Microsoft Corp.’s choice to replace CFO Peter Klein, who announced in April that he will resign after the company’s current fiscal year ends on June 30, is Amy Hood, a 10-year company veteran. Despite Klein’s continued presence, she is taking the CFO title immediately, Microsoft said on Wednesday.
The two-week gap between Klein’s announcement and Hood’s appointment suggests that the departure surprised the company, several sources told CFO. But it was merely the latest in a long string of key executive exits over the past three years, most prominently chief software architect Ray Ozzie in late 2010 and, last November, Windows division president Steven Sinofsky.
Some of the turnover was because of Microsoft executives landing better opportunities elsewhere. For example, Stephen Elop left his post as president of the company’s business division – it’s largest – in 2010 to become CEO at Nokia.
“But you can speculate that to some degree the revolving door has to do with [CEO] Steve Ballmer’s management style,” says Josh Olson, an analyst with Edward Jones Investments. For his part, Klein, who’s been at Microsoft for 11 years and became CFO in 2009, said he was leaving to spend more time with his family and to travel. “Let’s see what happens,” Olson says. “If he pops up at another company in a prominent role, that rationale was probably a pretense.”
Indeed, former Microsoft sales executive Joachim Kempin charges in his recently published book that Ballmer purposefully ousts any executives who have the potential to wrest him from the CEO seat, which he has occupied since 2000. That echoes criticism by venture capitalist David Einhorn of Greenlight Capital, who called for Ballmer to step down in 2011.
At any rate, Klein’s stated reason for leaving is curious, mused one source who requested anonymity, as Klein’s youngest child recently went off to college. “Ballmer and Klein weren’t known for clashing and Klein got along with most people, but is that when you start spending more time with your family?” the source said.
Morningstar analyst Norman Young says he doesn’t know why Klein left but noted that “often CFOs realize that that’s as far as they’re going to get in the organization, so they take some time off before looking for a CEO role.”
Meanwhile, Hood, 41, is moving up from her post as head of finance for the business division, which includes the Microsoft Office suite of products. At revenue of $24 billion in the company’s previous fiscal year, the division would rank about 125th in the Fortune 500 were it an independent enterprise.
Hood brings to the CFO role a much different background than Klein’s. Whereas the outgoing finance chief came up through the traditional accounting and finance track, Hood worked in the investment-banking and capital-markets divisions at Goldman Sachs before joining Microsoft in 2002 as head of investor relations. She later was chief of staff for the company’s server and tools division and was a key player in its acquisitions of Skype and Yammer.
“She has a broader strategic experience base,” says Larry Ormsby, a recruiter specializing in software companies for the financial officers practice at Korn/Ferry International. But he added, “At the CFO level, I suspect the decision [to promote her] was not so much about her résumé as about political alignment and personality.”
A former co-worker of Hood’s at Goldman, veteran Microsoft analyst Rick Sherlund of Nomura Securities, confirms that Hood “plays well with others. She’s very energetic but also very personable, and it’s been a goal for Ballmer to put together a collaborative management team. Historically it’s been fairly contentious within Microsoft.”
Still, an ongoing shift in Microsoft’s business model is probably another factor in Hood’s appointment. Traditionally most of the company’s revenue has been transaction-based, perpetual-license revenue, but it’s now striving to shift as much as possible to a subscription-based, recurring-revenue model. The business division has been at the forefront of that shift, particularly with its Office 365 cloud-based suite, which was launched in June 2011 and recently achieved a $1 billion annual run rate, according to Sherlund.
“Soon you’ll be seeing that shift in other parts of the company, as well as at other companies,” Sherlund says, noting that Adobe recently announced its intention to switch its Creative Suite product to a subscription-based model. “I think we’re going to see more of that.”
In Microsoft’s press release announcing Hood’s appointment, Ballmer suggested that her experiences in the server and tools and business divisions were key factors in her promotion. “Amy brings the right talents and experiences to the role as we continue to strengthen our focus on devices and services,” Ballmer said.
The competition for the top finance spot reportedly had come down to Hood and Tami Reller, a former CFO of the Windows division who was promoted to co-president of that unit upon Sinofsky’s departure last fall. “It could have been a point against her that she just recently got that job, because they may want to achieve some level of stability in that department,” says Olson.
Ormsby suggests that Reller might now be viewed as more of an operations executive than a finance person, and that she didn’t necessarily “lose” in the competition with Hood. “They may be looking at her as someone who can run a division on her own, and by some lights that role might be as important as CFO of the whole company,” he says.
Olson said he doesn’t expect Klein’s departure will be material to Microsoft’s stock price, although Microsoft shares were down more than 1% on both Wednesday and Thursday.
Microsoft declined to make Hood or Klein available for interviews.