Running head: MICROSOFT COMPREHENSIVE BUSINESS GOVERNANCE PLAN

Microsoft Comprehensive Business Governance Plan Dick Bridy University of Phoenix PHL/736 Political Acumen and Ethics Thomas P. Hartnett, J. D.

Microsoft Comprehensive Business Governance Plan

Review the peer feedback you received on your Week Four assignment and incorporate where appropriate. create detailed, innovative models that accurately represent the challenges of administering governance in the contemporary business environment and possible future trends and directions. The current need. Program development Steps for implementation and evaluation. Global influence of the company in your plan Considerations for judicious resolutions. Conclusion

The week six submission is a detailed investigation that will identify the functional departments at Microsoft that participate in the business governance plan. The week four submission was focused on information technology (IT) industry; this analysis goes into greater depth by choosing Microsoft as the organization. Governance will be defined; Microsoft governance will be evaluated from the perspective of departments of influence and their roles in creating and maintaining the governance plan. Detailed investigation will explore the significance of the department roles in plan development, the political ramifications of including each department, and the internal interaction and external interfaces for each department (UPOX, 2009). Governance Defined Governance is defined in the Merriam-Webster Unabridged Dictionary (2011) as the act or process of governing, the office, power, or function of governing, controlling or directing influence, and a system of making and administration of policy. A vital idiom in defining governance is policy creation and administration, which includes a code of ethics and reward system (Baron, 2010). Governance in the IT sectors can be defined as a systematic process and organizational function and techniques for establishing and deploying policy, and business rules into daily IT operations (Weill & Ross, 2004).

Clegg, Kornberger, and Rhodes (2007) quoted Tronto (1993) who defined morality as grounded in the daily experiences and moral problems of real people in their everyday life (p. 107). The authors contend that morality is ingrained in the operation of an individuals personal and business lives (Clegg et al, 2007). To that end accountability, accuracy, integrity, and credibility must be elements of a companys governance plan (Velasquez, Andre, Shanks, & Meyer, 1984; Hartman, 2004). Krogh and Krogh (2007) suggest that governance is based on the core values of truth, honesty, fairness, respect, responsibility, and compassion (p. 1). The following section is the introduction to the Microsoft governance plan. Microsoft governance overview Microsoft, the world's leading software organization, creates economic and social influence everywhere the organization does business. The organization, board of directors (BOD), and officers are accountable to shareholders, customers, employees, business partners, and in meeting their expectations we are committed to operating responsibly and sustainably (Microsoft Governance, 2010, p. 1). Microsoft corporate governance promotes accountability, transparency, and good decision-making to support the organizations mission and vision (Microsoft Governance, 2010). Transparency in the business governance plan on key players, such as shareholders, management, and BOD facilitates buy-in (Carcello, 2008; Ross, 2009). Throughout Microsoft's history, the BOD has, developed corporate governance policies and practices to help it fulfill its responsibilities to shareholders. These governance policies are memorialized in these guidelines to assure that the BOD will have the necessary authority and practices in place to review and evaluate Microsoft's business operations and to make decisions independent of Microsoft's management (Microsoft Governance, 2010, p. 1).

Departments with influence The Microsoft BOD is composed of five committees: 1) antitrust compliance, 2) audit, 3) compensation, 4) finance, and 5) governance and nominating (Microsoft Committees, 2010). Each committee is influenced by and influences departments within Microsoft. The Antitrust Compliance Committee (MACC) is influenced by the compliance officer and counsel; the audit committee is influenced by accounting with a staff of financial experts. The compensation committee is influenced by counsel, human resources, and the bylaws and charter; finance falls under the domain of the audit committee. The audit committee supplies the governance and nominating report to the BOD and is required to oversee compliance with Microsoft's bylaws and Charter (Microsoft Committees, 2010). Board of Directors (BOD) The Microsoft BOD is charged with oversight. The Microsoft shareholders elect the BOD to watch over management and to protect the shareholder long-term interests. The Microsoft BOD is composed of 10 members: Steve Ballmer, Chief Executive Officer; Dina Dublon, Former Chief Financial Officer, JPMorgan Chase; Bill Gates, Chairman; Raymond V. Gilmartin, Former Chairman, President and Chief Executive Officer, Merck & Co., Inc.; Reed Hastings, Founder, Chairman and CEO, Netflix, Inc.; Maria M. Klawe, President, Harvey Mudd College; David F. Marquardt, General Partner, August Capital; Charles H. Noski, Vice Chairman, Bank of America Corporation; and Dr. Helmut Panke, Former Chairman of the Board of Management, BMW AG (Microsoft News, 2010, p. 1). The BOD role The BOD institutes and sponsors Microsoft's organizational objectives and supervises Microsoft's business affairs, integrity, governance, and works with management to determine

