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Steve Ballmer is his own man, finally

After three decades in Bill Gates' shadow, the former Microsoft CEO has a seven-point plan to reinvent himself on a scale worthy of America's 18th richest person

Published: Oct 24, 2014 06:36:12 AM IST
Updated: Oct 24, 2014 08:32:37 AM IST
Steve Ballmer is his own man, finally
Image: Rick Dahms for Forbes

I love great views, Steve Ballmer says with a grin as he takes me on a quick tour of the 40th-floor apartment he just rented in Bellevue, Washington. One set of picture windows faces the Downtown Seattle skyline. Another provides a gorgeous view of Mount Rainier to the south. I realise one outlook is missing: To the northeast. The apartment’s interior walls prevent us from looking inland toward Microsoft’s giant campus, where Ballmer worked for most of his adult life.

The past is vanishing. From this new perch, Microsoft is literally behind Ballmer and out of sight. The long-time chief executive still commands the room with the same booming voice and wild gesticulations that made his public appearances at Microsoft legendary spectacles. But it’s not his job anymore to cheer-lead for Windows, Bing or a host of other Microsoft efforts. Control has passed to a new chief executive, Satya Nadella. When I ask Ballmer how often he hears from his successor, the wry answer is: “Once a month—maybe.”

Instead of waiting for calls that won’t come or, even worse, butting in, Ballmer is on to the next thing and trying to pull off the biggest relaunch of his career: Himself.

“I’ve got a seven-part plan,” says Ballmer. Playfully, he starts talking about the little stuff: Getting himself into better physical shape, improving his golf game and keeping tabs on his 333 million shares of Microsoft. He’s getting tutored in areas that intrigue him, such as Hebrew: “I never had a bar mitzvah when I was a child.” Eager to rectify that gap, he wants strong enough Hebrew skills to be able to recite his Torah portion. But then the banter stops. Ballmer knows that at 58, with a $22.5 billion net worth that puts him at No 18 on The Forbes 400, he is too young, too rich and too full of unrealised goals to while away his next decades with the small hobbies of an ordinary corporate retiree.

So now we get to the big items on Ballmer’s list. Atop the priorities: Maximising his recent, eye-popping $2 billion purchase of the Los An- geles Clippers basketball team. Re- gardless of how many people think he overpaid—pretty much every- body—Ballmer sees value. Mean- while, he and his wife Connie are feeling the first stirrings of wanting to do something sizeable in the civic/philanthropic areas. Analytical to a fault, Ballmer has been hanging out with everyone from bloggers to the head of the Congressional Budget Office, trying to figure out if there’s some gap in government redistribution programmes where he— and his money—could make everything work better. Finally, Ballmer is wrestling with the tangled legacy of his 34 years at Microsoft. He is closely associated with the company’s biggest successes (Windows and Office) and its most awkward missteps (Bing search, the Windows phone, the Zune MP3 player). Ballmer says his record speaks for itself, particularly his success in tripling Microsoft’s profits during his 14 years as CEO. “Only two companies in America— put the oil companies aside—make the kind of money we make,” he says.

Linking everything is Ballmer’s long-simmering need to establish himself as his own man after having lived in the shadow of Bill Gates and Microsoft for decades. When the two men were Harvard classmates in the mid-1970s, Gates was the Pied Piper, encouraging the highly conscientious Ballmer to join him in skipping classes, on the (correct) belief that both could muster an A on the final anyway. During Microsoft’s early years, Ballmer constantly was put to work, fixing the company’s toughest problems, yet was never given the title of president until at least three other executives had cycled through that job. Even more recently, when Ballmer was CEO and Gates had semi-retired, the leadership baton never fully passed. People feared Ballmer, but they revered Gates.

Several friends note that Ballmer is spending a lot more time in Los Angeles these days, not just because he bought the Clippers but also because it lets him break free of Seattle. He’s revisiting his legacy this autumn by teaching at Stanford and USC business schools. Eager to talk about both his stumbles and successes, Ballmer’s main goal is to show that his playbook remains relevant to a new generation of leaders. Most tellingly, Ballmer is starting to sketch out a philanthropic vision that doesn’t involve being a small planet orbiting the giant sun of the $40 billion Bill & Melinda Gates Foundation. The Ballmers have yet to set up their own foundation, but he waives off the notion of following Warren Buffett’s example and passively submitting his wealth to the Gates team to manage. “It’s great what Bill and Melinda are doing,” he says. But adds that he wants to find his own path this time.

