Thompson, Satya Nadella, Amy Hood, Brad Smith, Dev Stahlkopf, Mike Spencer
JOHN THOMPSON: Welcome. I'm John Thompson, Chair of the board of
Microsoft. This is the first year we are
holding our annual meeting in an all-virtual format. We strive to make the meeting as inclusive as
possible by offering our shareholders the same opportunities to participate as
provided at the in-person portion of our past meetings.
In addition to the live
webcast of the annual shareholder meeting, shareholders have the option to view
the meeting via Microsoft Teams on the Investor Relations website. The Teams broadcast will use Microsoft
Translator, an Azure service that uses Cognitive Services, for real-time
translation in several languages. We
appreciate your participation today.
I'd like to share with you
the presenters for today's meeting. First,
I will be joined by: Satya Nadella, our
chief executive officer; Amy Hood, our executive vice president and chief
financial officer; Brad Smith, our president and chief legal officer; and Dev
Stahlkopf, our corporate vice president and general manager, and corporate
Dev will address the
business portion of the meeting, followed by Amy, who will address the financial
results. And finally, Satya will reflect
on our progress over the past year and our opportunities that lie ahead.
Following his remarks, we'll have an opportunity for Q&A. But first, let's attend to a few
If you're a shareholder and
wish to ask a question, you can submit your question at any time on the virtual
meeting website. We believe and will
address any and all questions that you have during the session. We will post questions and answers, if
applicable, to Microsoft's business page on our Investor Relations
website. The polls are open and will close in a few moments, after the
presentation of our business matters.
The Board of Directors has
appointed Broadridge Financial Solutions to serve as our Inspector of Elections.
A representative of Broadridge is present
and will be participating as the Inspector.
This past fiscal year
offered another record year for financial performance, and Microsoft delivered
strong results for our shareholders, including a return of $30.9 billion in the
form of repurchases of shares and dividends. We celebrate these successes and look forward
to more opportunities ahead as we remain committed to the long-term interests
of Microsoft's shareholders.
As part of our ongoing
commitment to creating a balanced and effective Board with diverse viewpoints
and deep industry expertise, we regularly add directors to infuse new ideas and
fresh perspectives to the boardroom.
This year's Board nominees
represent a wide range of backgrounds and experiences. We believe our diversity
of experience, perspectives, and skills contributes to the Board's effectiveness
in managing risk and providing guidance to management that positions Microsoft
for long-term success in a dynamically changing business environment.
Of our 13 Board nominees,
11 are independent, which includes our Board Chair and all Committee members.
We believe in the value of
listening to our shareholders, and over the past several years, feedback from
shareholders has helped the Board evolve Microsoft's executive compensation
program and further enhance shareholder rights.
Shareholder feedback also
helps us prioritize our efforts to enhance our transparency on workplace issues
and other topics.
As we look to the year
ahead, we remain excited about the opportunities Microsoft has in terms of its
business, shareholder value creation, and positive impacts at a global scale.
Thank you for your trust,
the trust you place in us and the opportunity to serve us and the Company.
Now I'd like to introduce
nominees for the board of directors who are here with us today.
First of all, Bill Gates,
Reid Hoffman, co-founder of
Hugh Johnston, chair of the
Teri List-Stoll, a member
of the Audit Committee, and the Governance and Nominating Committee.
Sandi Peterson, chair of the
Compensation Committee and a member of the Governance and Nominating Committee.
Penny Pritzker, chair of the
Regulatory and Public Policy Committee.
Charlie Scharf, a member of
the Compensation Committee, and the Governance and Nominating Committee.
John Stanton, a member of the
Audit Committee, and the Regulatory and Public Policy Committee.
Arne Sorenson, who is
joining us via Microsoft Teams, and a member of our Audit Committee.
Padma Warrior, a member of our
And we have a new nominee,
Following the election this
morning, the board will consider Emma's committee appointments.
And lastly, Chuck Noski and
Dr. Helmut Panke are not seeking re-election.
I personally want to thank
Chuck and Helmut, as does the full board, for the many contributions they've made
over the past 16 years. Each have brought tremendous wisdom and judgment to our
board, including in the vital roles Chuck has played as chair of the Audit
Committee, and Helmut has played as the chair of the Regulatory and Public
To better understand our board's
unique skills and perspectives, I encourage our shareholders to view the latest
director video series segment with Hugh Johnston. The complete series will be available for
review on our Investor Relations website.
Also, here with us today
are Mike Thompson and Chris Weber, representing Deloitte and Touche, our
And now I'd like to call
the 2019 Annual Shareholders Meeting to order.
