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June 16, 2006

billg – Shouldnta preAnnounced

Bill Gates will do a world of good by devoting his intelligence, his energy, and his take-no-prisoners style to the Bill and Melinda Gates Foundation. The tasks the foundation has set for itself in the developing world are even harder than what Bill did at Microsoft. And the foundation really is big enough to make a difference in some of the world’s most intractable problems although it is not a forgone conclusion that it will succeed.  That’s what intractable is all about.  It’s certainly a worthy challenge and three cheers for Bill for stepping up to it.

If Bill had asked my advice, which he certainly didn’t, I would have told him not to preannounce his retirement from Microsoft. It would have been better just to hold a press conference on the way out.

As usual, I learned this lesson the hard way.  I preannounced that I was leaving ITXC, the company Mary and I founded and which I had run from its inception. I had the best of intentions in making the preannouncement.  The consequences of the preannouncement were almost all negative.

I had always intended to retire at 60 if I could afford it, write a book, and devote more of my time to nonprofits and charitable endeavors.  In anticipation of new careers, Mary had already retired from her job as marketing VP at ITXC and thrown herself into work with the Red Cross, Grameen Foundation, and other charities and good causes. I hesitated for a year because ITXC wasn’t quite where I wanted it to be and I wanted to get that damned stock price up from its Internet rubble lows.

I had no clear internal successor.  The best candidate, I felt, was a couple of years away from being ready to be CEO of a public company which now had hundreds of millions of dollars of revenue and was one of the largest carriers of international voice traffic in the world. He was (and is) very good.  Although I had told the board they should make him CEO if I got hit by a bus, I thought, given that I was still alive, we should do an outside search and find someone with “exactly” the right experience and contacts for the CEO job, someone who could do a better job than me at the next stage of the company’s development.

But here’s the dilemma: a public company has a responsibility to be reasonably transparent. A CEO has a responsibility to tell his or her employees about significant changes that may affect them. If word that we were doing a search leaked out, SEC rules would have (rightly) forced us to make an immediate announcement. How secret can you keep a search in an industry where everybody knows everybody?  So I decided to announce my intention to retire and the fact that we were doing a search.

Big mistake.  I shoulda reread King Lear instead.  Transitions of power are not something that homo sapiens do well.

The stock price went down. Would’ve hurt my feelings if the announcement made it go up but the low stock price made the company - which had excellent technology, great people, a good market position, and lots of cash - a tempting takeover target.

I got a call from IDT – a larger company, a customer, a supplier, and a competitor, asking me to come by and discuss a possible merger or acquisition.  Responsible CEOs follow up on such things so I went up to Newark for a visit. Interesting possibilities but nothing conclusive after an initial meeting.

A day or so later I got a call at home from an IDT executive telling me that they intended to make a hostile offer for the company directly to our shareholders at an insultingly low (my opinion) price.

The public letter from their chairman talked about sparing our shareholders the pain of a CEO transition. We fought back (I’ll tell more of this story some other time). They never did make a formal offer to our shareholders. 

But the result was that we were now in play.  We had to hire investment bankers at an enormous price to examine our “strategic alternatives.” Eventually the company merged with Teleglobe but was not the surviving entity (except in a very technical sense since the merger made Teleglobe a public company).

It was more than a year after my initial announcement before the deal actually closed.  During that year the company lost key people, most in anticipation of the merger but some before that. We lost ground in the marketplace.  I couldn’t lead as well, not only because I was distracted but also because I was a lame duck. We didn’t innovate at the pace we were used to innovating nor execute as well as we were capable of executing. People were distracted – understandably – by worries about their own careers.

The stock did rise in the interim to several times what IDT had offered so people did have a chance to get out at a price much better than they would have gotten had we accepted the offer. Some consolation but didn’t make up for us never becoming everything we could’ve been.

With hindsight, I should have either found a way to do a very secret search for a successor or immediately given the role to the best qualified inside candidate.  It’s tempting to say that I could’ve stayed on as chairman (as Bill Gates intends to do) and mentored the next CEO; but I think that would’ve been a mistake as well.  Transitions need to be clean.  Drawing transitions out focuses a company on all the wrong issues and leaves individuals understandably obsessed with their own futures.  Transitions make companies look inward when success requires always looking outward at customers and competitors.

Leadership is always hard.  Lame duck leadership nearly impossible.

During the years I was at Microsoft, I learned a lot from Bill Gates about management, almost all of it positive.  The company was incredibly externally focused.  Politics are inevitable in any organization but Bill’s leadership kept us focused enough to win most of the battles we fought. The enemy WASN’T us.

Bill’s move to the foundation is good news for the world. He would be a loss to Microsoft under any circumstances. I think the company will do better the swifter the transition. And there is plenty outside the company for the 50 year old Bill Gates to do. I look forward to seeing him make an enormous difference in the lives of those who need help the most.

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NEXT CHAPTER It's fascinating to see the world media's reaction (as seen from Google News), to the news of Microsoft founder Bill Gates transitioning himself out of his baby since the announcement on Thursday (June 15th). Not to mention some good piece... [Read More]


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