Ask people to rate Ballmer’s performance in running Microsoft and you’ll collect a shockingly wide range of opinions. His harshest critics focus on all the things that didn’t go right: a messy, five-year struggle to launch the Vista operating system; ill-fated acqui- sitions such as the $6 billion purchase of aQuantive; and the chronic inabili- ty to catch up with Google in search or Apple in mobile phones, music players and tablets. Such fault-finding led prominent hedge fund manager David Einhorn to call for Ballmer’s ouster in 2011, contending that “Ballmer is stuck in the past and is at best a caretaker at Microsoft.”

In the other camp are panoramic thinkers like Warren Buffett, who noted in his 2009 annual sharehold- ers’ letter that Ballmer had the bad luck to take office in early 2000, just as the tech-stock bubble was about to pop. The ensuing fast skid—and slow recovery—of Microsoft’s share price has meant that the company’s stock performance during Ballmer’s tenure has forever been tarnished by an un- fair starting point. By measures such as profit growth or the longevity of the huge Office and Windows franchises, Microsoft’s performance during the Ballmer era looks far better.

Given the chance to appraise himself, Ballmer asks if he could begin the clock in 1980, when he joined the company, rather than in 2000. He then begins going over his own report card, getting louder and more wide-eyed with each crescendo.

“My total time kicked ass,” he declares. “I made mistakes. I kicked ass! I tried some things that haven’t worked, could still work, did great. I’m not going to tell you it was per- fect. That would be silly. On the other hand, let me say that I was a leader—the leader! Do whatever you want with Bill and I over the years, where the relationship changed periodically. Over the past 35 years we have probably generated as much profit for shareholders as almost any company in America.”

The business-according-to- Ballmer book will not be in stores anytime soon, if ever. Unlike Jack Welch, whose career recap was an immediate bestseller upon his retirement from General Electric, or Lou Gerstner, who scored with his IBM post-mortem, Ballmer isn’t inclined to pen such a book.

About 90 MBA students are currently getting the wisdom of Ballmer once a week at Strategic Management 588, a class Ballmer is teaching at the Stanford Graduate School of Business with professor Susan Athey. Most of the examples will come from Microsoft. One lecture on brand building through storytelling, for example, will contrast Microsoft’s spectacular rollout of Windows 95 two decades ago with its patchier efforts last year to bring the Surface tablet to market.

“He’s willing to be critical,” says Athey. “He really wants to get the right answer, and he’s not going to stop until he understands something.”

Kicking around Microsoft’s past in a classroom may be the safest place for Ballmer to sort out why the company lost some of its innovative magic in recent years. But it’s not Ballmer’s style to grouse about his old employer in public. Noting that Microsoft stock is up about 26 percent since Nadella took over as CEO on February 4, Ballmer says he is thrilled, adding, “He’s off to a fantastic start.” And when our interview recording is briefly halted by a mix-up involving my Android phone, Ballmer gives me a withering look. “You wouldn’t be having these problems,” he declares, “if you used a Windows phone.”

Sports have been a profound part of Ballmer’s life since high school, when he was a 260-pound lineman for Detroit Country Day School. Ballmer still remembers the thrill, as a senior, of getting to wear jersey 71—the same number as his hero, Detroit Lions defensive tackle Alex Karras. Glory turned out to be fleeting. By game five of the season, Ballmer was benched in favour of a lighter teammate with greater agility. He took the lesson to heart in college, heading to the sidelines at Harvard and becoming the varsity football team’s student manager. “Ballmer had hit his athletic ceiling by college, but he loved sports,” recalls James Kubacki, who was Harvard’s quarterback at the time. “Being the manager was his way to stay connected. He got the footballs in place for our drills. He set up trips and ran the business side. He ran ev- erything. He loved being part of the team, and he appreciated athletes’ ability to play at a high level.”

Throughout his Microsoft years Ballmer kept competing in tough, demanding sports, even if the results weren’t always pretty to watch. In the late 1980s, he took up distance running to lose weight. In 1988, Ballmer ran the New York Marathon in a respectable 4 hours, 35 minutes. He married Connie in 1990 and quickly switched to predawn basketball. Ballmer established a tradition of meeting Microsoft managers for pickup games at a gym next to the Redmond campus. People who have seen Ballmer play say he has a surprisingly smooth jump shot, albeit with a vertical leap best measured in millimeters. A dodgy ankle finally put an end to Ballmer’s hoops career, forcing him to retreat to the relatively safety of golf.

All the while, Ballmer was making waves as a well-heeled fan. He started buying season tickets in the 1980s to watch the SuperSonics, Seattle’s National Basketball Association franchise. By the 1990s, Ballmer was chatting sports periodically with Microsoft co-founder Paul Allen, who owned the NBA’s Portland Trail Blazers.  

In 2006, when the SuperSonics’ new owners were poised to move the team to Oklahoma City, Ballmer became the lead investor in a group that promised to keep the team in Seattle. Those hopes were dashed when local government support for their bid failed to come through. Ballmer tried again in 2013, attempting to acquire the Sacramento Kings when they were up for sale. No such luck. Then in April, Clippers owner Donald Sterling made his idiotic racist comments and got blackballed by the NBA.

