New Microsoft boss Satya will have Gates at his side

He comes with the kind of technical bona fides that Gates was said to strongly favour

Bill Gates is back in the building at Microsoft. On Tuesday, Microsoft announced that Gates, a longtime titan of the tech industry, was shedding his role as chairman to dig in more with products and technology at the company, which he co-founded nearly 40 years ago.

At the same time, he is expected play a distinctly secondary role to Satya Nadella, whom Microsoft named as its new chief executive. Nadella asked Gates to become a part-time adviser to him, a change that comes with great potential upsides for the company, but some potential land mines, too.

In a short video Microsoft posted online, Gates, beaming in a red sweater, said he looked forward to helping Nadella. “I’m thrilled that Satya has asked me to step up,” said Gates, who will remain a member of the Microsoft board. “It will be fun to define this next round of products, working together.”

Gates will substantially increase his involvement with the company, spending more than a third of his time there. In recent years, as the company’s chairman, he has been a more detached and infrequent actor at Microsoft, devoting less than a fifth of his time to it. Despite his new role, though, he will continue to stay deeply involved in his work as a globe-trotting philanthropist.

The prospect of having a luminary of Gates’ stature kicking around the hallways on a regular basis has easy appeal. He can help lift morale - he remains a revered figure at the company - and is known as a strong judge of products and technology. But the company has not nailed every product that Gates has been closely involved in, most notably Windows Vista, a version of its operating system that was panned for early technical problems.

In addition, Gates, 58, could also complicate matters for Nadella, a low-key, 22-year employee of the company who can afford no confusion about where the buck stops.
“It is a dance because on the one hand, Gates is a huge asset,” said Bill Whyman, an analyst at the ISI Group, a stock research firm. “On the other hand, he casts a very big shadow, as any founder would. He’s not just a company founder - he created the PC revolution.” One precedent is the last and only other chief executive transition at the company, in 2000, when Gates turned over the title of chief executive to Steven A Ballmer.

In his first year as chief executive, Ballmer and Gates tussled over important decisions. (Gates remained chief software architect until 2008.) The tension between the two men, good friends since their college days, eventually subsided when Gates realised he needed to give Ballmer room to govern.

Since limiting his role to chairman six years ago, Gates has practically worn out his voice dismissing questions about whether he wants to come back to run the company’s day-to-day operations. And while he is tilting back to the company, Gates in his move does not seem to portend any sort of power grab, as happened at Apple in the late 1990s with Steve Jobs, a longtime rival of Gates.

Nadella, 46, comes with the kind of technical bona fides that Gates was said to strongly favor in candidates for the chief executive job. With degrees in computer science and engineering, and a solid track record from running Microsoft’s cloud computing and corporate software groups, Nadella has managed some of the company’s most lucrative businesses.

Devotion to philanthropy

He has yet to prove himself, however, in areas like mobile, which Microsoft must get right in order to stay relevant in technology. Jeffrey A Sonnenfeld, a professor at the Yale School of Management who has written about how chief executives interact with their former companies after retirement, said some corporate leaders were “monarchs,” who refuse to give up power. Sonnenfeld said he did not include Gates in that group because of his devotion to philanthropy.

“What you really worry about is when someone returns as a founder and has the potential of becoming a monarch because he has no outside interests,” said Sonnenfeld, who believes Gates will be a “mentor in chief” to Nadella. “You don’t have that here.”

After leaving to work for his foundation six years ago, Gates continued to meet with Microsoft executives to review product plans. He still maintains an office on the Microsoft campus in Redmond, Wash., in Seattle’s suburbs, though he often held the meetings in his personal office in nearby Kirkland.

Those sessions often feature Gates’ brusque cross-examinations, which seem to have mellowed only slightly in recent years. Robbie Bach, a former Microsoft executive who retired from the company in 2010, sat through many of those reviews with Gates, including several after Gates left full-time work for the company. “They were not always fun but they were always good,” he said. “His technical range is very wide and remarkably deep.”

The change in Gates’ role at the company also suggests it would like warmer relations with investors. Wall Street was largely indifferent to Microsoft’s stock for most of Ballmer’s tenure. Although Ballmer significantly increased revenue and profits during his time, the billions of dollars Microsoft lost competing with Google in search and other missteps overshadowed everything else.

Gates is giving up the chairman role to John W. Thompson, Microsoft’s lead independent director, who already appears to be positioning himself as an ambassador to Wall Street - a role Gates showed little appetite for in recent years.

The company is eager to avoid a public tussle with activist shareholders, who seem to be focusing more of their energies on technology companies. Microsoft last year averted a showdown with one such investor, ValueAct, in an agreement that is expected to result in one of ValueAct’s partners joining the
Microsoft board.

“As part of my new role,” Thompson said in a video, “one of my key contributions, I hope, will be to engage with shareholders and keep focused on how together we can bring great innovation to the market and drive strong long-term shareholder value.”
The shuffling of Microsoft’s leadership may not appease the company’s skeptical investors, many of whom favor a firmer break with the past. Some investors have called for Gates and Ballmer to leave its board, while others have called on it to sell off its Bing search service and other assets to focus more on the lucrative market for corporate software and services.

To critics of the company, Nadella’s appointment was viewed as a safe choice, not as bold as bringing in an outsider to shake things up. Microsoft’s shares closed down slightly Tuesday.

Daniel H Ives, an analyst with FBR Capital Markets, said he believed that Nadella would have less time to prove himself than Ballmer did, in part because Nadella does not have the same relationship with Gates and because Gates is no longer chairman. “I think it’s going to be a much shorter leash with Nadella,” Ives said.