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Nadella: The Next Face of Microsoft

Stocks in this article: MSFT

This article originally appeared on Jan. 31, 2014, on RealMoney.com. To read more content like this plus see inside Jim Cramer's multimillion-dollar portfolio for FREE... Click Here.

Rumors surfaced late Thursday that Microsoft (MSFT) had selected internal candidate Satya Nadella to become its third CEO. The news came as a surprise to many, but it shouldn't have.

In TheStreet on August 27-- the day after Steve Ballmer announced he was retiring -- I suggested that Bill Gates was most likely to select Nadella. Why did I think this? Of all the people on the Microsoft board, Gates is undoubtedly the strongest. He's the founder. The rest of the board all pretends that they are meeting their fiduciary responsibilities by asking tough questions and providing strong oversight. But it's Bill's company and it is Bill's board.

This suggested to me that it had to be someone with whom Bill was comfortable. As the search process played out, we saw that even the outside contenders for the job -- like Alan Mulally -- have all had a personal tie to Gates.

The company is under tremendous pressure from outside observers to change. The forced removal of Steve Ballmer certainly was a sign that the board knew that it needed a change of direction. Even though a search for the next head of Microsoft would go far and wide, considering a vast number of candidates, I never believed that Gates would opt for a radical choice.

Gates was never going to hand the keys to someone he perceived as a novice outsider who would rip apart the company indiscriminately -- all for the need to change. I'm not saying the company doesn't need some change. I'm just saying Gates was never going to go there. I also believe it was Gates' inherent conservatism that made younger candidates like Tony Bates unlikely choices.

Nadella stood at the top of the class of all the internal candidates. He built a monster of a cloud business for Microsoft. He successfully drove Server & Tools into a juggernaut multi-billion dollar business. That was a major business success in the areas which are Microsoft's future? Check. He was also a Microsoft lifer, liked and respected by Gates and every other engineer. That counted for a lot.

What's most surprising about the choice, though, is how much Wall Street seems to like it, at least based on the movement of the stock in the after-hours. If you'd asked me to predict ahead of time how Wall Street would react, I'd say they'd sell the shares, interpreting the hire as a sign that the company will stay together and not take the radical steps they'd like it to get. We'll see where the shares trade in the coming days.

Wall Street seems relieved for now that Microsoft's board has made a decision and is willing to start getting on with the business of installing the new leadership team.

At the time of publication Jackson had no positions in MSFT.



  Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

  Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

  He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

  You can contact Eric by emailing him at Dr.eric.jackson@me.com.

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