I'll be serving as the
chair of the meeting, and Dev will be serving as the secretary.
As chair of the meeting, I've
adopted an agenda that will govern the order of the business and the rules of
conduct for the meeting. Copies of the
agenda and the rules are available on the virtual meeting site, as well as the
Annual Meeting page in the Investor Relations website. The rules of conduct also govern the Q&A
Dev will now report the
notice of the meeting, the proxies received, and present the matters to be
voted on. Dev.
DEV STAHLKOPF: Thanks,
Welcome, everyone. I'll walk us through the short formal meeting
and then, as John said, you'll hear from Amy and Satya, followed by a Q&A
The notice of the meeting
and Internet availability of the proxy materials were mailed by Broadridge
Corporation beginning October 22nd, 2019, and it went to all shareholders of
record as of October 8th, 2019. As a
result, this meeting is being held pursuant to proper notice.
We have received proxies
representing more than 86 percent of the roughly 7.6 billion shares of the
company's stock that are eligible to vote.
This means we have a quorum present, and the meeting is duly constituted
and will proceed.
Today, we have three
management proposals and two shareholder proposals for you to consider. They were all described in the proxy
statement for today's meeting.
The first item is the
election of directors. The following 13
people have been properly nominated by the board: Bill Gates, Reid Hoffman, Hugh Johnston, Teri
List-Stoll, Satya Nadella, Sandi Peterson, Penny Pritzker, Charlie Scharf, Arne
Sorenson, John Stanton, John Thompson, Emma Walmsley, and Padma Warrior.
The board recommends a vote
for each of them.
The second item is an
advisory vote to approve executive compensation as disclosed in the company's
The board recommends a vote
for this proposal.
The third item, we ask that
you ratify selection of the company's independent auditor, Deloitte and Touche,
for fiscal year 2020.
The board recommends a vote
for that proposal.
The fourth item is a
shareholder proposal requesting a report on Employee Representation on the
Board of Directors. The shareholder proposal
and its supporting statement are set forth in the proxy statement.
The proposal has been
submitted by Northstar Asset Management. I recognize Mari Schwartzer, Director of
Shareholder Activism and Engagement with NorthStar Asset Management for a period
of three minutes.
Operator, please open Mari's
MARI SCHWARTZER: Thank you.
Good morning. My name is Mari
Schwartzer. I'm with NorthStar Asset
Management, a socially responsible investment firm based in Boston, and the
beneficial owner of 75,575 shares of Microsoft common stock. Today, I'm presenting shareholder proposal
For the past several
years, Microsoft has repeatedly come under fire from employees who have spoke
out against projects that they believe go against the values of our
company. Employees have protested the
company's work with ICE amid a national outcry over the separation of immigrant
children from families, but our company declined to end its connections to ICE.
Employees have demanded
that Microsoft halt the military HoloLens project, which an employee letter
described as crossing the lines of weapons development, but our CEO confirmed
continuation of the project.
A year ago, employees
urged Microsoft not to bid on the Department of Defense JEDI project, a cloud
computing contract that is described by many as a "war cloud." Yet our company successfully pursued it.
Not only that, but
employees have also alleged gender discrimination and sexual harassment within
our company, including a pending class action lawsuit potentially of thousands
of female engineering and IT professionals claiming pervasive practices of
As long-time investors of
Microsoft, we fear that our company has not responded sufficiently to these
concerns from employees, crucial stakeholders in our company. Continually ignoring employee concerns is a
long-term risk to our company and shareholder value. The potential loss of key leaders, engineers,
and IT professionals reduces our company's strengths in our dynamic and
Our employees are the
driving force of our company, but if their trust in management falters,
Microsoft may suffer.
To remedy this, we
suggest allowing and encouraging representation on the board by non-management
and non-executive employees. We believe
that employee representation on the board may provide a key tool to ensure that
employees, our most crucial resource, remain fully engaged in the long-term
growth of our company and help to ensure operational excellence.
We urge shareholders to
vote in favor of shareholder proposal number one. Thank you.
DEV STAHLKOPF: Thank
The Board recommends a vote
against the proposal for the reasons stated in the company's proxy statement. We believe that all candidates for the Board
of Directors should be evaluated by the same standards and criteria, whether or
not they are a company employee, and the Board is already deeply engaged on
providing oversight of workplace culture and the employee experience, including
receiving direct feedback from employees through anonymous polls.
