Gates will surrender Microsoft shareholder crown to Ballmer in 2014

His influence as largest stockholder wanes as Gates sells off holdings

Microsoft co-founder Bill Gates' once-invulnerable position as the company's biggest stockholder continued to erode in the fourth quarter of 2013 as he sold another 20 million shares.

As of Friday, Gates remained Microsoft's single-largest shareholder, but his lead over friend and current CEO Steve Ballmer was less than 25 million shares, giving the latter the chance to become the prime stockholder within months.

Over the last decade, Gates has sold an average of 80 million shares annually, according to filings with the U.S. Securities and Exchange Commission (SEC), part of a plan to divest holdings in the company he and Paul Allen founded in 1975. Gates has pledged to give away the bulk of his wealth, with the Bill & Melinda Gates Foundation as a tool for that task.

Between Oct. 28 and Nov. 1, Gates sold 20 million shares worth $711 million, leaving him with 357,990,173 shares at the end of 2013, down from 1.1 billion shares in September 2004. Meanwhile, Ballmer's holdings remained at 333,252,990 shares.

Gates' shares were worth approximately $13.2 billion as of Friday, or 17% of his estimated $78.1 billion net worth, as calculated by Bloomberg. That amount made Gates the world's richest individual.

At his 10-year pace of selling stock, Gates will hand over the shareholding crown to Ballmer before mid-2014. Gates will have exhausted his holdings by September 2018 unless he stops or slows his selling.

While Gates' position as chairman and his influence on the company are not solely based on his stock holdings -- he is an iconic technologist, credited with building Microsoft into the world's leading software maker, its wares on more than 90% of the globe's personal computers -- those millions of shares carry enormous weight.

Gates has always been Microsoft's largest stockholder, according to proxy filings with the SEC, which are available as far back as 1994, eight years after the company went public. For him to cede that position will be historic.

Even though his stock holdings are shrinking, Gates may not be stepping down from the head of Microsoft's board any time soon, as some have urged him to do.

In October, Reuters said three of the company's top 20 investors asked the board to oust Gates from his chairmanship. Citing anonymous sources, Reuters said the investors were worried that Gates would block the hiring of a new CEO eager to change the company's current direction, and handcuff that person to the moves Ballmer has executed in the last year, including devising a new "devices and services" strategy, starting a sweeping reorganization of the company and buying much of the Finnish handset maker Nokia.

Gates is on the search committee for Ballmer's replacement, who will likely be revealed in the next few weeks.

Bill Gates' stake in Microsoft has withered over the last decade as he sold about 80 million shares annually. (Data: Microsoft proxy filings with the SEC.)

More recently, the Wall Street Journal (subscription required) reported on Friday that the delay in appointing a new CEO stemmed from the presence of Gates and Ballmer on the board, and the expectation that they will continue to serve.

The newspaper characterized the issue as one of "awkward board dynamics," including, "A founder who believes he knows best, a CEO who stepped down under pressure for a faster change in strategy, and, soon, an activist investor pushing for big changes."

The latter referred to the expected appointment to the board this month of G. Mason Morfit, president of ValueAct. In late August, Microsoft struck a deal with ValueAct that promised the investment firm a seat on the board in return for pledges to not conduct a proxy fight and not acquire more than 4.95% of the company's stock. Morfit will be the first member not appointed by the board itself.

Analysts have echoed concerns about Gates' presence on the board for months. "Can they really attract a credible candidate knowing that Bill [Gates] may be calling all the shots?" wondered Ben Thompson, an independent analyst who covers technology at his Stratechery website, in November.

Others weren't worried. "A new, confident CEO would know they could get Bill Gates tossed off the board if he meddled too much," argued Patrick Moorhead, principal analyst with Moor Insights & Strategy, last month.

Unlike Gates, Ballmer seems eager to hold onto his Microsoft shares.

"After I retire, I'm just a guy who owns 4% of Microsoft," Ballmer said in September at the company's annual financial analyst conference. "And that's about 65%, 70% of what I've ever owned. I think I've sold five times in my life and I bought once, and I hold on and I treasure my Microsoft stock."

Both Ballmer and Gates were reelected to seats on the board in November, and neither have hinted that they plan to step down.

Perhaps Ballmer hopes to parley his shares into the board's chair. While there is little history to go on -- Ballmer is only the second CEO for the 38-year-old firm, Gates its sole chairman -- Ballmer would be following in Gates' steps, not only as chairman but as the board member with the biggest stake in the company.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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