Interview: Microsoft’s president on turbulent times for the company, country, and world
Microsoft President Brad Smith is facing an array global, national and corporate issues. (GeekWire Photo / Dan DeLong)
Brad Smith, like many in tech and the broader world, thought 2022 might bring a bit of a break. Halfway through, the reality has been anything but.
“This has been another year where, to use an old phrase, we have to borrow from our sleep in order to get everything done,” the Microsoft president said in an interview this week in his office in Redmond. “I don’t think any of us thought, when the year began, that we’d find a major war in Europe.”
But helping to defend Ukraine in the Russian cyberwar is just one issue on Microsoft’s radar.
In the first six months of the year, the company has made a series of moves driven by the turbulent economy, new state and national legislation, growing pressure from employees and investors, a shifting labor market, regulatory challenges, and a pending acquisition that would be the largest in its history.
“Fundamentally, we have a business model and a product portfolio that is designed to build the digital infrastructure and the services that help other people succeed,” Smith said, describing the mission under Microsoft CEO Satya Nadella. “And now we need to put that to work in a variety of ways that in some manner, are testing us anew.”
Microsoft boosted employee compensation, significantly reduced its use of non-compete agreements, and announced plans to publicly disclose salary ranges in job posts nationally starting next year.The company commissioned an outside review of its sexual harassment and gender discrimination policies and practices, and announced plans for a civil rights audit, joining a larger industry movement. It also removed confidentiality clauses from agreements involving internal allegations of misconduct.Microsoft pledged a new approach to the prospect of labor unions in its current and future workforce, seeking in part to appease regulators weighing the company’s proposed $68.7 billion deal to acquire Activision Blizzard.The company has continued to press ahead on its climate initiatives in the midst of all of this, attempting to navigate the challenge of higher energy prices while focusing on the environmental crisis.
And then there’s the U.S. Supreme Court ruling overturning Roe v. Wade. That’s where we started our wide-ranging conversation with Smith this week.
Listen below, and continue reading for excerpts, edited for clarity and length.
Roe v. Wade
Todd Bishop: Microsoft joined other companies in saying that it will assist with travel expenses for employees seeking medical care, including abortions, if not available in their home regions. So much of Microsoft’s growth in recent years has come domestically outside of the Seattle area. And it strikes me, that changes things in two ways: One, you’re operating in more states where they might be implementing abortion restrictions in the wake of the Supreme Court ruling. But also, you have a completely different employee base in some ways, whose political views might not align with those in our Seattle bubble. How do you decide which side to take in an issue such as this?
Brad Smith: Well, I think the principle here is our commitment to uphold the ability of our employees to get the health care that they want, and they feel they need. And we’re going to live in a country now that has differing rules in different states. That’s the reality since the constitutional protection that was in place for 49 years has now changed. And so our first principle is to honor the ability of our employees to continue to make their own choices, to enable women who work at Microsoft to travel to another state, if that is what they want to need to do, for this type of medical service, an abortion.
At the same time, I do think it’s right to acknowledge that this is a deeply personal issue. And I think we deceive ourselves if we stop thinking about that, as well. And so at the same time that we stand firmly on the side of women who want to access this service, we also want to have a workplace that continues to advance diversity and inclusion broadly, and on this issue, that does mean that I think it will be important for people to find a place at the office or on a Teams call, or wherever, that makes room for somebody who might have a different point of view, and still be great colleagues and teammates.
Russia’s cyberwar against Ukraine
TB: Microsoft has been among the companies assisting and providing intelligence to Ukraine in its defense against Russian cyber attacks. And in fact, the company just came out with a new report detailing Russia’s tactics and some of the big picture takeaways and implications. How would you describe the current state of that cyber war between Russia and Ukraine? Who’s winning?
Smith: Well, the interesting and really important thing about the war in Ukraine is the degree to which it is the first major war that is, in part, pitting a cyber power [against another country]. That is what Russia is, it is one of the world’s major cyber powers. And so far, at least at a strategic level, defenses are proving stronger than the offense, and especially the destructive cyber attacks that Russia has been unleashing.