The fifth and final item is
a shareholder proposal requesting a report on Gender Pay Gap. The shareholder proposal and its supporting
statement are set forth in the proxy statement. The proposal was submitted by Arjuna Capital
which has a video presentation in support of the proposal. I recognize Natasha Lamb, Managing Partner,
with Arjuna Capital for a period of three minutes.
NATASHA LAMB (from video): Good morning.
My name is Natasha Lamb, and I move proposal number two on behalf of
Arjuna Capital, asking for a report on gender and racial pay equity.
Arjuna Capital first
engaged Microsoft on pay equity in 2016.
Importantly, I would like to acknowledge Microsoft's leadership at the
time when our company took a critical first step by publishing statistically
adjusted equal pay for equal work numbers, assessing the pay of men and women
performing similar jobs.
Microsoft has since
closed the equal pay gap and now reports women earn 100 percent of the
compensation received by men, and minorities earn 100 percent of the
compensation received by their white counterparts.
Yet, this statistically
adjusted number is only half the story.
The other half is median pay disclosure, which is the specific objective
of this proposal.
Median pay is an
unadjusted raw measure used by the Organization for Economic Cooperation and
Development, the OECD, to assess not only equal pay but equal opportunity.
Women who work fulltime
in the U.S. make 80 cents on the dollar versus men on this basis. African American women make 60 cents on the
dollar. And Latino women make 55 cents.
Gaps in median pay is
literally the definition of the gender pay gap.
So, while adjusted equal pay gaps measure whether women and people of
color are being paid commensurate with their peers for the work that they're
doing today, median pay gaps measure whether these groups are holding as many
high-paying jobs within companies. That
is, whether there is equal opportunity.
Given the importance of
this measure, disclosure of median pay is now mandated in the United
Kingdom. For Microsoft UK operations our
company reported a 7.9 percent hourly median pay gap and a 13 percent bonus
median pay gap. Yet notably, our company
has not published median information for its global operations.
that tell the whole story of gender and racial pay equity are essential to
investors as they create accountability and drive change toward not only equal
pay but equal opportunity. That change is
in service to a more diverse company and leadership and therefore better
Thank you so much for
your time and support of proposal number two on gender and racial pay equity.
DEV STAHLKOPF: Thank
We received many questions from
shareholders on this proposal and appreciate the interest. However, the Board recommends a vote against the
proposal for the reasons stated in the company's proxy statement.
At Microsoft we care deeply
about gender pay equity. While we share
the proponent's commitment to the issue, we believe the disclosures and
processes they are suggesting would have the Company focus on data that's not a
useful measure of our direction or success.
We believe our current
disclosures, programs, and initiatives provide significant transparency and
create specific internal accountabilities to help the company address gender
pay gap concerns.
The discussion of the
matters for shareholder consideration is now closed, and the polls are now also
I'll share with you the
preliminary voting tabulation. First, all
13 nominees on the ballot to become a director are elected with over 98 percent
of the votes cast. They'll serve until
the next annual shareholders meeting and until their successors are elected and
Proposal two, the advisory
vote on executive compensation, has been approved by more than 76 percent of
ratification of the company's auditor, Deloitte and Touche, has been approved
by over 96 percent of the votes cast.
The shareholder proposal on
Employee Representation on the Board of Directors was not approved, receiving
less than 5 percent of votes cast.
Finally, the shareholder
proposal on Gender Pay Gap was not approved, receiving less than 30 percent of
We expect to post the
details of the final voting results on all of these matters on our Investor
Relations website later today.
We'll also report the
results in a form 8-K that will be filed with the Securities and Exchange
Commission within four business days.
With that, we've completed
the formal portion of the meeting, and the meeting is now adjourned.
Let me hand it over to our
chief financial officer, Amy Hood.
AMY HOOD:Thank you,
Hello, everyone and thank
you for joining us today.
2019 was a record year for
Microsoft. Revenue grew 14 percent to
over $125 billion, operating income grew 23 percent, and earnings per share
grew 22 percent.
We again saw strong
execution across all geographies and continued customer demand for our
differentiated products and services.
To further enhance our
talent and capabilities in strategic growth areas, we completed 19 acquisitions
We welcomed GitHub, the
largest platform for the developer community to Microsoft, enabling us to bring
our tools and services to new audiences, while enabling GitHub to grow and
retain its developer-first ethos.
And, we purchased Glint, which
brings employee insights, alongside LinkedIn's Workforce Insights, to create a
powerful solution to help customers attract, retain, and develop the best
In Gaming, we completed the
acquisitions of five new studios to bolster our first-party content and
fast-growing subscription services.