“Ballmer had promised me he wouldn’t jump into anything big for the first six months after leaving Microsoft,” Connie recalls. But the chance to own an NBA team in a top-tier market was too good to pass up. Ballmer initially told friends he expected to land the team for $1.5 billion, nearly triple of what anyone else had ever paid for an NBA franchise. When other bidders appeared willing to pay that much, too, Ballmer unleashed a gigantic $2 billion bid that—at last—won him entry into the NBA owners’ club.

Did Ballmer overpay? Even in a business with ego-driven multiples, he paid 12 times this year’s estimated revenue (and about 104 times op- erating earnings) versus the “usual” five times revenue. But Ballmer isn’t backing down. In an August 12 ESPN interview, Ballmer said, “It’s not a cheap price, but when you’re used to looking at tech companies with huge risk, no earnings and huge multiples, this doesn’t look like the craziest thing I’ve ever acquired.”

After taking a closer look at the books, Ballmer tells Forbes he’s even more optimistic. New television contracts will pump up revenue in a big way, he notes. There’s also some room to boost merchandise revenue, especially given the popularity of Clippers stars Blake Griffin and Chris Paul. Ticket prices may get a fresh look, too.

At his first Clippers’ news con- ference, in August, Ballmer darted into the crowd, high-fiving fans and shouting, “I love the Clippers.” Such pump-up-the-crowd antics have been part of Ballmer’s persona for decades. In the tech community, that exuberance made it hard for some people to take Ballmer seriously. But in sports, wild-eyed owners are treasured, not ridiculed. Even the NBA’s reigning king of commotion, Dallas Mavericks owner Mark Cuban, singled out Ballmer for praise, saying, “My only advice is that he should just be himself.”

Ballmer and Connie have been quietly active philanthropists in the Seattle area for years, inspired mostly by Connie’s empathy for children and teens caught in a web of foster-care programmes and fragmented social services. But there’s room—perhaps even an obligation—for the Ballmers to share their wealth in a much more substantial, systematic way.

“I’m more of a save-the-world person than Ballmer is,” Connie explains, “so I need him to catch up with me. It’s all really new for him.”

Last year, Calvin Lyons, the CEO of the Seattle area’s Boys & Girls Clubs, stopped by Microsoft’s offices after hours to see if the Ballmers wanted to support a major revitalisation of his programmes. The meeting went well, Lyons says, but he can’t forget what happened a few minutes later. Just as Lyons was leaving the building, Ballmer came sprinting through the marble lobby, shouting, “Hey, I just thought of something else!” He shared a handful of new ideas about how Lyons’ organisation could make a deeper impact in Seattle’s toughest neighbourhoods. Analytical Ballmer had given way to euphoric Ballmer. The Boys & Girls Club was about to get what Lyons now calls “very, very substantial support.”

Except for that one giddy mo- ment, though, Ballmer isn’t ready to crack open his $22.5 billion fortune to whatever worthy causes can move him the most. Instead, he is approaching the vast world of social programmes with an economist’s precision: Reading books, gathering data and talking to experts ev- erywhere from Washington, DC to leading universities. It’s as if he’s trying to complete a self-assigned Ph.D programme in public-good studies before taking the irreversible step of moving any major chunk of his money into a foundation.

Ballmer is quick to unleash a bar- rage of facts that he has learned during his “coursework”: Government pays for 55 percent of the health care in the country. We spend $1.1 trillion on education. The capital gains tax raises just $200 billion a year. Part- way through one of his recitations, Ballmer concedes: “It’s very compli- cated. That’s what I’ve decided.”

Seeking insight everywhere, Ballmer has marched through all 577 pages of Capital, French econo- mist Thomas Piketty’s testy critique of income inequality. “I’m way too capitalistic to agree with his conclusion,” Ballmer says. “But a lot of his framing is highly useful.”

Asked where all this knowledge- accretion is taking him, Ballmer concedes: “I don’t know.” And yet he presses on. In recent months he has chatted with the likes of Con- gressional Budget Office director Doug Elmendorf and Maine Senator Susan Collins. He has made friends with libertarian blogger Christopher Chantrill. His apartment is littered with CBO printouts; his calendar is sprinkled with must-attend confer- ences on health care and other topics.

Long-time friends say there’s a pat- tern to Ballmer’s eclectic wander- ings. When a new area first intrigues him, he’s a superb, open-minded lis- tener craving fresh data. Gradually, he starts forming his own views and becomes much more selective about what he hears. And then, once his mental model is fully built, he reverts back to being Thundering Ballmer— the man with all the answers.