I don’t think there is a company that has been more involved in defending Ukraine than Microsoft. We’ve committed $239 million of technology and financial assistance; $107 million of that went to literally move the government and much of the country of Ukraine from on-premises servers to the cloud. And I think that ability to disperse services and data to the cloud, and really put them in data centers that we run across Europe, has been one of the indispensable elements in defending Ukraine. And I think other tech companies, including our competitors, deserve credit.
TB: Amazon has done a lot.
Smith: Google, lots of companies. And that’s good. I think this has been a rallying cry, and a unifying opportunity for our industry to really add not just value but extraordinary protection to more than 40 million people who need it.
Beyond that, what we’re finding is what we detailed in the report that we published last week, and I think this was one of the most important reports that I’ve ever been connected with in terms of a publication at Microsoft, because it really offered five conclusions from our experience in the first four months in this war. It starts with what it means to disperse data into the cloud, it goes to just the increase and the effectiveness of defensive protection against these destructive cyber attacks, especially in the area of threat intelligence and endpoint protection.
It highlights what we’re seeing in stepped-up Russia network penetration and espionage around the world — literally, efforts to penetrate 128 organizations in 42 countries. And it really details I think, more so than anyone has ever detailed before, the nature and the extent of what we call Russian cyber influence operations, efforts designed to promote Russia’s war aims in the war by spreading narratives. …. So in short, this documents, I think, more clearly than we’ve ever seen before the nature of this threat, which is, I think, real for the United States and other countries, and we offer a number of thoughts on the strategy we need to do to counter it.
Microsoft’s security issues
TB: Isn’t it important to acknowledge that a certain portion of these attacks by Russia are enabled by flaws in Microsoft’s software?
Smith: The attacks that we saw in Ukraine were not focused on or able to take account of Microsoft vulnerabilities. These were classic cases of people trying to enter a network, often through phishing and other efforts. They were efforts to then penetrate a network and spread malware, once one had access to a network domain. So I think that should be put in a separate category.
Then I think there’s two other things to think about. One is this question about our own products and services. And I think it’s fair to say, it’s even right to say, that the world keeps changing. And we need to keep changing with it to properly protect the security of people using Microsoft products and services. That’s why in late May, we took the step of turning on multi-factor authentication and changing other defaults. One of the concerns, even criticisms, that some people had was that we were not doing everything we could to protect people using our products, because we didn’t turn on so much by default. And we listened to that, and we made a change.
But there’s a third point that I think is also important. Microsoft’s security business is not focused exclusively, or even primarily, on protecting Microsoft products and services. It’s the one most comprehensive security portfolio in the world that is designed to protect every kind of device, whether it’s Windows or Android, or iOS, or Mac, and apps and services and data that may be running on any cloud, especially Azure, and AWS, and GCP by Google, and I think that you know, some of our competitors, who who liked to poke at us like to keep taking people back to the past. And they’re missing the present and the future. I think what we offer is more comprehensive. We strive to provide best of breed and the best suite.
TB: That’s the revenue-generating side of the security services business. I’m referring more to the fundamental issues that used to be referred to as the security development lifecycle in Windows. And obviously, there’s still many versions of Windows that are out there — perhaps patches are available, perhaps they’re not. But groups like Fancy Bear have been able to exploit these. That’s one of the Russian affiliated hacking groups that is known by Microsoft as Strontium.
I know that one of your answers on this question in the past has been, ‘Oh, people should shift to the cloud,’ because that’s where Microsoft and other providers are able to provide the most advanced security. But that’s also a little bit self serving, too, because that also is driving revenue to the business.
Smith: I will both acknowledge what you said, and acknowledge that when automakers said that you could go faster in a car than on a horse, that was self-serving and true at the same time. So the goal is to find both and where they fit together.
One of the points I would hasten to add is, this is a constantly changing threat environment. So then you have to think about how you address it. Where you have devices that could be anything from something that fits in somebody’s hand to an on-premises server, it goes to in part the fundamental features and functionality, it turns on default settings, which we’ve addressed, and it requires updating. Now updating is also another word that. at times, depending on the configuration, depending on what’s needed, is a patch. And we have definitely been each step of the way stopping and asking ourselves, what lessons do we learn from the Hafnium attack last year, we took away some important lessons about how to make patching easier, because what we really found more than anything, was that servers were vulnerable if they were not patched.