As we continued to invest
in M&A and organic growth, we also retained our commitment to capital
return, which for fiscal year 2019 included a total cash return of $30.9
In September, we announced
a new $40 billion buyback authorization, as well as an 11 percent increase in
our quarterly dividend.
Now, let me share a few
highlights from the last fiscal year.
Our commercial cloud business
grew 43 percent to surpass more than $38 billion in revenue. We saw strong growth across three key services: Office 365 grew 33 percent, Azure grew 72
percent, and Dynamics 365 grew 47 percent.
Importantly, we also
delivered on our commitment to make significant improvement in the commercial
cloud gross margin percentage, which expanded to 63 percent, up 5 points
Through the sustained
efforts of our engineering, sales, and marketing teams, material improvement in
our Azure IaaS and PaaS gross margins drove the commercial cloud gross margin
Our server products and
cloud services business reached over $32 billion and grew 25 percent, driven by
continued customer demand for our trusted and differentiated hybrid solutions.
From both a technology and
licensing perspective we are enabling our customers to digitally transform at
their own pace.
Now let's turn to progress
across our Microsoft 365 offering.
Our Office business again
saw double-digit revenue growth, as we reached even more commercial and
consumer users by helping customers around the world, regardless of how small
or large, be more productive and collaborative.
We continued to see healthy
commercial and consumer demand for Windows 10, increasing our base of active
Windows 10 devices and contributing to growth in our search business.
And in Surface, revenue
grew 23 percent as we innovated across our existing portfolio with our new
Surface Pro and Surface Laptop devices, and we further expanded our family of
category-creating devices with Surface Go, Surface Hub 2, and Surface Headphones.
In Gaming, revenue exceeded
$11 billion and we saw strong momentum in our GamePass subscription services,
as well as a record number of Xbox Live monthly active users, which increased
to 65 million, with a record number of mobile and PC users.
Now, a few comments on the
current fiscal year.
First, as we do at the
start of each fiscal year, we updated our investor metrics based, in part, on
feedback from all of you.
We now disclose the
commercial remaining performance obligation, which better reflects commitments
our customers are making across all contract types.
And in Gaming, we updated
our metric to disclose Xbox content and services revenue growth as the key
performance indicator for the long-term health of the Gaming business across
content, community, and cloud.
And second, we are off to a
strong start in fiscal 20 with double-digit top and bottom line growth in Q1, a
result of our consistent execution and ongoing investment in high growth areas.
For the full year, we expect
double digit revenue and operating income growth, with operating margins up
slightly year over year.
We could not deliver these
results without the incredible contributions of the nearly 150,000 Microsoft
employees around the world.
While there is always more
to do, we are pleased with the continued progress we are making on diversity
and inclusion and including our ability to recruit, retain, and engage the
people we need to deliver on our mission.
Looking forward, we believe
the highest shareholder value comes from creating differentiated high-value
scenarios for every organization and person to achieve more.
We'll continue to invest in
our future against strategic opportunities like Cloud thru AI and GitHub,
Business Applications through Dynamics, Power Platform, and LinkedIn, Microsoft
365 through Teams, Security, and Surface, as well as Gaming.
We've focused on the right
secular technology trends, invested in structurally growing markets and we're confident
that our competitive differentiation and world-class talent positions us for
continued growth as we remain focused on our customer's success.
With that, please join me
in welcoming our Chief Executive Officer, Satya Nadella.
Thank you so much, Amy, thank you, and thank you to all our
shareholders joining us today for our first-ever virtual shareholder meeting.
Thank you for your
continued commitment and investment in Microsoft. I am proud of what we have accomplished this
past fiscal year and energized by our opportunity ahead.
Our mission to empower
every person and every organization on the planet to achieve more has never
been more important. Our platforms and
tools help make small businesses more productive, multinationals everywhere more
competitive, nonprofits more effective, and governments more efficient. They improve healthcare and educational outcomes,
and amplify human ingenuity.
Take Dr. Raymond Campbell,
who is bringing healthcare to rural communities in South Africa with an
Shinobu-san, who taught
herself machine learning to digitally transform a small restaurant in Aisai,
Japan, where she works.
And Dr. David Kellerman, a
university teacher in Sydney, Australia, who is using our platforms to connect
students in his classroom and online.
The world's leading
companies, from AT&T to Walgreens Boots Alliance to Jio in India, are
choosing Microsoft to accelerate their digital transformations. Every day, we work alongside customers like
these to help them build their own digital capability, innovating with them,
creating new businesses with them, and earning their trust.
And, we are delivering
differentiated value to customers of all sizes in every industry, across every
layer of the technology stack.
