Not gonna happen as long as Ballmer continues to insist that the "solution" to Microsoft's security problems is to shut up security researchers.
Posted on 11/12/2003 1:56:13 PM PST by ValerieUSA
After watching Microsoft stock fall despite this year's tech rally, Microsoft shareholders sharply questioned Chairman Bill Gates and Chief Executive Steve Ballmer during the company's annual meeting yesterday in Bellevue.
Investors in general are more skeptical after recent corporate scandals and, after three relatively weak years for Microsoft's stock, there were few cheers from the crowd of 1,250 at Meydenbauer Center. Shareholders did not go so far as to throw out any board members, all of whom were re-elected yesterday, and they approved changes to the stock-option plan that Ballmer proposed in July. But they asked when the company will increase its dividend, how it's addressing software security issues, what's going to happen in the European antitrust case (which begins closed-door hearings today), whether it plans to move jobs overseas and why it doesn't use more criteria such as return on investment when granting stock to employees.
The discussion continued after the meeting, with investors peppering Ballmer with questions as he and Gates signed autographs for a few dozen fans. Ballmer gave several investors his e-mail address and promised to address their concerns.
That didn't placate Peter Schroeder, who questioned why the company is holding so much cash — $51.6 billion at the end of the past quarter — as insurance against lawsuits. The Seattle engineering physicist has 64,000 shares and wants the company to increase its regular dividend or make periodic special payouts.
"Well, right now we have legal risk in the business," Ballmer said as he autographed copies of Microsoft's annual report.
"There's never been a settlement anywhere near that," Schroeder replied.
The issue's not about the amount we need to pay necessarily to settlement. It's about potential dislocation perhaps in the business, other things," Ballmer said, before Schroeder cut him off, saying "Fifty billion dollars? Come on."
Then Ballmer fired up, veered off the company line about holding on to cash because of legal risks, and revealed the depth of concern about the ongoing antitrust cases facing the company.
"It would be imprudent, imprudent," he told Schroeder. "If somebody said, 'Look, you really had to break Windows up into pieces,' the cost of that would be incredible, incredible, and so we just think it would be prudent to take the steps with the cash until we know where we stand, particularly with the European Union."
Then he went back to the script. "At the end of the day we all understand it's the shareholders' money," he said, signing another report. "We're managing it prudently, pretty well actually."
The executives' high point came when a bashful student from Edmonds lost his voice trying to say hello to Gates and ask him for advice.Gates drew a warm applause when he asked the boy to send him e-mail instead. "I'd be glad to correspond with you," he said.
Shareholders also approved the appointment of two new board members, Charles Noski, a former AT&T vice chairman, and Helmut Panke, BMW chairman.
One of the first questions from the audience was a three-part critique of the new compensation plan by Doug Kilgore, executive director of the Worker Owner Council of Washington, a group that monitors labor pension investments, including 21.6 million Microsoft shares.
Kilgore said the council approves of the new plan, which compensates employees with stock awards rather than stock options. But it wanted more criteria for giving awards.
Similar concerns were raised earlier by the California Public Employees Retirement System, owner of 55.7 million shares, which voted against the new compensation plan.
Kilgore's group also objects to provisions allowing Microsoft to still grant 50 million stock options, including up to 20 million to a single employee. At recent prices, that person would get options worth about $520 million.
"We were wondering if you can imagine a circumstance that can justify such a grant, because we certainly can't, none of our shareholders can. And if you can't, why did you put that in the plan?" he asked the executives.
Ballmer said the provisions were intended to give management flexibility. He said the size of options grants would vary up or down with the stock price.
One of the company's last huge option grants — 3.5 million shares — came when it lured Rick Belluzzo from his job as Silicon Graphics chief executive. Belluzzo joined Microsoft in 2000, became company president in 2001 and resigned in April 2002. The president post has since remained open.
Ballmer also defended the criteria used to issue stock awards under the compensation plan. The top 600 or so employees will get awards based on how many customers the company gains, usage of the company's latest products and customer satisfaction.
Grants to the other 55,000 employees "will in effect only be based on the performance of the stock," Ballmer said.
Afterward, Kilgore said he was not at all satisfied with Ballmer's explanations and the council will ask for more changes at Microsoft. Next year, the council may float a proposal to let shareholders vote on the company's choice of auditor. It has no particular issue with Deloitte & Touche, Microsoft's current auditor, but it would prefer that Deloitte stopped doing non-audit business with Microsoft in addition to its auditing, Kilgore said.
In response to the question about the European antitrust case, which begins a three-day closed hearing today in Brussels, Microsoft Chief Counsel Brad Smith said the company still hopes to resolve the case "in an amicable way," as it did in settling with the U.S. Department of Justice, 18 states and the District of Columbia.
"We're hopeful that in the coming weeks and months we'll similarly be able to work things out with the European Commission," he said.
On other matters, Gates said that to prevent attacks from computer worms and address other security vulnerabilities, security is now getting the largest portion of the company's $6.8 billion research and development budget.
Ballmer said Microsoft does have overseas development centers in India and China, but most of its software development efforts will remain concentrated in the Puget Sound area.
Not gonna happen as long as Ballmer continues to insist that the "solution" to Microsoft's security problems is to shut up security researchers.
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