Microsoft opens door for ValueAct to join its board

Microsoft opens door for ValueAct to join its board

Summary: Microsoft may be getting a new board member, investment firm ValueAct's President Mason Morfit.


Microsoft and San Francisco-based investment firm ValueAct Group signed a pact on August 30 that opens the door for ValueAct President Mason Morfit join Microsoft's board of directors.

ValueAct had been rumored to be lobbying to join Microsoft's board for the past few months. Some said ValueAct officials wanted to see Microsoft CEO Steve Ballmer step down -- something which Microsoft announced earlier this month would be happening some time in the next 12 months. (For what it's worth, Ballmer told The Seattle Times that his retirement had nothing to do with ValueAct.)

ValueACt owned as of late July 66,865,530 shares of Microsoft stock, representing 0.8 percent of Microsoft's issued and outstanding shares of Common Stock. According to Reuters, Microsoft Chairman Bill Gates and CEo Ballmer own about nine percent of Microsoft's shares between them. In spite of its comparatively small share, ValueAct is now considered one of Microsoft's largest shareholders.

The new pact specifies that Morfit and select members of Microsoft's board and management will hold regular meetings. It also allows ValueAct to have Morfit join Microsoft's board of directors starting at the first quarterly board meeting after the November 2013 Microsoft shareholders meeting. As part of the agreement with Microsoft, ValueAct agreed it wouldn't engage in a proxy contest, meaning it wouldn't use hostile means to advise, control, change or influence the board.

ValueAct has said little publicly about what it wants to see happen with Microsoft going forward. Morfit's statement in the August 31 press release noted Microsoft was at a "critical inflection point" in its history and mentioned he wanted to "create value for all shareholders."

In July, ValueAct's founder Jeffrey Ubben said investors had not appreciated Microsoft's back-end software it sells to power servers and databases. That comment has led many to believe ValueAct is more interested in seeing Microsoft position itself as a software and services company and not so much as a consumer/devices company.

Ballmer and John Thompson, the lead independent director of Microsoft's board, told me recently that Microsoft had no intentions of de-emphasizing or getting rid of the devices and consumer parts of the company's business. They said they believed Microsoft needed to be a player in both the consumer and enterprise businesses in order to continue to grow.

Microsoft's board is currently comprised of nine individuals, including Chairman Bill Gates and CEO Ballmer. It's not clear whether Ballmer will continue to have a seat on Microsoft's board once he retires.


Topics: Microsoft, Leadership


Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • Ballmer to remain on the Board?

    This looks like Ballmer will probably stay as a board member after all. One basic reason for this would be to prevent an even number in there.
  • It is all about image

    I hope MS' shareholders realize that the reason for the company's poor stock performance, is the company's the image. The stock market somehow believes, that the 4th most profitable company, which has shown a history of remarkable growth, spanning a range of market shifts over the course of several decades, is not worth investing in. And this same stock market believes that the CEO, who carried MS to its current remarkable standing, simply has go. Also you hear people like Bernioff from, say that Bill Gates should step in as interim CEO, until a replacement can be found for Ballmer - as if the company is somehow on the brink of destruction.

    As I've said repeatedly, MS needs to take charge or greatly influence its image, in order for its stock price to reach reasonable levels. I believe this really needs to be done through build out a media group - as this is the most effective, lasting, and efficient way to drown out the haters. When Bill Gates stepped down from being CEO, a lot of people hated him. The same thing has happened to Steve Ballmer, and the same thing will happen to the next CEO, if this issue is not addressed.
    P. Douglas
    • You talk about Microsoft as if it could think...

      It can't.

      The chairman has to take charge - and unfortunately, the Microsoft culture will resist any change (like all bureaucracies) in its orientation.

      IBM, even under duress from the DOJ took almost 10 years to change its orientation.

      MS, unfortunately, is not under pressure from the DOJ, so it will either take a LOT longer to change, or it will collapse.
      • What I'm suggesting is not really a big deal

        What is there to change? All MS has to do is invest in some existing blogs - if they are up for it - or invest in new blogs and other media outlets. Allow these media outlets to operate largely independently, with the condition that they are not biased against MS; and provide the media outlets first access to MS news. If these media outlets want to attack anti-MS outlets, that would be perfectly fine with MS.

