Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence

by Joachim Kempin

  Steve then had made the decision to split the OEM personnel, selling to system builders off from the main group, and integrate them into the retail sales organization. To make the transition an easier one, he planned giving my successor control over a large part of that organization. In a follow-up meeting with all area managers—one of the fabled monster marathon sessions—the new organization was being hacked out from whole cloth. Introducing the new concept caused consternation. The major opposition was derived from the fact of a less proven man having oversight of such a diverse sales group and the reluctance of regional managers to release control of more sovereignty to the center. After Richard Roy returned to Germany, now fully comprehending the weighty and labyrinthine task, he flabbergasted us. He simply resigned. I found an enraged Steve and, after discussing the situation, convinced him to reconsider Richard Fade. So it happened; the most capable guy got the job. I felt providence.

  The two of us immediately started working together super closely, preparing the transition. All decisions impacting the group beyond my departure we made jointly. We started visiting customers together. Fortunately, a lot of them knew him already, and as the clock was running out on my reign, I could relax and confidently detach myself from my job. My people would be in good hands, and the business should continue to prosper.

  APPELLATE COURT RESPONSE

  In June of ’01, the appellate court had at last arrived at a conclusion. By then, I was just a scant few weeks away from leaving OEM. Like most employees, I was plenty happy with what I read. But the ruling was by no means the home run our legal team had been gunning for.

  The good results first: Jackson, like Sporkin before him, got removed from the case. We were not guilty of unlawfully tying IE to Windows—Jackson lost his favorite argument a second time—and we did not illegally attempt to monopolize the Web-browser market. The court vacated all remedies of Jackson’s final judgment—meaning no break-up of the company was imminent.

  But here the good news ended. The appeals court upheld most of Jackson’s finding of facts despite the “seriously tainted proceedings” and said it found “no evidence of bias,” effectively opening the floodgates for a stampede of lawsuits. The court confirmed Jackson’s opinion on all Sherman Act violations, except the ones mentioned above. The case was ordered to go into a liability phase in front of a newly appointed judge. After four years, the case would drag on. And on! Studying the appeals court’s ruling, it looked like our legal team—in the hectic whirl of the moment—hoping Jackson’s finding of facts, together with his verdict, would be kicked out, altogether had missed the mark. The old hand had beaten us handsomely. The magazine Slate described the outcome correctly: “If Microsoft won the day, the Justice Department won some moments.” Real costly ones!

  Dave Kopel from the Independence Institute called Jackson “a textbook example of a bad judge,” who had “made an ass of the law, and of himself.” Chief Justice Edwards of the appellate court called his behavior “beyond the pale,” believing he had violated his judicial oath. Edwards had good reasons after reading the interviews Jackson had been volunteering and in which he labeled Bill a “drug trafficker,” referencing us executives “gangland killers” and “stubborn mules who should be walloped upside the head with a two-by-four.” Woody West, in Insight on the News, headlined his article, “Jackson’s Actions: Betrayal of Trust,” calling for his immediate resignation. The court found his conduct embarrassing and ruinously shy of his obligation as a federal judge opining his “insistence on secrecy”—his embargo in regard to the journalists he had been secretly talking to—“made matters worse.” Ken Auletta’s reportage in the New Yorker described his flaps succinctly, including Jackson saying Bill owned “a Napoleonic concept of himself.” The laundry list of the judge’s outrageous, rude, and unfair comments ran drearily on and on. After citing the ones above, there is no need to further pile on.

  The Feds—now with a new team firmly in place—reworked their remedy proposal and, as MS had hoped, no longer insisted on a breakup. The new administration had finally made up and changed her mind. Yes, politics played a role before, and politics will do so again. In August of ’01, Colleen Kollar-Kotelly took over as new judge. Under her tutelage, the parties agreed to a settlement resulting in yet another consent decree. She issued her final judgment in November of ’02 just as I was leaving the company. MS took it in stride. The Feds were on board, and so were several, though not all, of the state AGs. Objecting to the compromise like Gateway and the Reback gang, they propelled the proceedings off onto yet another orbit, continuing the legal cage-fighting contest. By then I had left the company for good, and Richard Fade and his predecessor had to work through implementing the new decree. Not much fun. Eventually confirmed by the appellate court, it remains, with some small adjustments, in effect today.

  Milton Friedman, the late Nobel economist, called the Feds’ move against MS a dangerous precedent signaling extra government regulation in high-tech markets. Google is experiencing this right now. So why did MS lose the case segmentally, and why did MS become labeled a big bad monopolist, driving poor Bill to chase a new legacy in an easily pursued venue called philanthropy? First of all, I firmly believe Jackson was not only openly hostile to the appeals court, he was also covertly biased against us. The wealth and depth of comments made to journalists in the secret bowls of his chamber signaled huge and significant prejudice, which could not have popped up overnight. His grossly unfair proceedings in his courtroom underline this. Every single word of his should have been canned. Tossed, crossed, and banned.

  The key victory for the Feds had been to convince both courts that we, in fact, possessed monopoly power within the whittled-down, narrowly defined market space. We certainly possessed limited pricing freedom and had earned an impressive share yet without ever charging monopoly prices or harming consumers.