We're building Azure as the
world's computer to address the customers' real-world operational sovereignty
and regulatory needs, with more compliance certifications and more datacenter
regions than any other cloud provider.
Azure is the only cloud
that extends to the edge, enabling everything from smart factories to modern,
compliant banking, to precision medicine.
Azure has limitless data
and analytics capabilities, enabling our customers to apply the power of
quantum computing today, and has the most comprehensive portfolio of AI tools
so developers can embed the ability to see, hear, respond, translate, and
reason into their applications. Those of
you who are watching today can use these capabilities for real-time translation
of my remarks in six languages.
In a world where every
company is a digital company, developers will play an increasingly vital role
in value creation and growth across every industry. We are building the most complete toolchain
for developers, from Visual Studio to GitHub, which is used by more than 40
million developers, including the majority of the Fortune 50.
We're empowering citizen
developers with Power Platform. Now
anyone can make better decisions using self-service analytics, build a mobile
app, automate a business process, or even create a virtual agent, with no
Dynamics 365 gives
customers a 360-degree view of their business and enables every function inside
of the organization to move from reactive, siloed, transactional processes, to
proactive, repeatable, predictable business outcomes.
We're enabling our
customers to bridge the physical and digital worlds with our mixed reality
applications and HoloLens 2, the most advanced intelligent edge device
LinkedIn creates an economic
opportunity for every member of the global workforce.
And our comprehensive Talent
Solutions help every organization attract, retain, and develop the best people
in a competitive jobs marketplace.
Microsoft 365 brings
together Office 365, Windows 10, and Enterprise Mobility & Security, and
empowers everyone, enterprises, small businesses, students, and first-line
We're infusing AI across
Microsoft 365. Presentations are more
accessible in PowerPoint, videos are more searchable in Stream, emails more
relevant in Outlook, and meetings are more inclusive in Teams.
Microsoft Teams has had a
breakout year. It brings together everything
a team needs: chat, voice, meetings,
collaboration, with the power of the Office apps, and business process
And, we are bringing it to
first-line workers in every industry, from healthcare to hospitality, to retail
Our expanding family of
Surface devices continues to create new categories, benefiting the entire OEM ecosystem.
Finally, we are
transforming how games are distributed, played, and viewed for more than 2
billion gamers worldwide, from our new game streaming service, Project xCloud, to
Minecraft Earth, to our fast-growing subscription service, Xbox GamePass.
None of this progress and
impact is possible without trust, both trust in our technology, and more
importantly trust that our customers have a partner whose business model is
fundamentally aligned with their success.
We believe privacy is a
human right. We're investing to protect
customers in today's "zero trust" cybersecurity environment. We are building AI responsibly, taking a
principled approach. And, we are working
to create a more sustainable future where everyone has access to the benefits
and opportunities created by technology.
In closing, we will
continue to innovate boldly, invest in the right secular trends, and work to
earn our customers' trust every day.
I've never been more
optimistic about our opportunity to empower the 7 billion people on the planet
through the power of technology. Thank
you very much.
MIKE SPENCER: Welcome
to the Q&A portion of the meeting.
I'm Mike Spencer, head of
Investor Relations at Microsoft. I'm
joined by Satya, Amy and John. Also
joining us is Brad Smith, our president and chief legal officer.
We want to thank you for
all the questions you submitted in advance and during the meeting. We'll try to get to as many as we can. As we reviewed the submissions, there were
several on the same topic, so we've selected a representative question from
those topics to answer today.
If we don't get your
question answered in today's meeting, we will post a document with responses on
our Investor Relations website after the meeting.
So, let's go ahead and get
We received the most
questions asking why the Board recommended a vote against the shareholder
proposal on gender pay equality.
Since Dev addressed matter
during her remarks, we'll start with a question on the composition of the
board. We had several shareholders ask
about the number of directors who are independent versus insiders, the male to
female ratio, and the number of board members with backgrounds in finance and
investment firms rather than in technology.
John, could you explain the
factors considered in electing nominees to the Board?
JOHN THOMPSON: Certainly. We've had a wonderful change or
transformation of the board just as the company has transformed. The company is committed to a substantial
majority of independent directors as well.
We look for a diverse set of skills, experiences and perspectives, and
we actively seek qualified women and individuals from minority organizations
who can truly help build a stronger board.
The board has eight
members, most of which are backgrounds in technology, and we have a number of
other board members who are from other very, very important areas of industry.
The slate today has 38
percent women, more than 54 percent gender and ethnic diversity, and two of our
committee chairs are, in fact, women.
So, I think we've made great progress in diversifying and quite frankly
enhancing the board overall.
