

“Having worked with him for more than 20 years, I know that Satya is the right leader at the right time for Microsoft,” said Steve Ballmer, who announced on Aug. 23, 2013 that he would retire once a successor was named. “I’ve had the distinct privilege of working with the most talented employees and senior leadership team in the industry, and I know their passion and hunger for greatness will only grow stronger under Satya’s leadership.”

Microsoft also announced that Bill Gates, previously Chairman of the Board of Directors, will assume a new role on the Board as Founder and Technology Advisor, and will devote more time to the company, supporting Nadella in shaping technology and product direction. John Thompson, lead independent director for the Board of Directors, will assume the role of Chairman of the Board of Directors and remain an independent director on the Board.

“Satya is clearly the best person to lead Microsoft, and he has the unanimous support of our Board,” Thompson said. “The Board took the thoughtful approach that our shareholders, customers, partners and employees expected and deserved.”

With the addition of Nadella, Microsoft’s Board of Directors consists of Ballmer; Dina Dublon, former Chief Financial Officer of JPMorgan Chase; Gates; Maria M. Klawe, President of Harvey Mudd College; Stephen J. Luczo, Chairman and Chief Executive Officer of Seagate Technology PLC; David F. Marquardt, General Partner at August Capital; Nadella; Charles H. Noski, former Vice Chairman of Bank of America Corp.; Dr. Helmut Panke, former Chairman of the Board of Management at BMW Bayerische Motoren Werke AG; and Thompson, Chief Executive Officer of Virtual Instruments. Seven of the 10 board members are independent of Microsoft, which is consistent with the requirement in the company’s governance guidelines that a substantial majority be independent.

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