Most boards choose to ignore or have never learned the process of selecting a new CEO. Assuming Satya Nadella is, as rumored, the new CEO, Microsoft’s board is refreshingly following this process. The goal isn’t to hire the most controversial young minority CEO in training but actually to get someone who has a reasonable chance of improving the firm’s performance. Let’s talk about Microsoft’s new CEO and why he is likely the best person for the job.
Three Paths to CEO
A company is generally in one of three states when a new CEO is selected.
In the first scenario, the company is in fantastic shape, like Apple, and the new CEO just has to come in and not break anything. This is actually the hardest of the CEO selection processes because the old CEO has a ton of power; may select someone inferior or micro-manage from the board, making the new CEO unsuccessful; or leave impossible shoes to fill. Tim Cook is failing at Apple because Steve Jobs wanted his job back (up until the end, he believed he would be cured of his illness), and left almost impossible shoes to fill. Cook was the guy who did all the stuff Jobs hated. He was basically Jobs’ polar opposite, and there was no doubt that Apple would slide under Cook’s leadership. Apple’s board didn’t do its job.
In the second scenario, the company is a train wreck and needs massive corrective action. This is the second hardest spot to fill because you need to find a suicidal turnaround executive. Turnaround efforts are where CEOs go to watch their careers go up into flames. HP has demonstrated this over and over again. Only Mark Hurd is still active. He is kept under a tight leash by Larry Ellison and isn’t exactly setting the world on fire over at Oracle, but he did the best out of those who got shot out of HP like a cannon. Louis Gerstner was the most successful in tech. He came into IBM from Nabisco and was selected after Jerry York was put into the CFO roll. IBM’s board did its job nicely and the result was a vastly improved IBM.
The third hardest, but often the most subtle, scenario is the company that is doing well but has issues. This takes a steady hand and there should be adequate candidates inside the firm. You see, in this instance, you want to reward the executives who have been performing well. If you hire from outside, one or more of the insiders may leave, causing the firm to trend downward. So you look at your most capable executives and bet that they can stretch or hire to fill the gaps in their own background and knowledge. This is the process, with enhancements, that IBM used to success for most of a century and why it is one of the very few companies that have lasted that long.
Why Satya Nadella
When Steve Ballmer said he was stepping down and I was asked who should replace him, Satya Nadella and Qi Lu were my top choices. This is because Microsoft needs to develop to fight in the mobile market and Nadella is its strongest mobile executive. Mobile has two parts: It has the client, which is important, as Apple and the iProducts have showcased, but it also has the services to which it connects. We now call most of that “the cloud,” and Nadella has driven Microsoft’s high-profile cloud efforts to unprecedented success. As noted above, you want to pick someone who is successful and can stretch. Picking someone from the device side who wasn’t successful wouldn’t be the smart thing to do because the likelihood of failure would be far higher.
I’ve observed Nadella. He isn’t a great presenter but knows this and uses people who are better at it to communicate publicly. This is the sign of a great leader, one who knows his weaknesses and uses others effectively to mitigate them. Jobs got Cook to do all of the things he sucked at. Cook is failing because he isn’t doing the same to back fill Jobs. Nadella knows it isn’t the person who makes for a successful company, it is the team. That skill is both rare and critical in a CEO of any company.
In addition, he is very well regarded by his team and in the company. He has a long history with Microsoft, is well connected to Microsoft’s large Indian development arm, and is both a known and well-regarded leader. It doesn’t hurt that his division has been Microsoft’s brightest star, either. A lot of executives in large companies are seen as politically proficient but operationally inept. Nadella is viewed as a person who earned his position and he has the respect that comes from taking the longer path fueled by accomplishment and excellence.
It is interesting to note that Mini-Microsoft, the now defunct blog from inside the company, seemed to point to someone like Nadella in the last post. He understands the technology.
Wrapping Up: A Path to a Better Microsoft
As a result of this process, assuming Nadella is named, Microsoft will end up a much better company, and it is once again showcasing good business practice. It is interesting to note that it has also gotten rid of forced ranking as a process and is moving to set an example as to how large companies should be run. Executives should be selected on merit and competence, and employees should be graded the same way. Suddenly, Microsoft is becoming a vastly better place to work and, I’ll bet, a far more successful company as a result.