Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence (29 page)

Our first conference was held in ’98 in Chongqing, and I was pleased to greet Lenovo’s CEO as one of its participants. The second of the three big conferences was scheduled to kick off in Shanghai on May 9, 1999. Two days earlier, during the Yugoslavian conflict, US airplanes mistakenly bombed the Chinese embassy in Belgrade, killing nearly forty people, most of whom were Chinese citizens. In response, Chinese demonstrators attacked the US embassy in Beijing, and for security reasons, all US-China activities in the country were hurriedly cancelled—except one. While chaos spread and many Americans headed for the airports, former Shanghai mayor Wang Daohan, whose protégé Jiang Zemin was then China’s president and party leader, met with our project director, Professor Mike Oksenberg. Fortunately for us, Mike was a well-known and respected historical figure in PRC’s political circles. They had never forgotten the influential role he had played in helping to negotiate the normalization of US-China relations during the Carter administration. Wang and Mike, the two old friends, decided that this one bilateral meeting would go on as planned to symbolize that the bilateral relationship could weather an extraordinary crisis. Underlining his unwavering support, Wang Daohan demonstratively sat in the front row the morning of the ninth as our second conference commenced. Mike Oksenberg’s commanding figure strode up to the podium and led a long moment of silence before launching in his welcome address spoken in fluent Mandarin. IP rights, at least for several days, took center stage. I spoke at the first and the last conference in 2000 in Beijing and came away with the adamant conviction that all of these conferences truly contributed to a better understanding by Chinese policy makers in regard to IP protection as a valuable business proposition.

I recognized our efforts were only a small flanking maneuver, and IP issues would still remain high on the list with the PRC government for years to come, even after the PRC was accepted into the WTO.
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Damages caused by PRC companies taking advantage of Western companies’ IP are today estimated to be $50 billion annually. Approximately the same amount is estimated to be the damage software pirates, whom I sometimes refer to as IP terrorists, are causing the WW software industry, with MS alone suffering north of $10 billion losses annually. Both are nontrivial amounts causing an estimated loss of five hundred thousand jobs in several industries and demonstrating that severe efforts will be needed to turn the unfortunate and undiminished state of affairs around.

NOBODY IS IMMUNE TO FAILURE

Right after launching Windows 98 in June of ’98, MS reorganized again—on the top. The dreaded executive committee was abandoned and replaced after only eighteen months by a single president. You guessed it: Steve Ballmer finally got the job he had long yearned for, making a nice clear path for him to eventually become CEO. With Steve’s appointment, the power play inside the company had once and for all been decided and called to order.

Bill was showing early signs of withdrawal. The antitrust trial, now set to start three months later, was casting a protracted and menacing shadow. The Feds had continued their drive to discredit him personally. The public sentiment, whipped to pitchfork-and-torch-bearing frenzy by the hostile and headline-hungry press, had turned derogatory. In public, Bill was no longer the celebrated genius and recognized visionary. By putting Ballmer in charge, he believed he could back off from the day-to-day business and focus his energies on trial preparation and strategic investment opportunities. He loved directing the lawyers, convinced he knew more about law books and legal tactics than most of them. I was astonished by the change I discovered. I could not get to him as often as I was accustomed to despite the fact that my ex-admin now worked for him. When we eventually talked, the business at hand interested him less. I concluded that being labeled a monopolist had finally gotten to him, even with accusations remaining merely allegations. The annoying redundancies had done the job. Bill had slowly grown less confident about his once-gleaming status, the company’s well-being, and his legacy in general. He began spending enjoyable time with his growing family and was finding solace with his charitable foundation.

