Microsoft CEO Nadella Inherits Legacy of Ballmer Board Division

As Satya Nadella puts his stamp on Microsoft Corp., he’s coming to grips with the tug of war over strategy and the clash of personalities that marked Steve Ballmer’s final years at the helm.

Nadella, who succeeded Ballmer one month ago, took a step this week by unraveling part of a restructuring his predecessor put in place in one of his last acts as chief executive officer. Nadella appointed onetime Democratic political operative Mark Penn to the just-invented post of strategy chief and shuffled other executives to resolve an unwieldy setup Ballmer had established in the marketing department.

The new CEO is seeking to reshape a company whose main businesses are losing steam as efforts to expand on the Web and in mobile devices have been thwarted by Apple Inc. (AAPL:US) and Google Inc. (GOOG:US) Nadella will also exert his influence on the push into hardware, a strategy shift that fueled some of Ballmer’s fiercest arguments with the board. 

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Before the announcement in August that he would be retiring, some directors were so exasperated they talked about how they might ease him out, including by hiring someone he admired, Ford Motor Co. CEO Alan Mulally, to succeed him, according to people with knowledge of the matter; Mulally later fell out of favor when members viewed him as behaving as though the job should be handed to him without so much as a formal interview, according to the people, who weren’t authorized to speak publicly about the situation. A spokeswoman for Mulally declined to comment.

Initially Opposed

Ballmer’s relations with the board hit a low when he shouted at a June meeting that if he didn’t get his way he couldn’t be CEO, people briefed on the meeting said. The flare-up was over his proposed purchase of most of Nokia Oyj (NOK1V), and part of an ongoing debate: Should Microsoft be a software company or a hardware company too?


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Several directors and co-founder and then-Chairman Bill Gates -- Ballmer’s longtime friend and advocate -- initially balked at the move into making smartphones, according to people familiar with the situation. So, at first, did Nadella, signaling his position in a straw poll to gauge executives’ reaction to the deal. Nadella later changed his mind.

“Nokia brings mobile-first depth across hardware, software, design, global supply chain expertise and deep understanding and connections across the mobile market,” Nadella said yesterday in an e-mailed statement. “This is the right move for Microsoft.”

In his shakeup, he reassigned Penn, who spearheaded the “Don’t Get Scroogled” campaign that dissed Google, and replaced Tony Bates, an opponent of the Nokia purchase who was passed over for CEO and left the company this week.

Damage Done

Microsoft spokeswoman Dawn Beauparlant said Ballmer declined to comment. He remains on the board, along with Gates, who stepped down as chairman to be Nadella’s technology adviser. John Thompson replaced Gates as chairman. Thompson, Gates and Nadella also declined be interviewed, she said.

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Ballmer was so loud that day in June his shouts could be heard outside the conference room. people with knowledge of the matter said. He’d just been told the board didn’t back his plan to acquire two Nokia units, according to people with knowledge of the meeting. He later got most of what he wanted, with the board signing off on a $7.2 billion purchase of Nokia’s mobile-phone business, but by then the damage was done.

Concerns over Microsoft’s direction had been mounting for months. For some directors, the question was whether Ballmer should still lead, according to people close to the board.

Last Straw

They were frustrated by his tendency to talk more than listen, the people said, and his reaction to the pushback on Nokia was for some the last straw. The board rejected the first deal as too expensive and complex, including not only the handset division but also a mapping unit Microsoft didn’t need. Even without maps, Fitch Ratings called the price “excessive” in a note yesterday, citing a deterioration in the user base for Windows-based phones.For more than a decade, directors gave Ballmer what he wanted. Then two outsiders who joined the board in the first half of 2012 -- Thompson, a former Symantec Corp. CEO, and Steve Luczo, CEO of Seagate Technology Plc -- teamed with others to challenge him. They pressured him to move faster to compete with Apple, Google and others dominating mobile technology, fearful Microsoft would be locked out and left with the shrinking personal-computer market.

As Microsoft continued to lag behind rivals, some directors grew more unhappy. Ballmer had introduced Mulally as part of the company’s succession planning, and those on the board looking for ways to move Ballmer out talked in July about hiring the Ford CEO as a way to persuade the CEO to step down. In August, Ballmer, 57, announced he would retire, earlier than planned.