  Another reason for convicting us lay in our harsh negotiation tactics and the overly blunt manners our people employed in e-mails and various other documents. Written to impress internal recipients and rarely acted upon, they resulted—much to my surprise—in intent getting punished. Not upholding our copyright, as I had come to naively expect, was another injustice. The notion of allowing distributors to change the look and feel of a product without the copyright holder’s consent was the hardest of all for me to swallow. Copyright law exists to promote the arts and not to restrict them. Infringing, without compensation, harms the interest of the rights holder. The court’s failure to respect this sets a bad precedence for future litigation in the software industry.

  What did the final judgment mean for MS’s OEM business? The new conduct rules started with telling MS not to retaliate against OEMs for shipping competing products or services. Well, I failed to see how we ever did—frankly expressing and pointing out that what we did not like in a free speech society is OK with me. Long live the First Amendment! MS was forced to offer all OEMs identical contracts for Windows. The decree ordered her to publish an OEM price list but allowed reasonable volume discounts. Market-development allowances needed to be offered to all OEMs uniformly. Restricting the placement of icons on the Windows desktop and in the boot sequence got liberated.

  The next section of the decree had to do with laying open Windows application programming interfaces and communication protocols. I never understood why we had used unpublished ones in the first place; it was unfair to the partners we otherwise supported well. MS was further ordered to make all her middleware products easily removable for end users (bravo!) and license her IP portfolio at a reasonable fee. The rest of the document addressed the selection of an enforcement committee, establishing a compliance officer inside MS. The same arrangement Sam Palmisano, now IBM’s CEO, had warned me about.

  The licensing of our IP had always been an option and should not hurt the company. It could only create an additional revenue source. And did! The OEM-related restrictions were minor. Strangest of all was to have a published price list and tot
ally unified contracts, but a lot of other industries succeed nicely under exactly the same set of policies. For sales personnel, the decree made life less sporting, as selling became a “take it or leave it” exercise. The rule for sure established the level playing field I had always promoted. But as long as extra marketing funds could be used when undertaking joint promotions, MS was not hamstrung favoring cooperative and collaborative customers. All in all, the new consent decree meant OEM business as usual for the division, while having to endure increased scrutiny through the newly established compliance institutions. It for sure had no chance of curbing MS’s dominance in the OS arena.

  The European Union, spearheaded by economist Mario Monti, now Italy’s premier minister, chimed in responding to a complaint filed by Sun and a second one by RealNetworks. Finding MS guilty of having violated European fair competition rules, he, as competition commissioner, imposed a huge fine. I paid little attention to that ill-founded condemnation and the following charade of a trial. The rules in Europe are bizarre and convoluted because anticapitalistic principles reign supreme. European bureaucrats, in essence feeding off the situation, germinated in the US courts, forced MS to provide a Windows version without its multimedia player. Rob Glaser from RealNetworks had finally gotten pseudorevenge. What the US justice system did not accomplish, the EU did—ironically benefitting an American company. Not so fast, my friends in Europe tell me they have yet to find a single PC in Europe loaded with this crippled version of Windows. Euro socialists versus common sense.

  In summary, the harm done by the US regulatory measures was not directly lethal to MS’s ongoing success. Losing a tremendous amount of talent, though, as a trial consequence, was far more damaging. The subsequent compliance scrutiny then instilled a cautionary conservatism and unheard-of hesitancy, slowly converting the company into an increasingly appeasing and less assertive competitor. The combination of all of what I just described left MS weakened, disabling the company from tackling emerging challenges as boldly as in the past.

  Ironically, the Feds never proved their key point that the integration of IE functionality into Windows constituted a violation of the Sherman Act. The appeals court outright rejected Jackson’s reasoning for a per se rule violation. In a surprising gesture of grandiose generosity, the judges offered the Feds another opportunity to seek a conviction using the rule of reason first used in 1918 in the famous Chicago Board of Trade v. US case. Not interested in prolonging the case any longer, the Feds dropped the tying complaint once and for all, making them, in this context, the biggest loser of the case. The infamous state AGs who stubbornly refused to come to their senses, loosely spending hard-earned monies from taxpayers’ wallets long after the Feds and MS had settled the case—fared even worse when they lost yet another appeal. Not that it had any consequences for them!

  Last but not least, let’s talk about consumer harm. The Feds probably managed to do just that by imposing a firm Windows price list on MS. The net effect of no wiggle room in price negotiations: consumers will pay slightly extra for their PCs. Allow me, finally, to at least say thank you to the Feds and the many states who participated in our witch hunt for forcing OEMs into having to accept government-dictated, “take it or leave it,” nonnegotiable contracts! The era of sending OEM customers a postcard containing the newest license agreement without legal review, as I had joked about during the Windows 95 reception, had finally arrived. The helping hand of the government made sure of it.

