Microsoft: On the Wrong Side of Glass Lewis’ Looking Glass

Microsoft

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Citing a potential conflict of interest, Glass Lewis — a proxy advising firm — has recommended to Microsoft Corporation (NASDAQ: MSFT) shareholders that they vote against the re-election of independent director John Thompson at the next meeting, currently slated for November 19. Glass Lewis issued this advice in a note to its clients, Reuters reports. Thompson is currently leading the search to find Microsoft’s next chief executive officer.

The February 2012 Microsoft press release announcing Thompson was joining the board of directors listed his previous accomplishments. They included a long career with International Business Machines Corporation (NYSE: IMB), serving as the CEO of Symantec Corporation (NASDAQ: SYMC) and overseeing growth for that company, and his current position, CEO of Virtual Instruments.

It is the last accolade that Glass Lewis is concerned with. Microsoft’s October filing of its Definitive Proxy Statement discloses that Microsoft bought hardware devices as well as software licenses for technology from Virtual Instruments. The products by Virtual Instruments, Microsoft claims, are superior to the alternatives that were under evaluation.

Recognizing Thompson’s involvement in the company, Microsoft said that, “Mr. Thompson is the chief executive officer of and has a less than 10 percent beneficial interest in Virtual Instruments.

In fiscal year 2013, the Company made payments for this technology that were less than 5 percent of Virtual Instruments’ annual gross revenue. The purchases were negotiated at arms-length between the Virtual Instruments sales account team and the Microsoft business groups that sought to implement the technology.”

Later in the report, Microsoft reveal it paid approximately $2.3 million for the the technology from Virtual Instruments. This is not enough for Glass Lewis, which designated Thompson as an “affiliated” director rather than an “independent” one, according to the Reuters report. The note further advised the re-election of all other directors on the board, including the current CEO Steve Ballmer.

In August, Microsoft revealed that Ballmer was stepping down for the CEO position, and that Thompson was chairing the committee to find his replacement. If Microsoft’s shareholders take the advice of Glass Lewis and force Thompson out, it could complicate the process of finding Ballmer’s replacement.

Speaking to people with knowledge about the search, the Wall Street Journal reported earlier this month that those who have been approached so far represent conflicting interests within the board. Members seem to desire different qualities from the future CEO, and one person close to the search said, ”The idea of finding a CEO who is a visionary in everything is probably not realistic.”

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