Microsoft's mission and long-term strategy (Microsoft Board, 2011, p. 1). The Board completes the following tasks, the annual Chief Executive Officer evaluation, oversees CEO succession planning, establishes internal control over financial reporting, and assesses company risks and strategies for risk mitigation (p. 1). A primary responsibility of the Board is planning for CEO succession and identifying and developing executive talent. The Board with the backing of the Compensation Committee, CEO, and human resources (HR) department, oversees future chief executive officer development and corporate executive succession plans (Microsoft Board, 2011). Significance of the BOD role to the plan The BOD is directly responsible for oversight and governance. Table 1 illustrates the broad scope of responsibility and delegation of authority to achieve that end. Table 1 Microsoft Corporation Corporate Governance Fact Sheet Board of nine members Seven Independent Directors Annual Board Elections Annual Board Evaluation Annual Equity Grant to Non-Employee Directors Annual Review of Independence of Board Board Orientation and Education Program Charters for Board Committees Compensation Consultant Independence Policy Corporate Compliance Program Corporate Governance Guidelines Approved by Board Director Stock Ownership Guidelines Directors Elected by the Vote of a Majority of Votes Cast in Uncontested Elections

Eight Board Meetings Held in FY 2011 Executive Stock Ownership and Holding Requirements Finance Code of Professional Conduct Independent Antitrust Compliance Committee Independent Audit Committee Independent Compensation Committee Independent Directors Hold Meetings Without Management Present Independent Finance Committee Independent Governance and Nominating Committee Individual Director Evaluations Key Committee Self Evaluations Lead Independent Director Separate Chairman and CEO Standards of Business Conduct Three Financial Experts on Audit Committee

(Microsoft Governance Fact Sheet, 2010) Political ramifications of including the BOD Corporate governance is a unique organizational nexus in which institutional initiative lies at both the state (federal) and firm levels: state-level rules establish a common denominator, a regulatory floor upon which any corporation is free to build via firm-specific corporate charters, choices of disclosure level (Markus, 2008, p. 94). The internal interaction and external interfaces for the BOD The Microsoft BOD interacts with the main external stakeholder, the shareholders. The internal stakeholders are the board of directors, executives, and other employees. Microsoft committee system and governance

The governance and nominating, compensation, audit, and antitrust compliance committees are composed of independent directors who oversee governance. The BOD is responsible for the appointment of committee members and committee chairpersons according to criteria that it determines to be in the best interest of Microsoft and its shareholders. The full Board considers periodic rotation of committee members and chairs, taking into account the desirability of rotation of committee members and chair, the benefits of continuity and experience, and applicable legal, regulatory, and stock exchange listing requirements (Microsoft Committees, 2011, p. 1). The Governance and Nominating Committee (MGNC) role The MGNC is responsible for recommending to the Board individuals to be nominated as directors (p. 1). The committee evaluates new candidates and current directors, and performs other duties as described elsewhere in these guidelines (p. 1). The MGNC chairman leads the annual review of CEO performance. The evaluation is presented to the independent directors; the results are sent to the CEO. The MGNC and management are in charge of director orientation programs and continuing education. The Audit Committee (MAC) role The MAC oversees Microsoft's financial reporting, internal audit, and disclosure procedures. The AC is accountable for the appointment, compensation, retention, and oversight of Microsoft's independent auditors (Microsoft Committees, 2011, p. 1). The Compensation Committee (MCC) role The MCC recommends to the BOD the proposed CEO and other executive compensation (Microsoft Committees, 2011). The Finance Committee (MFC) role

