First Ballmer Goes, Is Gates Next?

By Paul Ausick Updated Apr 27, 9:24PM EDT · Published Oct 2, 9:20AM EDT

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In an exclusive report at Reuters, the news agency cites unnamed sources who say that some of Microsoft Corp.’s (NASDAQ: MSFT) biggest investors are pressing the company’s board to force Microsoft co-founder Bill Gates to resign as chairman. The report also says that the company’s board is unlikely to satisfy the three Microsoft investors who are seeking Gates’s removal and who together hold more than 5% of the company’s stock.

In August, Microsoft CEO Steve Ballmer announced his retirement after pressure from activist fund manager ValueAct Capital Management.

The call for Gates to leave is related in two ways to the search for a new chief executive. First, the three investors believe that as long as Gates is chairman he could limit the authority of a new CEO and even block new strategies. Because Gates is a member of the search committee for Ballmer’s replacement, this concern is not without substance.

Second, Gates currently holds about 4.5% of Microsoft’s stock and on a prearranged investment plan sells about 80 million shares a year. By 2018, Gates will no longer own any Microsoft stock. The three investors believe Gates’s power as chairman is no longer proportional to his shareholding.

Microsoft’s Windows operating system and Office suite of productivity applications were the prime generators of the company’s $22 billion in net profits last year. Microsoft cannot really afford to turn its back on its cash cows.

There is no denying that Ballmer — and Gates — were both slow, at best, in picking up on the last two tectonic shifts in the technology — the adoption of the World Wide Web and the explosion of the smartphone business. The company cannot hope to catch up with the market shares of Google Inc. (NASDAQ: GOOG) or Apple Inc. (NASDAQ: AAPL) in either of those sectors, so it will have to settle for a minor position in each.

Microsoft needs a hit, and neither Gates nor Ballmer was able to deliver. The insurgents among Microsoft’s investors want a hit, and they want a CEO who can deliver one. With Gates in the chairman’s seat, they do not think that is possible. They do have an argument.

About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.