Open letter to SteveB - Privatize Microsoft!
(NOTE: I am not affiliated with the people who make these decisions, so please don't assume there's any insider info here--just one guy with one 'wacky' idea speaking his peace and throwing out some food for thought)
I see you've made your way down to Wall Street to woo the instituational investors. Hmm, well I guess we all do what we have to do. You're feeling the heat from people who are unhappy about the stock price. I gotta admit that the stock has been down since I joined nearly five years ago. Some may blame you, but I don't. I think it's insane that both you and Bill have managed to keep this company growing through everything thick and thin. Recessions, terrorism, litigation--the machine keeps cranking out more and more revenue. Now, an upstart like Google comes in with their one-stock bubble and your cage seems a little rattled. Actually, everyone else's cage is rattled and you are forced to react. Suddenly, people think our stock is undervalued (even though it's worth more than practically any other stock out there) and people can't understand why the stock isn't moving.
I know you spent a year in b-school and you probably picked up the fact that security analysis is so subjective that it is just short of voodoo. Someone once said the market is a voting machine in the short-term and a weighing machine in the long-term. I disagree as I see it at least partially as a voting machine all the time. Given there are a finite amount of dollars that are going to be invested (barring a fools' gold land rush like the dotcom boom) based on macroeconomic theory, people are going to determine whether they want to invest in us, Google, or Sun (there's a feel-good story--we're not Sun!). You're not the only one going through this as BusinessWeek had a cover story on the Blue Chips that are being held down despite great success and solid financial fundamentals. Yes, we are a blue chip and it's time we all admit it. Our days of being the darling growth company are gone, replaced by being one of the responsible corporate leaders of the world. Of course, few of those other blue chip companies are dealing with a Wall Street darling like Google, which I worry is confusing the issue for us.
Now, I had been doing my own softshoe with people who'd listen about what I think the solution is. I knew it was bizarre, which made it even more fun to propose. I kept saying Microsoft should do a leveraged buyout. I was a finance major in business school--I spent hours cranking through Excel spreadsheets figuring this sort of stuff out. Take the short-term assets to establish equity, incur long-term debt (you'd get a great lending rate from Moody's), and pull the company off NASDAQ. Get the employees involved--maybe even offer those who own stock the ability to trade those for short-term convertible bond-debt offerings in case you decide to go public again (it's been a while since I've done this stuff, so I'll leave the details to the pros). Now I don't know if those folks on Wall Street were listening in on my conversations, but apparently it has made the rounds down there as well. Apparently, Mr. Sherlund from Goldman Sachs brought it up and I think you used the term "wacky" to describe. Oh Steve, it is definitely wacky, but wacky can be pretty good too. Hear me out...
Think of what happens if you take the company private. Less pressure on short-term performance. Greater flexibility to pay higher salaries and manage market fluctuations without having to look for increased cost savings to keep the balance sheet tidy for investors. I'm not suggesting sloppy accounting, but rather an opportunity to stick to a mission and not pander to investors. Focus on profits and forecast over Wall Street pecadillos. Your only responsibility is paying down the debt. No screaming shareholders, no goofy correlation that a company's success is solely tied to its share price. You can sell off businesses that don't seem strategic without having it look like we are cutting revenues. You can do skunkwork activities without having to disclose it in an annual report, which gives the competition early information. You can spend an extra $2 billion and not have the stock market go nuts. Save your plane fare to New York as you don't have to woo investors. Wall Street is a crapshoot and trying to tie your performance to its fickle whims is not only exhausting, but it does nothing for the welfare of the business. Don't get me wrong--I've met some really bright people who work on Wall Street. However, Wall Street has its rhyme and reason and profits aren't always the ultimate driver--but they should be YOUR ultimate driver. Down in the trenches, we call that a case of misaligned objectives and our course of action is to either align the objectives or break the relationship. I think you need to do the latter at this point.
OK, you don't like debt. Maybe it's all those images of loan sharks that would break your knee caps if you couldn't pay up. Microsoft is one of the few companies that has been able to avoid it and I think that is admirable. But debt is a part of life, whether it is mortgages, car payments, or educational debt (heck, I finally stopped paying for school last year). Smart debt is what counts--can you do something better with the money than the amount you are paying in interest? Even Bill's friend Warren Buffett would agree with that. Imagine an opportunity to lead without the scrutiny. You can bring Microsoft back to basics and making decisions based on Microsoft 2010 instead of just 2006. I've heard a lot of stories about companies that sold out their future to make Wall Street numbers. I hate to think that would be us at a time when we being asked to evolve our business model.
Hey, I know it's hard. Being CEO isn't easy and, yes, I'll admit my idea is 'wacky' (I prefer drastic). But as an employee, the liberation would be exhilerating. Think about it Steve.