  PARTING

  In the spring of ’00, I found time to reflect on how my personal management style had contributed to my group’s success story. I was engaged in a leadership class with my team, which I embellished by personally teaching lessons garnered while running OEM. My goal was to transfer as much knowledge and experience as possible and open my secret management toolbox. Let’s look into it:

  Successfully negotiating for me always required ironclad preparation. Nothing primed me better for the at-all-times astonishing and challenging give and take. Ever having to shoot from the hip meant I had not been meticulous enough with my groundwork. I further discovered that negotiating with open cards while showing flexibility within means made me a much tougher opponent. If threats were introduced, I ignored them politely, leaving the other side predictably speechless and often stranded. Any threat is hollow if not perceived or acknowledged. The seeds of pressures must find congenial soil to grow, and denying that hold strengthened my position. Consequentially, I avoided responding with a threat of my own; it could have only exposed my vulnerability. Tit for tat hardly ever works; I prefer logic. The Chinese have a proverb saying whoever introduces the first threat eventually loses. I subscribe to that even when deeply hurt or emotionally entangled. I learned to separate my inner self from the business at hand. At the same time, we are all human and not perfect, as my encounter with Theo Lieven showed.

  When planning your next move in a competitive battle, do your homework much like for a university exam. Involve insiders and learn from them. Nobody can always be right. If I still made a mistake because my assumptions were obviously wrong, I was humble, corrected my misstep at once, and moved on. Do not let your ego get in the way; focus on the result and not on the eggs having landed in your face. That mess can be wiped off.

  Planning is hard managerial work, and it’s not humanly possible to foresee all possibilities at all times. Surprises are a certainty in life, and so is change. As leader, dealing with change is your primary task. Hanging on to policy principles for too long promises failure. To arrive at valid strategies means you need to participate in the legwork and evaluate a wealth of details in advance. Some you can delegate to qualified and trusted staff but not without verification. I made myself unpopular by asking the hard questions. Being hands on in planning a carefully drafted blueprint pays off and avoids micromanaging the execution of a mediocre one.

  Be not ever happy with status quo; I never was! Nurture new ideas and help validate them rigorously—I know no better learning process. Be willing to experiment against better judgment as long as the risk is reasonable. As top change agent, you will have to accept risk; don’t be afraid.

  One of the tricks I used was going on a fishing trip once in a while, comparable to Bill disappearing for his annual think week. Reading up on urgent topics started the ball game. Down at the river, as I patiently waited for a bite to occur, my brain had lots of time to reflect and wander off, connecting the dots. I always came back with newly gained insights and shared them with people I trusted and respected. These were not messianic intuitions or improbable visions but pragmatic conclusions I had drawn about improvements I wanted to implement. To transform them into well-conceived and change-inducing strategies or organizational adjustments, they needed to be challenged and picked apart without me religiously safeguarding them. Only to-the-bone analysis validated them properly and made them operative. Each person I involved in that process felt empowered, having influenced my thinking and the eventual outcome.

  The next step was to define a metric to measure success and build enough flexibility into a plan to accommodate the inevitability of change and surprise. Fleshing this out and assigning accountabilities finished the task. I stayed personally immersed to the end, making sure our chosen go-to-market plan or intended organizational change was as easy to explain as it was to execute—with Auftragstaktik in mind. Detailed enough to comprehend and loose enough to allow for initiatives and flexibility in the field. As a result, these innocent fishing trips of mine often resulted to bold changes for the organization and our sales and marketing policies. Fishing, as it was, for relevant, timely, and—in hindsight—vital changes. I was careful not to attempt them too often. Once every twelve to eighteen months was the most I deemed effective. Otherwise, I would have projected the image of a juggler having too many balls in the air at all times. Fearing uncanny moves, people would have questioned my motives or, worse, lost their trust in my ability to lead with levelheaded purpose and focus.

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p; Running an organization successfully meant having my key business ratios in my head at all times. This cut straight through the fog and allowed me to stay in the driver’s seat. Looking like magic to outsiders, it kept people on track and removed any clutter, immediately helping me in negotiations or in validating strategies.

  When formulating a strategy, I tried to mimic the way the Prussian generals wrote their orders. Clarity and brevity needed to trump all. The order for the invasion of Normandy was communicated on 133 pages. No soldier could possibly remember all of its details or repeat the order in its entirety. It read like a cookbook—prescriptive, leaving hardly any room for independent thinking though plenty for bravery. The German attack plan for the Netherlands in WWII was contained on four pages. The American general Omar Bradley did even better when he formulated the instructions for Cobra the breakout out of the Normandy theater on just one and a half pages. The ones who needed to recall them verbatim could easily recite them anytime. My annual OEM business plans—developed by six to eight people at most—were presented on less than four pages. I preferred two! Crisp and clear. People knew exactly what to do, kept key objectives in their heads, and understood the elbow room they had.

  When presenting annual plans to a larger audience, I nailed the core issues down onto PowerPoint slides containing only five objectives. I always told the attendees that if we achieved just the first three 100 percent, we would be heroes. Each objective was followed up with a slide containing five key implementation points. Again, the first three being sufficient to follow through and the last two, if completed, were the icing on the cake. I never fooled myself: most people can only keep three things in their heads at any one time.