Monday, July 17, 2006


In light of Bill Gates' recent announcement that he'll be stepping back in managing Microsoft and the continued elevation of Steve Ballmer, here's a reprise of a column that ran in 2002 as a memo to Ballmer:

Copyright 2002 The New York Times Company

July 21, 2002


Corporate Values Trickle Down From the Top


To: Mr. Steven A. Ballmer, chief executive of Microsoft

Re: Your e-mail memo, "Realizing Potential," sent to employees last month

I recently read your message to the 50,000 employees of Microsoftworldwide. What caught my eye was how much your message, at 2,674 words, noted the importance of values throughout the company and how you said those values "must shine through in all our interactions -- in our work groups, across teams, with partners, within our industry, and most of all with customers."

You tossed in all the right "values" words: integrity, honesty, respect, trust, excellence and accountability, among others. But as far as I can tell, you cited only one substantive mechanism to show that all this talk about values is, as you put it, "not just a fluffy statement of principles but really a guide to action": You said that "starting with the upcoming August review, every employee will have a formal discussion of how they are doing on values withtheir managers."

I applaud you for taking this step. But I'm afraid that you, like many otherC.E.O.'s, haven't gone far enough. The notion that you want your company to stand for values is laudable, many ethics experts agree. But simply saying so and then asking employees how they are doing on the values front falls short.

"You've got to translate this into specifics," said Joseph L. Badaracco Jr., a business ethics professor at Harvard Business School and author of "Leading Quietly" (Harvard Business School Press, 2002). "Otherwise managers aren't going to pay any attention to it."

That's sage advice. Furthermore, how do you plan to balance the drive for innovation and big profits with the values of integrity, trust and so on? Clearly, there are times when these sets of values can conflict.

"He needs to put systems in place to ensure that the values-based culture is supported," said Linda Klebe Trevino, a professor of organizational behavior atPennsylvania State University. "Probably most important is the reward system. How much does advancement and compensation depend on bottom-line performance versus the other values? And what happens to top performers who don't live by those values?"

But first, ask yourself to what standard you plan to hold yourself. Laura P.Hartman, a professor of business ethics at DePaul University in Chicago and editor of "Perspectives in Business Ethics" (McGraw-Hill, 2001), thinks that you are "perhaps pointing the microscope in the wrong direction," given that most of the recent high-profile ethical problems in corporate America have been traced to the executive suite. Professor Hartman was not suggesting that Microsoft has suffered ethical lapses of late, but she contends that if you or any other C.E.O. want to instill certain values, you can start by acting as you'd like your work force to act. That means making sure that your reports respond consistently to ethical quandaries and ensuring that incentives are in the right place. That would provide "an actual commitment to these values rather than just an announcement about an actual commitment," Professor Hartman said.

Then there is the whole antitrust mess, now crawling to a resolution in the courts. Less than two weeks after your memo was sent to employees, Judge ColleenKollar-Kotelly of the Federal District Court in Washington requested that you and the state attorneys general pursuing antitrust actions against Microsoft suggest areas of compromise when you made your closing arguments. Your lawyer's response was to suggest eliminating the concessions you'd already made to reach a settlement in the first place. That hardly smacks of the kinder, gentlerMicrosoft in your memo. A simple "we can't come up with anything" would have sufficed.

Like many other chief executives, you have your work cut out for you to sell this values thing. Those who weren't already looking for reasons to criticize you will watch carefully to see if your actions belie your words. Here's my shorthand suggestion: Take bold steps.

Set yourself apart from those high-profile corporations that are accused of financial wrongdoing. For starters, tell the world in plain English howMicrosoft constructs a clear, honest financial statement. Follow up by declaring that you already have some strong policies in place regarding possible conflicts of interest: having only outside directors serve on your board's compensation and audit committees, for example. Voluntarily adopt some of the corporate governance proposals now floating around, like the one that would rotate outside auditors every few years.

And if you really want to make a bold convincing stroke, follow the lead of Coca-Cola and announce that you're going to start treating all those stock options you dole out as expenses on your financial statement.

Try these things if you want the world to know about the compelling platform and clear mission as an industry leader that you envision in your memo.

You want people to know about Microsoft's values and what the company stands for? Show us.

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