Microsoft sticks with safe choice as CEO at critical juncture demanding dramatic changes

The Associated Press

This undated photo provided by Microsoft shows Satya Nadella. Microsoft announced Tuesday, Feb. 4, 2014, that Nadella will replace Steve Ballmer as its new CEO. Nadella will become only the third leader in the software giant's 38-year history, after founder Bill Gates and Ballmer. Board member John Thompson will serve as Microsoft's new chairman. (AP Photo/Microsoft)

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Given the stock's poor performance and the challenges facing the company, it probably would have made more sense for Microsoft's board to hire an outsider as CEO, says long-time technology analyst Patrick Moorhead.

John Thompson, the Microsoft board member who oversaw the CEO search, made it clear that the company did an exhaustive search. In a blog post late last year, Thompson disclosed that the board initially identified more than 100 prospects before whittling the field to about 20 people who are "all extremely impressive in their own right." With the search complete, Thompson is now replacing Gates as Microsoft's chairman.

Speculation on Microsoft's list of external candidates centered on Ford Motor Co. CEO Alan Mulally, Qualcomm Inc. executive Steve Mollenkopf, Facebook Inc. Chief Operating Officer Sheryl Sandberg, former Microsoft executive Paul Maritz and VMware Inc. CEO Patrick Gelsinger.

But analysts and executive search specialists say Microsoft may have had difficulty winning over outsiders because of the specter of Gates and Ballmer, the previous CEOs who sculpted the company into what it is today.

Although he is relinquishing the chairman's role, Gates will remain on Microsoft's board along with Ballmer. The two men collectively own a roughly 8.5 percent stake in Microsoft, investments that could be used to amplify their voices even more.

The lingering presence of Gates and Ballmer could have prompted any outside CEO candidate to fear that new ideas might face resistance from an influential old guard, Metheny says.

Microsoft could have stolen a page from Yahoo's playbook when it raided the ranks of rival Google Inc. to hire Marissa Mayer as its CEO in 2012. That decision has mostly worked out for Yahoo, though the company still hasn't been able to boost its revenue under Mayer.

There was some speculation that Microsoft might be interested in hiring Sundar Pichai, a respected Google executive in charge of the company's Android and Chrome operating systems.

But it's likely that Microsoft would have had trouble persuading a Silicon Valley star to become its CEO. That's because much of Silicon Valley dismisses Microsoft's products as too complicated and expensive. There is also still a residue of resentment from the late 1990s when Microsoft's aggressive attempts to thwart the growth of Web browser pioneer Netscape Communications instigated an antitrust case, a suit filed by the U.S. Justice Department at the urging of a Silicon Valley coalition.

"When it came down to it, I don't think the Microsoft board could find the CEO that fit the profile it really wanted from outside the company," Moorhead says.

Once Microsoft decided to take the insider route, Nadella emerged as an obvious choice, Korn Ferry's Carey says. "Only history will tell us whether it was the right choice."

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