        The problem with the current situation, is that most of the time, news about MS come from influential media outlets, and the news is often negative, and the news and their sentiment get picked and broadcasted by other media outlets acting like an amplifier. A MS media group would do the opposite thing, and overall more positive news would get propagated to people, negating much of the bad news and ill will that is out there against MS.
        P. Douglas
        • So you are referring to paid shills?

          MS already has lots of them. They get found out rather quickly - usually because they have to lie to make MS look better, or skew the truth to make bad news look good.

          Just look at what happened to F.Muller - outed by a judge that got tired of the lies being claimed as "evidence" in court.
          • Nope, I'm talking about largely independent companies

            I'm simply talking about MS supporting media outlets which aren't biased against it. The outlets can act largely independently, and can be critical of MS if they wish: they just can't be overall anti-MS.
            P. Douglas
          • P. Douglas: Ignore that jessepollard; he's not here to argue any

            salient or credible points. He's a known and rabid anti-Microsoft shill. Don't even give him the time of day; it's not worth it.
          • That's funny, as I've said the same thing about paid shills

            that they get found out rather quickly - usually because they have to lie to make MS look bad, or skew the truth to make good news look bad.

            Funny how that all works, agreed?
            William Farrel
          • Its too easy to show MS looking bad. No pay in it.

            MS gets shown doing bad in the stock market, lying in court, and lying in announcements, subverting standards bodies, lying to investigative commissions, willfully violating patents, copyrights, ...

            It occurs so often that even the announcements tell you who is doing the lying, and even where to find the lies.
        • How about actually good marketing...

          MS does not need to setup shadow companies to pine for them. They simply need better marketing and to actually listen to what customers are saying.

          Example 1: What genius at MS thought it would be a good idea to get all gestapo on how XBox games are sold, having always on and required kinect, etc? This is amature hour.

          Example 2: RT. Everything about the launch of this what an F-up, everything! From the dancing morons to releasing it ahead of Pro, calling it Windows, etc.

          Example 3: Windows 8. Almost ALL!!! of the customer feedback they got told them that customers were confused about the new start screen, gestures, and lack of start menu. What did they do? They totally ignored the feedback almost completely. This helped make a mess of Example 2.

          Example 4: TechNet. Why shutdown this program? Are you just trying to P-off Sys/ops? Why are you telling some of your most loyal supporters they are not worth your bother? Heck, even at your TechEd you allowed them to buy Surfaces at a discount that you later just gave away to you devs (about $2000 worth of giveaways actually). If you pay attention to forums and tweets from Sys/Opts, they are talking about these things.

          All of my above examples are not technical issues, they are marketing issues and being out of touch with their customers, some of which are their biggest fans. This is why Balmer had to go. Yes, he kept MS in the black quite well but someone else could do that as well and increase the stock price by simply listening to the customer and treating them like king.
          Rann Xeroxx
        • Why twist reality?

          Microsoft does need better software and services. They already have all the marketing and paid shills they need to make it run.

          But, we live in the era of the Internet, where you cannot pretend black is white for more than few moments, because news travel fast. And considering people do not really love Microsoft (which they earned with their attitude over the decades), here is very little goodwill credit for Microsoft left around.

          Under-promise and over-deliver... Microsoft might try that. Always works for other businesses.
          • MS delivers more then most other businesses

            Maybe your bosses might try something similar.

            They wouldn't need you here if they did.
            William Farrel
    • Can You Really Not See that Microsoft Has Major Problems?

      Your post reminds me of IBMers just before the big stock crash in the mid-90's. Microsoft doesn't have an "image" problem. They have a bad image because they're producing bad products. Window 8/8.1, Xbox One, Surface RT/Pro: they are all bad, pure and simple. Consumers have seen them to the point of it becoming a joke and the vast majority just don't like what they see. Consumers built Microsoft... it was consumers using Windows at home that started corporations moving from DOS [I remember this well, my mother was such a person, she asked her boss why her PC at work was so poor relative to the one she had at home]. The profitable parts have started shrinking and will continue to shrink as consumers flee Microsoft [with business already beginning to follow them moving to non-Microsoft tablets].

