On the day before Steve Ballmer took over as head of MSFT, that company’s market capitalization was a tad below $600 billion. If MSFT shares had matched the performance of the S&P 500 since then (about +15%), the company’s stock market value would now be just under $700 billion. Instead, just before the stock spiked on news of Ballmer’s surprise resignation, MSFT was worth barely a third of that figure. Under his stewardship, then, MSFT owners lost a staggering $450 billion in relative stock market performance.
Sometimes the simplest measuring sticks are the best.
(Yes, MSFT management has bought back about 20% of the outstanding shares since 2006, but it’s hard to know what the net effect of the stock purchases would be. Certainly, earnings per share would be lower. Arguably, the stock price would be, as well.)
In late 1999, I sold the MSFT shares I had held for a decade. The price earnings multiple was crazy high and it was clear that MSFT has no internet strategy. But for a while I kept going to the annual analyst meetings in Seattle.
At one of them, Mssrs. Ballmer and Gates were jointly hosting a Q&A session. One analyst raised his hand and observed that the annual earnings growth rate of Microsoft had dropped from 20%+ to mid-single digits. He asked when management thought the company would resume its former rate of growth.
Awkward …especially in a public forum.
I don’t think the questioner had any ill will, though. He just wasn’t a particularly vivid-color crayon.
The response was illuminating.
Gates and Ballmer were both very harsh. They all but called the guy an idiot, and asserted that it was a triumph of management to achieve any earnings growth in a firm of MSFT’s large size. Wow!
What did I take from this? Three things:
–neither Gates nor Ballmer was a very nice person,
–working for them it would be their way or the highway, and
–MSFT wasn’t going to have huge earnings growth because neither of the top people thought it was possible. (The fact they subsequently brought in the head of a forest products company, a mature, cyclical commodity industry, to cut costs as CFO says it all.)
For the record, I thought Steve Ballmer was a bad CEO. Not Carly Fiorina bad, but pretty terrible.
On the other hand, Bill Gates selected Ballmer and kept him as CEO for more than a decade. So until very recently, he clearly approved of what Ballmer was doing.
If we want to lay blame at anyone’s door for MSFT’s weak performance during Ballmer’s tenure, the lion’s share would be delivered to the front of the Gates compound.