The MFC supervises and provides guidance for current and future capital requirements and major financial strategies (Microsoft Committees, 2011). The Antitrust Compliance Committee (MACC) role The MACC oversees Microsoft's compliance with the judgment entered by the District Court for the District of Columbia in State of New York et al. v. Microsoft Corp., No. 98 1232 (the Final Judgment), including the hiring and performance of the compliance officer called for under the Final Judgment (Microsoft Anti-trust, 2011, p. 1). The Chairman and Chief Executive Officer The roles of Microsoft Chairman and Chief Executive Officer have been separate and distinct since 2000. Bill Gates currently acts as Chairman and Steve Ballmer is the Chief Executive Officer. Gates became the Chairman of Microsoft in 2006, he works part-time at Microsoft as a technical adviser and works full time for the Bill and Melinda Gates Foundation. The Chairman is responsible for the operation and effectiveness of the board (Smith, 2011). Significance of the Chairman and Chief Executive Officer roles to the plan Corporate governance oversight by the Chairman and Chief Executive Officers Gates and Ballmer is to facilitate accountability and responsibility for efficient and effective performance and promote ethical behavior and confidence in an organization's ability to identify and achieve outcomes that its stakeholders value is a focal point. The Chairman and Chief Executive Officers at Microsoft take into account the culture to avoid conflict and miss-governance. They are also required to evaluate the Political ramifications of their governance plan (Microsoft Governance, 2011). The internal interaction and external interfaces for the Chairman and CEO

Reed Hastings, an independent director, serves as Lead Independent Director (LID). The LID is responsible for coordinating the activities of the independent directors, working with the CEO and corporate secretary to set the agenda for Board meetings, chairing executive sessions of the independent directors, and other duties as specified in the Corporate Governance Guidelines or as assigned from time to time by the Board of Directors (Microsoft Board, 2010, p. 1).

Other Stakeholders The investing public, NYSE, customers, suppliers, and employees have vested interest in the governance of Microsoft. The obligation of these interest groups is essential with the Microsoft consultative panels, committees, senior management, group operations, and BOD (Microsoft Governance, 2011). The following section will list the key departments that have direct influence in the governance plan. Key departments Finance, human resources, legal, marketing, research, development, quality assurance and advertising are affected by the rules and obligations of governance. First-class corporate governance promotes transparency and accountability, this environment fosters high-quality decision-making to support the Microsoft business model (Microsoft Governance, 2011). Finance The departmental role of finance is to assist the MAC and the BOD in satisfying the responsibility for oversight. The MAC oversees and maintains the veracity and excellence of auditing, accounting, and reporting practices of Microsoft, and such other duties as directed by the BOD (Governance, 2011). The finance department collaborates with the accounting

department to assist in the financial reporting processes. Finance assists audits of Microsoft's financial statements, evaluates the qualifications of the public accounting auditor. Human resources The departmental role of human resources assists the Microsoft Compensation Committee (MCC). The MCCs role is to fulfill the Boards accountability to compensation of the CEO and other executives. The MCC is also responsible for the implementation the fringe benefit programs. MCC has oversight for CEO and other executive development and succession. The MCC has the power to hire and terminate third-party counsel, consultants, or other specialists as it deems appropriate. The human resources and legal departments interface to institute safe whistleblower process (Plinio, Young, & Lavery, 2010). Legal The departmental role the legal department is to facilitate active dialogue between the BOD, executives, and legal counsel. Acquiring legal advice is considered privileged communications. Microsoft takes essential actions to preserve the privileged feature of individual communications. The legal department maintains a liaison relationship in the reporting process between the executive officers, investment counsel, audit committee, risk management, and accounting department. The legal department is an integral part of the human resources, intellectual property, antitrust, compliance, and interoperability (Governance, 2011). All SEC filings are reviewed by the legal department. Marketing and advertising The departmental role of marketing and advertising is aligned with the philosophy of transparency and accountability. The significance of the marketing and advertising departments role to the plan lies in disseminating the word to the public. The political ramifications of

governance in marketing and advertising are completed in coordination with the legal department (Governance, 2011). Research and Development and Quality Assurance The departmental role of research and development and quality assurance is aligned with the philosophy to safeguard the Microsoft culture of integrity, products quality, and ethical practices. The research and development and quality assurance departments encourage the effective use of company resources, and require accountability for stewardship of those resources (Manuel, 2007, p. 14). The significance of the research and development and quality assurance departments role to the governance plan lies in delivering quality software to the public. The political ramifications of governance in research and development and quality assurance are based in patent and anti-trust legislation (Microsoft Goals, 2011). Conclusion The Microsoft governance study identified the functional departments at Microsoft that participate in the business governance plan. The basics of governance were defined and evaluated from the perspective of the entire organizational structure from the BOD to the stakeholders. The departments of influence were listed and examined with respect to their roles in creating and maintaining the governance plan. The analysis was developed from the perspective of each department, and the internal interaction and external interfaces for each department. Of particular interest is Table 1 that illustrates the broad scope of responsibility and delegation of authority to corporate governance. This study is the foundation for further study as required in the week seven project of developing a Comprehensive Business Governance Plan (UPOX, 2009).

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