Steve, on the other hand, completely and boldly seized the opportunity with a weakening CEO at hand, forcefully taking the reins. With Bill less energized and buoyant, Steve articulated just the opposite. As far back as ’89, he had been paying for advice from the McKinsey consulting company and had put their recommendations to use when reorganizing those facets of the organization he was responsible for. In his new role, McKinsey’s engagement was further enlarged. Having heard too many less-than-successful stories of the fruits of her advice, I was no fan of this. Steve, on the other hand, appreciated the prescriptive input he was getting and went so far as to hire several McKinsey consultants for key management positions. Most of them failed miserably in their new assignments, and I was left scratching my head over how quickly they had rocketed up through the ranks. The whiz-kid equivalents of the bourgeoned McNamara era had found their way into MS. They needed to be young and smart; experience would count less. Steve was trying to mold the company to his liking and was energetically imitating the colorful tactics applied over at GE by Jack Welch, whom he held in highest esteem. He had gotten to Jack via Jeff Immelt,
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whom he knew from his Procter and Gamble days while sharing an office with him. Still in learning mode, Steve had not fully found his leadership style. At times I felt certain changes he commanded were done simply for the sake of introducing change, and the promotion to president had fostered in him a bolder incarnation.

Bill’s image within the company was undergoing profound change. People expected him to lead, not delegate visionary leadership to his loyal knight who was still learning the ropes. Great leaders, as I knew them, mastered their most imposing challenges, subsequent breakthroughs, and victories by confronting harsh realities with outermost logic, determination, and pragmatism—gaining respect. Admiration could wait. At this crucial junction, Bill failed to take that introspective path, dig deeper, and question a few of his own traits like his overly assertive tactics. The government was deviling us and the means by which the Feds pursued their quest was maddening and painful. A true leader would have gutsily leveraged this unfairness into an opportunity and reviewed business policies and procedures. One would have pulled heads out of the sand and demonstrated that he was able to cause change in places where the company had genuinely erred or had been over the line, as Gerstner had done when he struggled solving the IBM crisis. There was a call for urgency and a demand for honesty coming from all corners of the IT universe. Unexplainably, the company’s commander retreated or answered with more of the same.

The push for paranoia continued unabated. The newest target was the DOJ. Paranoia, though, is not a smart way to win the end game. Changing behavior is. Openly irritating executives from Apple, Intel, AOL, and Netscape not only made enemies but also demonstrated unnecessary macho behavior. The barely veiled threats tendered by over-the-line employees emotionally poisoned the well where business flowed from. If Bill would have jumped over his own shadow, like jumping over chairs—which he sometimes demonstrated and did astonishingly well—he would have become the agent of change the company needed. The empty void would have been filled up with character.

The genius in him, however, pleaded for love and admiration and responded with intellectual righteousness, signaling defiance. As a response, the Feds and our conspiring competitors accelerated their attacks by taking extra shots directly at him—the weakest point in the net he had concocted. He could not stomach it. His befuddlement signaled to the world that he was no longer willing or able to steer the ship. Crushingly disappointing to all employees working for the company—a sad moment of reckoning!

Sea changes were occurring not only inside MS. A number of founders and pioneers had made serious money by now and were becoming distracted. The charitable foundation race was on. Bill had established his in ’94 and was promptly followed by Michael Dell and Gateway’s Ted Waitt, as if they were competing even here. As much as these foundations were doing wonderful things for the world of the needy, they nevertheless stole valuable executive time. In the case of Bill Gates, our public relations people considered his charitable giving a great new way to portray him favorably in the public eye. Bill took their advice to heart, and under the guidance of his wife and father, he transferred most of his wealth into his foundation. Animated by their enthusiasm, Bill threw himself increasingly into guiding its strategies and began traveling extensively—now in his own private jet—to lead his newly minted philanthropic missions. Steve tended the shop at home.

The sudden surge of interest in the world of charity signaled an escapist flight from reality into a distracting new realm where he hoped to reestablish a permanent and reaffirming legacy. The public relations people loved the heartwarming drama his unprecedented charitable activities created and zealously depicted him as an incredibly caring man—the polar opposite of the now-out-of-fashion, shrewd, and scheming business Buffalo Bill. As I saw it, he had not changed one iota. His razor-sharp intellect combined with his desire for world domination remained unaltered. Through family and outside influences, he merely redirected his ambitions, as people working within his foundation confirmed. A fascinating image transformation was underway, a fresh path into an on-the–surface, meaningful, and altruistic life combined with a steady retreat from MS’s day-to-day business affairs.

