Gates’ Exit Met with Ambivalence?

How much is Bill Gates worth to Microsoft? It’s an intriguing question, especially since he has announced that he will be leaving the company in 2008 after 33 years.

Does a senior executive’s wage reflect their value to the company? In Gates’ case, he was paid a $600,000 salary in fiscal 2005 and was awarded a $400,000 bonus: loose change to him. But he also owns over a billion Microsoft shares, and over the last ten years Microsoft’s stock has more than doubled, making him quite a few pennies.

But does that reflect his current worth to the company?

Perhaps it is better to look at what happens to a company’s share price when a senior executive joins or leaves. That is a reflection of what the market – the stock market at least – believes the executive is worth that firm.

When Sun COO Ed Zander left after 15 years there, Sun’s stock fell 14%, shaving $2bn from its market capitalization. When it was announced Zander was joining Motorola as CEO, Motorola’s stock rose 4.2%, adding almost exactly $2bn to Motorola’s valuation.

What happened to Microsoft’s stock when Gates announced he is leaving in two years’ time? Virtually nothing, and since then it has actually risen.

You could argue that since Gates announced an orderly transition, only leaving in two years’ time, that the market is yet to react fully to the news. You could argue that since he will retain his title as chairman even after that date, the market doesn’t consider him to be leaving at all.

But the timing of his announcement – it was made after the stock market closed for the night – was clearly chosen to try and avoid a sudden share sell-off should investors have panicked. The fact that Microsoft is more or less replacing Gates with two people, Ray Ozzie becoming chief software architect and Craig Mundie the chief research and strategy officer, also reflects Microsoft’s nervousness at having to announce Gates’ news, and its attempt to reassure the market that he will not be missed.

Perhaps those measures taken together helped soothe investors’ nerves. But the company’s evident paranoia about breaking the news seems with the benefit of hindsight to have been wholly unjustified. What that says about the market’s perception of Bill Gates’ worth to Microsoft is worth noting, because it also says a lot about the market’s perception of Microsoft as it finds itself in the current competitive environment.

Microsoft is perhaps facing its greatest challenge yet as it competes with Software as a Service (SaaS) in general, and Google in particular. The investment community was largely unmoved by Gates’ imminent exit, which is perhaps a good barometer of the fact that he is leaving at exactly the right time, allowing some new minds to step forward and conjure up an effective response to its latest challenges.

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