Gates Admits Grim Defeat, Urges Staff to Maintain Focus
Microsoft Corp. Chairman Bill Gates told his 34,000 employees Thursday that the company lost Round One of its landmark antitrust case about as “miserably as one could possibly lose.”
That blunt appraisal of the company’s legal misfortunes, carried over Microsoft’s intranet and beamed into employees’ computers, is one example of how Gates and Chief Executive Steve Ballmer have tried to inspire staff loyalty under the tremendous strain and scrutiny of the federal antitrust trial.
“People are staying because they believe in Bill and Steve’s vision and because of their track record over the past 25 years,” said Dick Brass, Microsoft’s vice president for technology development and a former strategist for Oracle Corp. “They have also been extremely generous to employees. That kind of executive behavior inspires loyalty.”
To get through what could be as much as two more years of legal wrangling, Gates and Ballmer will employ the same strategy that they have for the past two years: urge employees to remain focused on creating new technology, while they and the legal team concentrate on the antitrust trial. For the most part, employees accept that.
“People believe it because they know Microsoft has succeeded in the past because of its focus,” said Bill Hill, a Microsoft researcher. “That’s one thing you don’t lose. Microsoft has won in the past by keeping its focus on the right things.”
Said Brass: “I think why people are willing to stay and focus on the work when the government, the media and our competitors are saying horribly nasty things about us is due to the example that Steve and Bill have set. It makes a huge difference to me.”
Gates and Ballmer used a variety of tools to keep workers informed about the legal proceedings, to keep them motivated, and to get them to remain at the company. Besides virtual meetings, there were companywide e-mails, face-to-face meetings explaining the antitrust case, and the granting of additional stock options.
In the breakup order issued Thursday, U.S. District Judge Thomas Penfield Jackson attacked the credibility of the company’s top leaders, saying they couldn’t be trusted. For the thousands of employees, known as ‘Softies, such descriptions of Microsoft as bullies or liars couldn’t be farther from the truth.
Ballmer sent a lengthy e-mail to all employees Thursday that outlined the specifics of the case and why the company would win on appeal. It began by saying: “We have faced many challenges together at Microsoft.”
Such efforts at portraying the staff as part of a larger team, or even an extended family, seem to be doing at least some good. Although there have been some recent departures of senior executives, Microsoft officials say they still receive 1,000 job applications a day for a variety of positions. The company’s annual attrition rate, about 7.4%, is half the 15% average for the technology industry.
In April, Ballmer unveiled a new stock-option plan designed to ease any financial anxieties among employees, many of whom had seen their options go “under water” as Microsoft’s stock declined. All employees received additional stock option grants at the then-52-week-low price of $66.62 a share. Usually, the company grants options once a year, in July, that are tied to a worker’s annual evaluation. Microsoft shares, which are off 41% this year, closed Thursday at $68.81, down $1.69 in Nasdaq trading.
A former Microsoft employee who left for a Seattle-area “dot-com” said her former co-workers were more worried about the falling stock price than whether the company will be broken up. “I think the [original] grants will have value long-run, but I want to preempt undue concerns by awarding these new grants that will let people see returns much sooner,” Ballmer wrote in an internal e-mail to staff.
At Thursday’s virtual meeting, Gates was flanked by legal strategist Bill Neukom and Jeff Raikes, group vice president for worldwide sales. Ballmer, who was visiting with customers in Great Britain, appeared via teleconference.
Gates offered an assessment of the judge’s ruling and acknowledged that Microsoft had lost Round One, but he made it clear the company expects to win Round Two--at the federal appeals court, employees said.
Ballmer, meanwhile, focused on the industry challenges facing the company and urged employees to stay focused on their jobs.
“They’ve been pretty open,” said one program manager in the developer’s group. “It’s just better that Bill acknowledges that we lost miserably because it makes you feel better that the top people have an accurate view of what’s going on. I completely trust them to make good decisions. That makes me feel I can concentrate on my job.”
It’s this trust that has prompted critics, academics and former employees to describe Microsoft’s culture as a tech cult, in which one of the common phrases to show someone’s absolute belief is whether he’s “drunk the Kool-Aid.”
At Microsoft’s Redmond, Wash., campus, they’ve been drinking the Kool-Aid for a long time. Observers use the phrase to explain the company’s extraordinary success and fierce will to win, as well as its inability to question its own tactics and its refusal to compromise.
“The Microsoft corporate culture can be broken down into four key parts: a tremendous work ethic; Bill Gates is always right; an us-versus-them mentality; and Bill Gates is always right,” said Michael Gartenberg, formerly chief analyst of Microsoft for the Gartner Group and now partner with the venture-capital firm Dellit. “If you execute on all of that, you get to retire in your thirties as a multimillionaire.”
Shawn Sanford, an eight-year ‘Softie and group product manager for Windows desktop, still has confidence in the company.
“It doesn’t hurt for your leaders to be successful in the past to get people to go forward with you,” Sanford said. “The thing that keeps me here is the belief in what we’re doing. Bill and Steve are showing plenty of enthusiasm for the new products and that makes me feel good about what I’m doing.”
