Microsoft&#8217;s move to add the role of board chairman to CEO Satya Nadella&#8217;s duties at the technology giant bucks a growing trend of companies separating the two jobs.



The number of companies whose CEO also held the title of chairman has declined steadily over the past three years at U.S. companies of all sizes, from the megacap corporations in the S&amp;P 500 to the smaller firms in the Russell 3000 index, according to new research by the Conference Board and analytics firm ESGAUGE.



The trend seems to be more pronounced among smaller companies. Only 36% of Russell 3000 companies had the CEO also serve as chair in 2020. That&#8217;s down from 41% percent in 2016.



“The importance of having an independent board has pushed many organizations to adopt a separation model,” says Matteo Tonello from The Conference Board. “The strong leadership skill sets in CEOs of very large S&amp;P 500 companies may be the reason why these companies are more reluctant to have the role separation,” he added.&nbsp;&nbsp;&nbsp;



Providing better oversight of company management and avoiding the sorts of conflicts of interest that sunk companies like WorldCom and Tyco, have largely been the reasons behind the role separations.



In companies that give CEOs a chair role as a reward for proving themselves as leaders, the gap is typically closer to two years. Nadella’s predecessor, Steve Ballmer, never named chairman during his 14-year tenure as CEO of the software giant. For years, co-founder Bill Gates played that role. John Thompson became chairman when Nadella was named CEO in February 2014 and will return to his previous role of being lead independent director.&nbsp;



&nbsp;Microsoft rationalized Nadella&#8217;s promotion in a statement that suggested the board wanted a firmer focus on management priorities. “In this role, Nadella will lead the work to set the agenda for the board, leveraging his deep understanding of the business to elevate the right strategic opportunities and identify key risks and mitigation approaches for the board’s review,” said the&nbsp;<a href="https://www.prnewswire.com/news-releases/microsoft-board-of-directors-announces-role-changes-and-quarterly-dividend-301314220.html" target="_blank" rel="noreferrer noopener">statement.&nbsp;</a>



&nbsp;The spotlight on the trend of CEOs serving as board chairs became more intense after the dot-com bubble burst in 2000. Along with sinking many Internet startups, the stock crash made investors more skeptical about the cult of personality around many company leaders. Scandals at companies like Tyco, Enron, and WorldCom only reinforced a key question: Where was the board?&nbsp; Separating the chairman and CEO role was seen as a critical step in reinforcing board independence.



The debate continued, intensifying again after the 2008 financial crisis. In February 2010, the Securities and Exchange Commission issued rules requiring listed companies to disclose their leadership structure and explain why it was appropriate. That exercise, along with pressure from shareholders, proxy advisory firms, and regulators, has prompted a slow but steady trend towards separating the chair and CEO roles. As Peter Crist, chairman of search firm Crist | Kolder, notes, “once those roles are decoupled, it’s rare to go back.”



The exception is when a successful CEO wants that role — or it’s treated as a promotion for a job well done. Mary Barra at General Motors, for example, followed a fairly typical pattern in being named chair of GM two years after holding the CEO slot. What’s unusual about Satya Nadella is the fact that he was CEO for seven years before being named chairman. That could indicate some frustration or perceived issues with the board’s ability to navigate through the current environment.&nbsp;



“The chair has more power to control the agenda and set the stage for conversations in the boardroom,” says Crist. “A CEO may say, ‘I need to lead and educate the board’ to get things done.”&nbsp;



That said, Crist rarely supports such a move. “I’m a strong believer in separating the chair and CEO roles … Not many board members can stand up to a strong CEO. Look at compensation trends. When is  compensation going to trend down? Never. It’s important to have as much autonomy as possible … If you’re a high-performing company and the CEO is viewed as a critical element of success, investors will basically shrug their shoulders when a CEO gets named chair of the board.”



By Aayushi Pratap, Forbes Staff

Microsoft Holds Annual Shareholder Meeting

Nadella’s Appointment As Microsoft Chair Bucks Governance Trend

Microsoft’s $19.7 billion acquisition of artificial intelligence speech recognition company Nuance Communications, the software giant’s largest since its $26 billion purchase of LinkedIn in 2016, may signal a new binge of takeovers aimed at buttressing cash-rich Microsoft’s presence in an array of enterprise and consumer-facing businesses. Microsoft had a cash pile of more than $130 billion as of December. Its acquisition of Nuance, which pioneered the software behind Apple’s Siri virtual assistant and now focuses on speech recognition and automation for medical providers, shows the breadth of CEO Satya Nadella’s ambitions to expand beyond Microsoft’s core enterprise software business, analysts say.