      Yes, Microsoft (earlier, not recently) has been very profitable. But this is already changing, and when the spectacular failure hits this holiday season (see:, we'll finally get to see Microsoft take that IBM-like dive.
      • MS should come through just fine

        MS ships lots of products and services. Citing a handful of products that are encountering problems, while ignoring many other products which are experiencing strong growth, and taking up the fiscal slack, is disingenuous. MS' last quarter and fiscal year showed decent growth - even with the Surface RT write down.

        Many people wonder why MS cannot execute like Apple. These are two very different animals. Apple has almost complete control of its ecosystem, while there are many players in the PC ecosystem, MS has no direct control over. MS would prefer it if OEMs prioritize the selling of touch based systems with Windows 8. OEMs thought touch wouldn't be that important, and they put out old, dated non-touch PCs designs, which are about as appealing to the market, as Frank Sinatra is to a group adolescents. And what happens when you try to sing Frank Sinatra songs to a group of adolescents? They think you are irrelevant, out of touch, and they wind up ignoring you.

        I've recently been to a nearby Best Buy, and I've seen a significant shift towards touch based PCs being displayed. Most of the systems I saw were touch based, and I saw increased interest from shoppers, compared to several months before. Will this stop the PC decline? I guess we'll just have to wait and see. Ideally, I believe Windows 8 should only be sold on touch based PCs. Almost all reviewers I've seen believe this as well; but the above shows that because the Windows ecosystem is not tightly coupled like Apple's, it is difficult for MS to gain the kind of immediate results Apple enjoys.

        Beyond Windows 8.1 and great touch based systems, what the Windows ecosystem needs to rebound, is Metro Office and other productivity apps. With the advent of Metro Office and other productivity apps, people will find a compelling reason to upgrade their old PCs - for the touch based user experience innovation new systems provide. Beyond this, MS is going to have to build increasingly demanding software and new user experiences to keep the PC upgrades coming along. If MS doesn't do this, it will be setting itself up for a repeat of Windows 8.
        P. Douglas
        • MS Will Not Come Through "Fine"

          The areas where they are showing growth only occur because the firms buying the products, bought into Windows as an ecosystem. These same firms are now trapped into the ecosystem, and Microsoft is milking them. In this time of rapidly falling software prices Microsoft raised prices for Office and for many of the Enterprise products. These people are trapped for now, but they will remember how they were treated. You are making the same argument that IBMers kept making about IBM mainframes. They too were showing profits... they two were milking trapped customers, the IBMers were unable to see that computing was already moving on and that they had lost the PC market to places like Compaq and Gateway. Sure, they still sold mainframes, and still do to this day... but they no longer had a place in broader computing and this caused them to collapse. Windows client is collapsing. Microsoft has made no significant inroads to tablets or phones. Because businesses can easily continue to use Windows 7, the collapse there will take time... but consumers and small business are already fleeing. Microsoft has screwed them time and time again with pricing and they're tired of it.

          As to touch and Best Buy... well I just got back from my local Best Buy about an hour ago. They have just opened the Windows Store inside it. You have a huge section of touch laptops and all-in-ones in the central area. There were 5 customers there looking for a new laptop. They never even looked at the expensive PCs, they were all along the side of the store looking at non-touch laptops (sub-$500). Last Holiday season the average laptop sold for $420. Not one of the touch laptops in the central section was sub-$500. Microsoft just doesn't get it. PEOPLE DON'T WANT TOUCH. See -- it contains links that talk about the market analysts downsizing their touch sales expectations. Only about 10% of PC market has any interest in touch [and I strongly suspect that one the newness wears off, less than 5% actual use it in any significant way].