MIKE SPENCER: Great,
Next question is for Satya. One anonymous shareholder asked about how we
are preparing for quantum and edge computing.
SATYA NADELLA: It's a
great question. Maybe I'll take the edge
question first. From day one when we
built out Azure and designed Azure, we had an architectural principle that we
would build out a distributed computing fabric that includes the cloud and the
edge. And that's why we even talk about
the paradigm we are going through as intelligent cloud and intelligent edge.
Today, on the cloud side we
have 54-plus data center regions, more regions than any other public cloud
provider, just to bring all of the compute capacity to where customers need it,
and then we extend it to the edge.
So, with Azure Sphere every
microcontroller can be a compute node of Azure, and with Azure Kinect you can
now have cameras that are smart with compute as well. And then all the way to Azure Stack.
And now, in fact, we have
now taken even one more step with Azure Arc, which brings the control plane
across all of the cloud and all of the edge infrastructure that is
available. So, we're very excited about
what we're doing there architecturally to meet the customer needs.
Around quantum again we're
taking the same approach, which Microsoft always brings to any technology
layer, which is a platform approach.
For example, we just announced
Azure Quantum where we are now going to have a variety of hardware, whether
it's ion trap or superconducting hardware from us and others.
And then on top of that we
are building the software toolchain. In
fact, we're excited about how Q# is being used already on classical computers
to really do quantum-inspired work. In
fact, Cleveland Clinic was able to do some of the things that they were never
able to do before using quantum inspired algorithms on top of classical
So, I think that there's a
lot of benefit to the approach we are taking and we're excited about the
MIKE SPENCER: Great,
The next question is for Amy
on capital returns. Lokanath P. asks, are
you going to increase dividends in future?
AMY HOOD: Thanks, Mike. As you
know, we really do think about capital allocations holistically with four
priorities. The first and most important
for us is continuing to invest in long-term innovation and product
differentiation. And so, our first
priority is always to invest in ourselves for long-term growth.
priority is to think through inorganic options to help accelerate or expand our
TAM in addressable markets, again, for long-term shareholder return. Then, we think about the two other
distributions either through dividends or shareholder buyback. We done both of those, as you know, over the
years and remain committed to using all four of those vehicles for long-term
MIKE SPENCER: Good. Thanks,
Amy. We have a live question. There was one anonymously submitted about the
investment Microsoft made in a company by the name of AnyVision. Brad, could you help provide some background
on the investment?
BRAD SMITH: Sure.
AnyVision is an Israeli company that's really at the cutting edge of
some technologies that involve facial recognition. M12, which is Microsoft's venture capital
arm, made a $10 million investment in AnyVision, and because of the sensitivity
of facial recognition technologies when M12 made that investment, they secured
a commitment from AnyVision that they would adhere to our principles around
facial recognition. One of those
principles says that it won't be used for mass surveillance, especially mass
surveillance outside certain safeguards that really involve the protection of
human rights and the application of the rule of law.
NBC has reported
from Israel that AnyVision's technology is being used on the West Bank and on
the Gaza Strip in ways that have raised real questions about whether our
principles are being complied with. Now,
AnyVision has told us privately, and they've stated publicly, that they in fact
are complying with our principles, but because of the seriousness of the issue,
I think it's fair to say, we decided to exercise our audit rights under the
investment. One of the things that M12
did was negotiate to exercise audit rights if needed, if any serious issues
So at Microsoft,
we've retained the former Attorney General of the United States, Eric Holder,
as well as a team of former federal prosecutors to, as I would say, get to the
bottom of this. And we'll either satisfy
ourselves that, in fact, AnyVision's technology is being used in conformance
with our principles, and if so, we'll stand publicly and say that that is, in
fact, what AnyVision is doing. But if
our audit shows something different, if we're not able to get to the bottom of
this to our satisfaction, then we've been clear and we won't continue with the
relationship we have.
MIKE SPENCER: Great. Thanks,
Brad. Another one for Satya. John D. asked, "How large can the cloud
computing business be for Microsoft?"
SATYA NADELLA: Amy talked about how we're investing across
the entire length and breadth of the tech stack with the opportunity ahead
which is about increasing digitization everywhere. If you look at it in our own context, whether
it's xCloud or Azure infrastructure, to us, that's one continuous sort of spectrum
But perhaps one way
for investors to think about what's happening with cloud computing at large is
to think about what the total spend in technology today is. It's around five percent of GDP. On a secular basis, I think it's going to be
10 percent, which is it's going to double in the next 10 years, and that's
because every industry, whether it's in retail, whether it's in healthcare,
whether it's in manufacturing, they're all being transformed by digital
technology stack we have, and the platform approach Microsoft has, means we
will be able to participate in that 10 percent and the doubling of tech spend,
but more importantly, really helping the global economy grow because of digital
technology. And that's what I think is
the way to think about our opportunity.