No one knows this better than Connie. “Steve’s persistent, but he’s not patient,” she says. “It would be delightful to see him dig in and really persevere at something here.”

When the stakes are high enough, nobody is as stubborn as Ballmer. Back in 1984, he took charge of Mi- crosoft Windows when it was a raw, incoherent project. It took him eight years—and a lot of missed dead- lines—until he and his team were able to rock the world with Windows 3.1. Don’t be fooled by his present- day shrugs. That same competitive fire is stirring him once more.

Steve Ballmer is his own man, finally
Image: Ed Kashi / Corbis

How employee no 30 got so much of Microsoft

Steve Ballmer negotiated a sweet deal back in the hectic early days

How did Steve Ballmer ac- quire enough Microsoft stock to be near the top of the Forbes 400 list? Ballmer didn’t join Microsoft until 1980, four years after it was founded. Usually that’s late for a newcomer to get a big stake. Ballmer didn’t even arrive with a big title such as president. Instead, he dropped out of Stanford Business School to become employee No 30 with the title of “business manager”. Ballmer didn’t get a single share of stock then. Yet, an oddity in his contract put him in a position to negotiate a better deal later.

Ballmer joined when Microsoft was in the midst of chaotic hypergrowth. Customer lists and invoices were strewn all over. Needing help in a hurry, Microsoft co-founders Bill Gates and Paul Allen agreed to pay Ballmer not just an annual base salary of about $50,000, but also 10 percent of all the profit growth he could generate. As Microsoft bloomed, the math on Ballmer’s likely profit slice started to escalate out of control. Microsoft’s first venture capitalist Dave Marquardt grumbled that it didn’t make sense for Microsoft to keep operating as a private partnership, with Gates owning 64 percent and Allen 36 percent. Marquardt wanted Microsoft to reorganise as a corporation with wider stock ownership. It did not appeal to Gates, so Ballmer and Marquardt took charge of that project, too. They presented Microsoft’s founders with a proposed new capital structure. Gates and Allen would keep 84 percent; Ballmer would get about 8 percent in return for cancelling his profit-sharing clause. Other employees would split the final 8 percent.

Gates liked the proposal, but Allen did not. As Ballmer told Forbes, “Allen was insistent that I don’t get more than 5 percent.” Gates then decided that an outsize majority of Ballmer’s 8 percent stake would be funded by a drawdown of Gates’ own interest. Allen agreed to contribute no more than the amount needed to get Ballmer to 5 percent.

When Microsoft went public in 1986, Gates and Allen owned far more stock than Ballmer did. But over the years, they diversified their portfolios by selling most of their Microsoft stock. Ballmer has not. The result: The centrepiece of Ballmer’s $22.5 billion fortune today is a 4 percent stake in Microsoft, valued at about $15.5 billion, which is $1.6 billion more than Gates’ remaining holding

Steve Ballmer is his own man, finally
Illustration: Patrick Welsh for Forbes

Don’t expect them to Dunk

Fourteen of Forbes 400 members own pro basketball teams. Tantalising evidence reveals that some of basketball’s wealthiest owners like to do more than count box-office receipts or cheer from the courtside. Here’s our official scouting report on which owners used to have game… still have game… or wish they had game

Used to have game
Stanley Kroenke: It’s been nearly 50 years since the Denver Nuggets’ 67-year-old owner played high school basketball in Missouri. Back in the day, he once scored 33 points in a single game.

Steve Ballmer: A troublesome ankle keeps the Los Angeles Clippers’ owner from playing full-strength anymore. Even so, the 58-year-old claims he can beat fans in a free-throw contest. People who saw Ballmer play during his Microsoft days say he has a surprisingly smooth outside shot despite an imperceptible vertical leap 

Still have game
Mark Cuban: A rugby player in college, the 56-year-old owner of the Dallas Mavericks made heads turn in a charity game shortly after buying the team. He not only sank a three-point shot while being fouled but also converted the free throw for a rare Four-point play

Mikhail Prokhorov: As a Russian citizen, the 49-year-old owner of Brooklyn Nets appears only on Forbes’ global wealth lists despite a $10 billion net worth. A YouTube video shows him sinking outside shots and elbowing his way toward rebounds in a charity contest. Finesse isn’t a big part of his game, but at 6-foot, 8 inches, he doesn’t need it

Wish they had game
Paul Allen: Give the Portland Trail Blazers owner top marks for candour. In an interview earlier this year with the Seattle Times, 61-year-old Allen owned up to being a bench-warmer on grade-school basketball teams. “I was the kid they would put in with a minute left and up by 20,” he confided. “I have a vague memory of dribbling the ball—somewhere”

(This story appears in the 31 October, 2014 issue of Forbes India. To visit our Archives, click here.)

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