Fortune Magazine
Fast Forward
Ballmer ain't goin' nowhere!
As Bill Gates announces his Microsoft retirement, some on Wall Street are calling for the CEO's resignation. But he will remain firmly in charge, and that's a good thing.
By David Kirkpatrick, FORTUNE senior editor

NEW YORK (FORTUNE) - Bill Gates is leaving his day-to-day role at Microsoft, ending an epoch in American business. And now people think CEO Steve Ballmer should go, too?

Special Report: Goodbye, Mr. Gates

Yeah, it makes sense for both of a company's top leaders to leave at once, especially when they've been there a long time and the company is delivering stellar financial performance.

Microsoft CEO Steve Ballmer is showing no signs of being ready to leave the company.
Microsoft CEO Steve Ballmer is showing no signs of being ready to leave the company.
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Many on Wall Street and in the press, including my Web site colleague Owen Thomas of Business 2.0, have been suggesting that Ballmer should set a resignation date as well.

But it's worth noting that Microsoft's (Charts) earnings have been steadily rising for the last two years. Net income of $2.98 billion in the quarter ending March 31 was more than twice what it was in March 2004.

Even if Ballmer were doing a bad job, he is not going to leave so long as he has the confidence of Gates. Gates remains the company's largest shareholder and its chairman. Microsoft's board of directors has shown absolutely no sign of losing confidence in either Gates or Ballmer. In fact, my sources at the company tell me that Ballmer has made an internal commitment to stay for several more years.

You could say that Gates' voluntary decision to step down shows a mature understanding of his own limitations. He didn't need to be pushed. He pushed himself.

I spent a lot of time at Microsoft this year, reporting Microsoft's New Brain, which ran in FORTUNE's May 1, 2006 issue.

Nothing I saw suggested anything but continued engagement for Ballmer, though the story made clear that Gates' role was changing. It strongly foreshadowed this week's shift, showing how Gates was ceding more and more responsibility for technical strategy to Ray Ozzie. (This week he was named Chief Software Architect, the title held up until now by Gates.)

Ballmer last September reorganized the company into three parts - headed by Kevin Johnson, who runs Windows and MSN (Johnson currently shares the job with Jim Allchin, who is soon to retire); Jeff Raikes, who oversees Office and the company's other business applications; and Robbie Bach, who heads Xbox, among other things.

Never before has the company had a structure in which so much decision making was delegated to the divisions. Following this change, Ballmer stepped back to let these executives run their own groups. He recused himself from numerous meetings that he would formerly have led, for example setting marketing and advertising budgets. He generally doesn't even attend such meetings now.

This is not a sign of disengagement. It's a sign of good management and healthy delegation of authority. The company does have serious problems -- like competing with rising open source software even as its own programmers have seemed unable to complete work on critical new revisions of Office and Windows, both of which have been much delayed.

But Ballmer is firmly in charge. With Microsoft now employing well more than 70,000 people, the job of keeping them all motivated and aligned strategically grows ever-greater. He loves that sort of thing. Ballmer also spends enormous amounts of time and effort on sales and customer relations.

Another idea that has been floating around amid the verbosity of business TV talk-fests is the notion that Microsoft should split itself up.

Dream on. Nothing is more sacred to Microsoft than its integrity as an integrated company. Despite the divisional structure, it is seeking more ways for its groups to work together, not fewer.

Microsoft is just one of a bunch of giant large-cap companies that have been delivering stellar financial results but have elicited nothing but yawns from Wall Street. This is hardly Ballmer's fault. IBM, Time Warner, and Home Depot are other examples. Profit growth seems not to matter.

Microsoft is making roughly seven times as much profit as Google (Charts), but its market capitalization is less than double that of the hot young thing with which it now competes so aggressively. Ballmer could certainly do a better job explaining how irrational that is, but Wall Street's institutionalized obtuseness is hardly his fault.

Until Ballmer decides he's tired of running Microsoft, of which there is no sign, he is there to stay.


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