MIKE SPENCER: Great. Thanks,
Satya. The next question is for
Brad. Diana L. asked, "What is
Microsoft's strategy to promote products that help ensure the security of
elections in USA?"
BRAD SMITH: Well, we're really doing three things to promote the
security of elections not only in the United States, but really in the 76
democratic nations around the world. The
first is to protect candidates, their campaigns, political parties and think
tanks. We have a problem called
AccountGuard. It's now being used by
65,000 accounts in 26 countries. We've
trained 1,300 campaign professionals so that they can better secure their
e-mail and defend against potential hacking, or leaking of e-mails by foreign
adversaries. It's something that's already,
I think, making an important difference for the people who use Microsoft 365 in
the realm of elections.
The second thing
we're focused on is protecting voting, protecting elections, so we have a
program, a solution now called ElectionGuard.
We've open sourced it. It really
is next generation election technology.
We're excited because you're going to see the first pilot of it in some
U.S. elections early in the New Year.
And then, the
third thing we're focused on is addressing the problems of disinformation. We've partnered with and supported an
initiative called NewsGuard, and I'd encourage everybody who is watching to
give it a try, because it's really simple to use. Just do a search for NewsGuard. You can download the add-in for your browser,
and the next time you do a search on Bing or another popular search engine,
what you're going to find is, next to your results, you're going to see a green
icon if it's a reliable news organization, regardless of what political party
or affiliation it might be associated with.
But if it's an organization that trained journalists have identified as
a consistent source of fake news, you're going to see a red icon instead.
So think of it as
an easy to use roadmap for people so you know what kind of organization is
putting out the news you're reading.
MIKE SPENCER: Good. Thanks,
Brad. John, this next question is for
you, so if you could help address.
Courtney W. asked about the CEO compensation ratio of 249:1, and why
there is such a large wage gap between Satya and the median employees'
JOHN THOMPSON: Well, first and foremost, the Board believes that Satya, as
well as many of our investors, quite frankly, has done just an amazing
job. So the compensation strategy is
attached or tied very much to the performance of the company. If you were to think about Satya and the
company, and its progress over the last few years, market capitalization growth
has gone from $302 billion when Satya become CEO to $850 billion today where
just over a trillion dollars, I'm sorry, today.
leadership has been transformed as well.
The notion that we're going to have a cultural expansion or change in
this company would not have happened were it not for Satya, quite frankly. And strong execution of his vision around an
intelligent cloud has clearly been the driver or growth for this company. And while many people think that we are of
significant revenue scale and operating margins, and what have you, the reality
is we are, and we are in large part because Satya and the team have driven that
performance over the last five or six years.
One of the things
that people don't recognize, however, is the competitive shortfall that we
might have against some other companies in the industry. But while our comp for many people may be
different, the reality is we have another benefit programs that are much, much
better. For example, while the average
employee has about $172,000 contract, if you will, the healthcare benefits are
substantial, and those are important to people in this economy as the world has
changed around healthcare.
So, I think we're
in great shape and I think Satya, quite frankly, and his team have done an
amazing job over the last five years.
MIKE SPENCER: Great, thanks, John.
For Satya, we had
a shareholder ask, "With Microsoft is a leader in the cloud computing
business, what plans do you have to expand the platform to be open source,
which would allow more people to contribute more apps?"
SATYA NADELLA: Yeah, we are very, very excited about the open source
community. In fact, Microsoft is the largest contributor to Linux and many
other open source projects, and we are very committed to it. So, one of the fundamental things that I
think about, and in fact, it goes back to the very origin of the company, is we
build tools for developers. We are very
passionate about it. From Visual Studio
to GitHub to Azure DevOps to Azure PlayFab, we believe we have the best tool
chain for any developer to be able to build their applications on any
So that's, I
think, the fundamental commitment you can expect from Microsoft. In a world where every company is becoming a
software company and a digital company, the developers are very key, and their
productivity is very key, and building the best tool chain for them is not some
side business for us; it's a mainstream passion for Microsoft.
MIKE SPENCER: Got it. Thank you,
Satya. We have another question here for
Satya. An anonymous shareholder asked, "Will Microsoft be significantly
investing in development of AI tools for the healthcare industry?"