“Nadella is on the M&amp;A warpath,” says Dan Ives, an analyst at Wedbush Securities. “The next frontier for Microsoft is not just sitting on its success.”&nbsp;



Microsoft bought video game holding company ZeniMax Media, owner of the Doom and Wolfenstein game series, among others, for $7.5 billion in September. Before that, it tried to acquire parts of TikTok, the wildly popular short-form video sharing app, but lost out to software rival Oracle. And Microsoft is said to be in talks to buy Discord, a popular chat app, for more than $10 billion. Big winners in the Nuance deal include the speech recognition company’s largest investors, Vanguard Group, Viking Global Investors and ClearBridge Investments. The company’s three largest individual shareholders are executives at the company: Robert Weideman, an executive vice president who has been at Nuance since 2003, owns nearly 340,00 shares, worth $19 million in the transaction. Daniel Tempesta, chief financial officer and executive vice president, owns 293,550 shares, or $16.4 million. Mark Benjamin, who became chief executive officer of Nuance in 2018, owns just over 160,000 shares, worth $9 million in the deal.



While ZeniMax, TikTok and Discord are all plays in the consumer market — in which Microsoft lags behind other tech giants — Nuance is a deal to bolster its enterprise business. Based in Burlington, Massachusetts, Nuance is the maker of speech recognition and artificial intelligence technology that has shifted its focus primarily to the healthcare sector, with over 60% of its revenue coming from that industry. Microsoft’s purchase of Nuance, announced Monday, includes $16 billion in cash and $3.7 billion in assumed debt. Nuance artificial intelligence technology could be applied to other industries for which Microsoft operates industry-specific clouds, including retail, manufacturing, financial services and nonprofits, says Mark Moerdler, an analyst at Sanford C. Bernstein &amp; Co.&nbsp; “The capabilities of what Nuance owns are applicable outside of the healthcare industry,” Moerdler says.



Enterprise software has been Microsoft’s crown jewel for some time. It has expanded beyond its Microsoft Windows line of operating systems, Microsoft Office suite and its Internet Explorer and Edge web browsers by successfully establishing its foothold in cloud with Azure, its cloud computing service that now competes directly with Amazon Web Services (AWS). Its acquisition of LinkedIn makes it the operator of the most popular professional-oriented social network.



In a foreshadowing of its latest acquisition, Microsoft partnered with Nuance last year to launch Dragon Ambient Experience, a product that records and transcribes physician-patient conversations, automatically filling out electronic medical records. The product “was a solution for telehealth in response to the overwhelming increase in virtual visits sparked by the Covid-19 global pandemic,” a Nuance&nbsp;<a href="https://news.nuance.com/2020-04-20-Nuance-Launches-Dragon-Ambient-eXperience-for-Telehealth-Compatible-with-Any-Telehealth-Platform" target="_blank" rel="noreferrer noopener">press release</a>&nbsp;stated at the time. The next month, Microsoft announced it was building Microsoft Cloud for Healthcare, which officially launched in October.&nbsp;



“When you look at the specific tech that Nuance brings in terms of speech recognition and conversational AI, Microsoft has been clearly heavily investing in that area for some time on its own,” says Jay Vleeschhouwer of Griffin Securities.&nbsp;



Some of the largest healthcare companies are Nuance customers, including Athena Health, John Hopkins School of Medicine, Cerner, Epic, Vanderbilt University Medical Center and Yale New Haven Health. This gives Microsoft an opportunity to incorporate those clients and drive more traffic into Azure — an important strategy for the company, according to Michael Turits, an analyst at KeyBanc Capital Markets. “[Microsoft] is spending billions of dollars to build out Azure, and it is a factory. Now let’s fill up the factory.”&nbsp;



Some analysts say it was a blessing that Microsoft’s attempt to buy TikTok failed. “The best thing that ever happened for Microsoft is that deal not happening,” Ives said of Wedbush. “It would have just added uncertainty to Microsoft at a time when the company is firing in all cylinders.” The flurry of actual and attempted dealmaking shows that Microsoft wants to compete in consumer tech. “I believe they need to be more aggressive on the consumer side because that’s the area where they’re playing behind the eight ball,” he says.



Discord, a videogame-focused messaging platform, would be a consumer play for Microsoft that some analysts believe would mesh well with its gaming business. Microsoft has the console XBox, game streaming service XCloud, and a Netflix-for-gaming product called GamePass.



Future acquisition targets for Microsoft remain to be seen, but they are likely to be companies that can drive growth for the company’s current products, says Moerdler of Sanford C. Bernstein. “It’s not about buying a company because it’s growing well or buying revenue,” he says. “It’s buying things that can positively disrupt its own business.”



By Angel Au-Yeung, Forbes Staff

Tag: CEO of Microsoft

FORBES AFRICA SOCIAL MEDIA

Nadella’s Appointment As Microsoft Chair Bucks Governance Trend

Microsoft’s ‘Warpath’: The $19.7 Billion Buyout Of Nuance Communications Could Be The Start Of An Acquisition Spree