In addition to Bill’s highly visible makeover, the company stepped up her efforts to do what most of her competitors had been doing effectively all along: proactively shaping the political landscape. In the United States, most companies affect legislative outcomes by tendering politicians direct campaign donations and funding lobbyists, promoting company-specific agendas. Like pouring legislative octane over political wildfires—not always successful, but without trying, prospects look even dimmer. In my mind, these direct donations made within legal parameters constituted nothing short of bold-faced bribery. Lobbying activities, to me, constituted a more ethical attempt at shaping political outcomes. Naturally, the recipients of the former would find ample reasons to disagree. Corrupt as the system seems, it remains legal.

Until ’94, MS had been totally naive about how to buy favors from politicians. The consent decree increased awareness, and as a result, a political action committee (PAC) was formed. Four years later, it had increased annual donations eightfold from the $30,000 in ’94. When I left the company in ’02, that amount had climbed to over $1.3 million. Derived from employee contributions, the money was dedicated to specific causes or politicians by the donors, though most were simply contributions to a general fund. A closer analysis reveals that the contribution pendulum was having wide swings between Republicans and Democrats. This lack of loyalty to a particular party was both due to our collective desire for a favorable outcome of the upcoming trial and our proclivity to support the party who was more likely to lean toward a tax-friendly legislative climate. You can’t buy political influence in the US in the open market?

What bugged me was how the PAC contributions were collected—supposedly a voluntary affair. But each year I got phone calls asking for donations to the PAC by people who claimed they were directed by my boss to do so. Steve and I never talked about these solicitations. I resisted the pressure or gave only to a specified candidate of my choice. The one year giving $5,000 to the general fund, I was deeply disappointed on learning how the PAC leadership had allotted contributions. Believing the wrong people or causes had gotten them gave me a perfect excuse to never contribute again. The trend into politicking represented a troubling shift in our business matrix—from the purist pursuit of serving PC users to serving the makers of laws with their vapid and purchasable attention spans.

Changes were not limited to MS. After fifteen years, the PC clone industry stars from the past were overtaken by newcomers. One of the early victims was Beny Alagem, Packard Bell’s (PB) CEO. I saw him a last time in his Sacramento, California, headquarters. An old army depot that he had leased for a pittance back in ’95 after an earthquake had struck and partially destroyed his old site at Northridge. My first visit to the new location late that year impressed me, as he proudly toured me through his 370-acre kingdom. During the same year, he had sold a 20 percent stake in PB to Nippon Electric Company (NEC)—the beginning of the end.

On my next trip to Tokyo, our friends at NEC took me aside, telling me they were watching Beny carefully and, if I should observe anything odd, I should feel free to inform them in strictest confidence. This was a clear first sign of suspicion and discontent between the new partners! I never made use of their invitation. The cautious and circumspect Japanese would no doubt have issues with the boldly aggressive former tank commander. All of Japan was watching their move. This substantial investment was a first for any Japanese company outside her homeland. If not, successful heads would roll and NEC’s management would lose considerable face.

When the investment came about, PB was in peak form, having just been named the highest-volume PC seller in the United States by
Dataquest
. The company that the Compaqs, Hewlett-Packards, and IBMs of this world had long waved off as being too low-end to be taken seriously had beaten them all. With his industry-shocking success, Beny was now the undisputed king of retail, and in order to finance his ambitious expansion plans, he had let NEC’s capital in the door. The Windows 95 launch gave him another jolt as he successfully expanded into Europe, filling the gap Amstrad had left to be explored.

Even after the initial NEC infusion, PB continued having difficulties financing Beny’s expansionist’s dreams. A ’96 merger with Zenith, owned by the French company Groupe Bull, had brought an additional investor into the company. Now my friend had to maneuver between both of them. Beny, a shrewd negotiator, was by no means a diplomat. Quite accustomed to running the show as he saw fit, receiving a 650-million dollar capital infusion nevertheless meant losing part of his cherished freedom. A year later, he became disengaged and out of sorts. He had to devote considerable time and energy to cope with his new pseudomasters who were watching him closely, particularly as PB inched into unprofitability. As the losses mounted, so did their disagreements. Retail marketing in ’98 was getting tougher. To maintain his market share, he had to counter companies like Hewlett-Packard, Compaq, and IBM, strafing PB with shock-and-awe price skirmishes. The newest entry, eMachines, a Korean-investor-backed company, created a tsunami atmosphere when offering PCs at record-setting low-price points.