          Metro Office will not make any difference at all... nobody uses Metro. Microsoft's own numbers say that 100 million Windows 8 user downloaded only 250 million apps. That's 2.5 apps per user, downloaded... not actually used. Only a tiny number of people use Metro in any meaningful way. Office will only succeed as a touch app if Microsoft produces Android and iOS versions.
          • See what I mean, Jesse

            The same people always happen to see something 100% negative, 100% of the time in reference to MS.

            So we kind of know where they're really coming from.
            William Farrel
          • brian_st is a good example

            This happens in just about every general discussion forum about MS. Half the comments come from haters doling out venom and warnings of MS' impending doom. It is this negativity which pervades the industry which investors pick up on, which holds back MS stock.
            P. Douglas
          • So How Do Investors See Google and Apple Stock Differently?

            I mean, you're surely not arguing that Google doesn't have "haters"?
            Apple has "haters", but only a fraction of Microsoft's users... why is its stock more valuable than Microsoft's?

            As to me being a "hater", it may surprise you, but I'm actually a Windows Developer (soon to be former - moving to Googlely things) that has simply gotten very, very tired of Microsoft's serial failure. I guess I am bitter. Microsoft had everything 15 years ago, but they didn't build, they focused on locking-in. Well it worked for 15 years, but it won't for much longer. I came on board with Microsoft development as they were breaking away from IBM. It felt good to be a part of freeing up the industry from the tyrant that IBM had become. Microsoft always did seem like they wanted to be IBM... well they've succeeded and at last they too will get what they deserve.

            One wonders if Google won't turn tyrant at some point, but at the moment it feels good freeing up the industry from yet another tyrant.
          • Where there is smoke...

            there is a fire.

            If MS products were actually good value they would be selling...

            And yet, MS had to take a $900 million write down. More than they even sold. Had it been around 10% of sales, then there would have been no story - and could be explained by correcting the price of the unit. And that should have increased sales. Well, it did increase sales... but not by much. It is still overpriced.

            MS has screwed it customers, and partners, and potential partners so much that everybody cheers when they get found out.

            I worked in the supercomputer industry for 20 years - when MS came out with Windows HPC, we all laughed. We knew MS couldn't compete where throughput rules over everything else... They did manage to get 3 maybe 4 systems on the top 500... but the Linux based OS running on the same systems came out better.

            When MS came out with NT on Alpha (actually, a lot of the DEC engineers had to make it go), we were surprised it actually worked. But the market closed it down. MS was supposed to release one for the Itanium processor... but evidently it was too much work, Linux got there first (reports I read indicated that MS has discarded the 64 bit work done on NT, and that had to be redeveloped. LInux was already 64 bit capable from the work on Alpha, so it was just a basic porting effort mostly for kernel locking, drivers, and MMU.)

            Lying to the court during the anti-trust trial was just stupidity. MS would have been broken up if it hadn't lucked out the trial. And tried it again lying to the EU commission.

            Being found guilty of various violations of the law on three continents didn't help their case either. And now being investigated for corruption again...

            MS has made too many enemies, across too many fronts, for a lot of people to "just let it slide".

            Like IBM in the past, it has to change. Unlike IBM, it doesn't have anyone in charge capable of doing it yet. Will it have time to change? maybe, but it will depend on the cash reserves as it doesn't have the tech underpinnings that IBM had.

            And the board will have to accept about 10-15 years of depressed stock value as well (that is also roughly how long it took IBM to change corporate culture). It could go as bad as a 50% reduction before it starts to recover. Will the board allow a single, strong minded CEO that much time? Doubtful.

            IBM had it easer as the market wasn't also going through a depression, it was also already diversified with a good foundation in business machines (not related to mainframes), service contracts, consulting, manufacturing, sales, and research (the first megabit memory chips were IBM... disk drives, printers, typewriters, word processors, integrated CPUs - though not to the degree of Intel), small computers (IBM 5100 for instance).

            MS just doesn't have the experience.
          • He just told what he saw. Got a problem with that?

            I've not seen that many people look at Surface tablets myself - most were looking a Ipads/android.

            And they do cost less.