The Kiwi reshaping Microsoft

Last updated 16:13 09/02/2008
Reuters
NEW IDEAS: New Zealander Chris Liddell has had a big impact as Microsoft's chief financial officer, driving it to use its massive cash reserves to buy other companies.

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Microsoft's decision in 2005 to hire Chris Liddell, a New Zealander working in the paper industry, to fill the company's open job of chief financial officer seemed like an odd choice.

With no background in technology, Liddell joined Microsoft from International Paper at a time when investors were clamoring for the company to loosen the purse strings on its substantial cash holdings and revitalise a stagnant stock.

"If you look at the odds of a New Zealand paper guy coming into Microsoft and prospering, you wouldn't give it a snowball's chance in hell," said Charlie Songhurst, a Microsoft general manager for strategy and M&A who works closely with Liddell.

But once the ultimate outsider, Liddell is taking a leading role in changing Microsoft from within.

In about three years, he has helped transform Microsoft from a miser that socked away money for a rainy day into a spender, and he has successfully challenged the philosophy that Microsoft, given enough time and resources, should build its own technology to take on all comers.

Liddell has completed nearly 50 deals since joining the company in May 2005. His boldest move yet, Microsoft's $US41.9 billion ($NZ53b) offer to buy Yahoo Inc, would use up nearly all of a legendary cash stockpile Liddell inherited.

Those reserves are sure to grow again, but now Liddell wants to issue debt for the first time in Microsoft's 33-year history.

"I believe in being disciplined but aggressive," Liddell described himself by email. Colleagues see a quiet, intense counterpoint to Chief Executive Steve Ballmer's animated aggressiveness, a former rugby player who prepares obsessively and routinely works 100 hours a week.

Avoiding the turf wars that have claimed other outside executives who joined Microsoft, Liddell has won the confidence and the ear of Ballmer and the company's board, and is known as one of the few senior executives ready to meet the rank-and-file for a drink after work.

Analysts praise Liddell for his clean and simple earnings presentations, while Microsoft employees say he is militant in his view that PowerPoint slides should be uncluttered.

<b>PHILOSOPHER CFO?</b>

In the weeks leading up to Microsoft's offer for Yahoo, Songhurst's team would come to work on Sunday mornings for "church with Liddell," planning sessions that would stretch deep into the night.

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At those sessions, Liddell probed Yahoo's financials, checking and double-checking whether Microsoft's projection for $US1 billion in cost savings from a potential Yahoo merger is realistic and achievable.

Liddell would grill Microsoft's own M&A team about its logic for doing the Yahoo deal, a style of debate that stems from his days studying for his masters degree in philosophy from Oxford University.

"The questions never stop," said Songhurst. "His method is very Socratic. It's about arguing things out. It's about getting to the best possible intellectual answer."

Since Liddell's arrival at Microsoft in May 2005, the company has tripled the rate of acquisitions, ranging from small technology firms with a few employees to last year's $US6 billion purchase of digital advertising firm aQuantive.

"I am happy to use our capital strength to drive growth as much as possible," also wrote Liddell by email.

<b>OUTSIDE IDEAS</b>

A former investment banker with Credit Suisse First Boston, Liddell keeps close tabs on the market's view of Microsoft and has pushed Microsoft to be more responsive to ideas from outside the company.

A former Microsoft employee who asked not to be identified said Liddell pushed the company to solicit pitches from investment bankers instead of relying mostly on its own ideas.

He is one of a handful of top-level executives brought in by Microsoft in recent years to bring outside blood into the company. The list includes Chief Operating Officer Kevin Turner, a former Wal-Mart executive, and Ray Ozzie, who replaced Bill Gates as the company's chief software architect.

Liddell, who still plays touch rugby with Microsoft employees during lunch, has also pushed for the company's aggressive campus expansion in the Seattle area.

Adding more offices, parking spots and other amenities is part of a broader push by Liddell and other senior executives to make Microsoft workers happier. Those types of expenses rarely make Wall Street happy, but Liddell views staff retention as a priority, especially with Google and Yahoo opening new offices in the Seattle area.

Over the years, Microsoft investors have complained that the company was too conservative, leaving billions of dollars in cash sitting on its balance sheet.

In 2004, Liddell's predecessor, John Connors, issued a one-time $US32 billion dividend to investors after the company's cash position reached a staggering $US64 billion.

As of the most recent quarter, Liddell has cut the cash pile to $US21 billion - roughly the cash portion of Microsoft's offer for Yahoo. It has spent $US54 billion in the last two fiscal years on share buybacks and dividends.

"This is a company that had $US70 billion in cash laying around a couple years ago so it speaks volumes to how much the company has moved the capital structure toward something more efficient," said Bernstein Research analyst Charles Di Bona.

"It's a certain level of maturity within the management team in changing how you need to behave sometimes."

- Reuters

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