SATYA NADELLA: Again, we are very excited about both the opportunity to
help all participants in the healthcare industry, whether it's from the
provider side to the insurance side, and the pharma companies, everyone to be
able to use digital tools and digital technology, and in particular, AI.
So, some of these
things that we are doing, for example, around bringing the best speech
capabilities to do medical transcription in partnership with a company, Nuance,
and then to reduce physician burden is a great example of the type of
innovation. Even the work we're doing
with Novartis around bringing AI tools for their research capabilities. Around Life Science is another example. So we are, yes, absolutely bringing AI tools,
but most importantly, again, putting AI tools in the hands of people across the
industry in healthcare who are going to make a real difference.
BRAD SMITH: And I think there's another aspect that's interesting here
because, whether it's healthcare or really our customer set more broadly, it's
both a commitment to provide AI tools, but also to help provide AI skills. So, we're expanding our programs to work with
customers so that they can train their employees to use the tools, and we're
also partnering with customers to really enhance the spread of AI ethics.
One of the things
that we're, not surprisingly, finding, and I think the question on AnyVision
reflected this, is people want to have confidence that AI is going to be used
in an ethically responsible manner. And
in a world where we're providing tools to customers, our customers want to at
least get the best of what we've learned so far about how to create ethical
principles, and we're doing more of that across Microsoft. We now have a responsible AI standard, but it
really gives us the opportunity to not just serve customers but work in
partnership with them. We share what we've
learned. We get to then work and share
with them what they're learning, as well.
MIKE SPENCER: Great, thank you, both. This is our last question for
Brad. Claire W. asked, "How are we
factoring in the impact of climate change into our business planning?"
BRAD SMITH: It's maybe the question of the next three decades, if not
beyond, and in reality, we've already taken a number of steps to factor climate
issues into our business planning, whether it's where we locate datacenters,
how we access renewable energy, access to water and the like. But that's really just the beginning.
When we look back
at the last 10 years, I think there's a number of steps that we feel are
important and that we can build on.
Microsoft became really the first large company in the United States to
become carbon neutral. That was in 2012,
and that applies to all of the company and its operations.
We became one of
the first companies to create an internal carbon tax, and this isn't just a
shadow price. It is a real price that
all of our business units pay when they consume carbon. Last year, Satya made the decision that we
would increase that price. We almost
doubled it. It's now $15 a ton. And Amy and I have worked together, and that
money is being used to take a lot of the steps that we've taken in the recent
past, whether it's now having, on this campus, everything here comes from green
increasing the green energy that is being used by our datacenters around the
world. We're now constructing
datacenters that are getting to the point of recycling almost all of their water.
But at the same
time, I would say that, when we look at everything we have done, science tells
us one thing above all: Everything we
have done is insufficient to meet the needs of the future. And that's not just a statement about
Microsoft. I think that is a statement
about every company in every industry in every country around the world. So the real question, as we look to the
2020s, is how do we raise our ambition.
That is what we're committed to doing.
Microsoft, I think it really means two things:
Number one, you'll see us undertake early in the New Year a new
initiative, a much bigger initiative that is going to be something that we
invest in with continuous improvement over the next several years. And it's going to focus on four areas: Reduction in carbon; better use of water;
reduction of waste; and our impact on biodiversity, the ecosystems of the
world. And a big part of what we'll do
will be improved further.
We'll move faster
to reduce our use of carbon. We'll have
a wide variety of new measures that we'll start talking about in January. That's our first ambition.
But I actually
think our second ambition is really the bigger and more important one. The world will not solve this problem without
new technology. It will take a wide
variety of new technology. It will take
major investments in research and innovation.
And what we recognize is that digital technology is an enabling
technology for everything that's needed.
Digital technology is something that all of our customers can use to
address their own environmental footprint.
It may start with
something as straightforward as helping them move to the cloud and moving to a
clean cloud that is using renewable energy with something like Azure. But fundamentally, it is about unleashing the
power of digital technology. It is, if
you will, something that I think builds on our mission statement. Our goal for the next decade needs to be to
create digital technology that will empower every organization to build a more
sustainable planet that humanity needs.
And I think for all of us, frankly, for all of our employees, this is a
cause that we embrace.
MIKE SPENCER: Great, thanks, Brad, and thank all of you for joining me
today. This concludes the Q&A
session of the meeting. We'd like to
thank you for your participation on today's meeting. If you'd like more information, please visit
our investor relations website.
Thanks, and have
a great day.
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June 9, 2021 1:15 PM - PT
Morgan Stanley Sustainable Futures Conference
Kristen Roby Dimlow, CVP, Total Rewards, Performance and HRBI