Why Satya Nadella Was The Best Choice For CEO Of Microsoft Corporation

Microsoft Corporation (NASDAQ:MSFT) shareholders ought to give Nadella the benefit of the doubt.

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WASHINGTON, DC — Microsoft (NASDAQ: MSFT.US) announced the appointment of insider Satya Nadella as its new CEO on Monday.

Microsoft CEO Satya Nadella. Source: Microsoft.

The rationale for going with an outsider to replace Steve Ballmer as Microsoft’s CEO was excellent. The software giant has only had two CEOs: co-founder Bill Gates and Ballmer, who was hired by Gates out of business school in 1980, five years after the company was founded.

Both men were not just steeped in Microsoft’s culture; they were its culture — one that was caught flat-footed by several critical shifts in the technology landscape that have sprung from the development of the Internet (search, Web-enabled applications, the shift from PCs to mobile devices, etc.).

However, it now appears clear that Microsoft, as an organization and a culture, was not ready to put an outsider at the helm. That is perhaps disappointing to some shareholders, but there are undeniable advantages associated with selecting a “company man.”

Microsoft is a sprawling organization with an aggressive corporate culture — not an easy environment for an outsider to come into, particularly when they are tasked with creating Microsoft 2.0 at a critical juncture (of course, one could argue that executives at this level are paid a lot of money to take on difficult tasks). For the right insider, knowing the ropes and being able to hit the ground running is extremely helpful.

Is Nadella the right insider? From what we know about him, his background and experience at Microsoft, the signs are encouraging. Armed with two degrees in engineering and a stint as head of R&D for Microsoft’s Online Services division, Nadella brings a technological savvy to the role that his predecessor lacked. Still, Nadella is a businessman: The Wall Street Journal reports that even as far back as his undergraduate days in India, Nadella told a classmate that “he wanted to get involved in marketing at a software company.”

Furthermore, before coming CEO, Nadella was head of the Cloud and Enterprise Group — a growth engine for Microsoft. In that role, he’s had the chance to observe the changing dynamics of the enterprise software market as companies increasingly move to hosted solutions — i.e., corporate users access software hosted on hardware that is maintained by an outside party.

Finally, I’m impressed that he effectively negotiated a new role for Bill Gates, that of technology advisor — Gates will no longer be chairman of the board. That position goes to lead independent director John Thomson. While Nadella paid tribute to Gates in his statements and his first company-wide email, this board shake-up is, in my view, essential to giving Nadella the latitude to make the necessary changes at Microsoft.

Speaking of his companywide email (you can read it here), pundits are poking fun at it for being long on lofty, big-picture ideas and buzzwords and short on specifics. This does not trouble me — was anyone really expecting a laundry list of specific actions? As far as its references to “making the world a better place,” a shot of idealism from the top isn’t harmful — nobody bats an eye when the leadership of Facebook or Google uses similar language.

In time, shareholders will need to judge Nadella on results; for now, however, they ought to give him the benefit of the doubt.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alex does not own shares in any company mentioned. The Motley Fool owns shares in Google.

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