Now, the cloud takes all of these needs and burdens and shifts it from the customer to the provider, in this case Microsoft. And that’s the first thing that we’re able to do when we do move people to the cloud. We can instantly keep all of their software up-to-date.
But the second point that is just I think of such fundamental importance when it comes to security is that when services are in the cloud, we have a less a level of visibility to the attacks that are taking place that we don’t have when somebody is running a server in their server room or elsewhere on-premise. And a lot of what we were able to do to help defend customers in Ukraine or say, you know, in outside Ukraine with these most recent Russian network penetration efforts is find things in the cloud. And so I do believe that fundamentally, a world that puts more in the cloud and less on-premises in most scenarios, is likely to better serve customers and better protect security.
TB: Microsoft earlier this month announced a series of policy changes, some of them in response to state laws, others in response to pressure from employees and other groups. But in many cases, you’re now applying those state laws nationally. I wanted to ask you specifically about the non-compete agreements, where Microsoft actually went further than Washington state law. Microsoft is now going to be eliminating these clauses from its US employment agreements, and removing them from existing agreements. And that applies to all employees except senior leaders. What took you so long on this one? This is a lightning rod in the tech industry.
Smith: It’s a fair question. And I was struck in one of our senior leadership team meetings when one of our execs in California said, what is it with you all in Washington state, we’ve been living in California for a long, long time without non competes. And it’s been an evolution, I think, for us and for many others.
We have not brought a lawsuit to enforce a non compete clause since Satya became CEO. And that goes back to 2014 now, and yeah, I do think we reached a point of recognizing two things. The first is looking at where regulation and the law are going. The Washington state law is one example. You’re right, we went well beyond it both in terms of exceeding the standard in the state and applying this across the country and not in this state alone.
But Washington state isn’t alone. Other states have been moving in this direction, the Federal Trade Commission, the FTC has indicated that the current world of non-competes bothers the commissioners, or at least a majority of them.
I think the second thing that we tried to think about is employee and workforce expectations in the year 2022. And it is a different world. We still need employees to appreciate the importance of protecting secrets, we still have non-disclosure clauses and obligations. And I think we live now in location here in Washington state where people move around. We don’t necessarily cheer in the morning when somebody leaves Microsoft to go work at AWS or Google. But we often cheer in the afternoon when people who left decide that actually, they like working at Microsoft better, and they come back. We’ve got something now that is right for the times. For this time, for this decade, I think this is the right approach.
TB: Why not eliminate them for senior leaders, too? What if you wanted to go work for Google? Why couldn’t you go do that?
Smith: I don’t think that’s a scenario that I contemplate for my future. I don’t think it’s a scenario that Google contemplates for its future, either, to be honest. I think this was an important step. I never, on any of these issues, look at a step we take and say that’s the last step will ever take. We’ll see. I think this was the right step at the right time.
Labor and employment reforms
TB: If you look at that, and several other things that Microsoft has done over the past few months, including the new union principles that you came out with, which we talked about, and the agreement with the CWA, I could see where people, in much the same way that they were shocked that Microsoft was working with open-source software, would see all these policy changes that seem very much not the Microsoft stereotype. What’s going on?
Smith: I would say, in some ways, maybe they’re less the tech industry stereotype. They are a departure for us. But I think they’re probably a little less dramatic, if you will, then if we were talking about a different tech company, because we’ve been on a five-year journey in some ways of addressing a number of issues that we think are important to the workplace and our workforce.
And in some ways that’s been our employees and other times it’s been people who work for our suppliers. So you go back to the middle of the last decade, we changed our contracts with suppliers to ensure that there would be paid time off for people who work for our vendors who were doing significant Microsoft work. We made similar change changes so that our parental leave benefits would reach not only our own employees, but in an appropriate way reach employees of suppliers.
In 2017, we were the first company of any size, to come out and endorse legislation to start to change the confidentiality clauses, or arbitration clauses that would impact claims or concerns about sexual harassment. And at the time, when we did that, people looked at us and said, why would we apply something ahead of the law, and now the law has caught up.
So here we are in 2022. And I think we’re continuing to build on that, as we did during the pandemic, for example, by being the first company to pay the employees of our vendors, even if they couldn’t come and work on campus.
The world’s continuing to change, employee expectations are continuing to change, the economy’s continuing to change. So yeah, I would look at this year, and I would say, the first thing we did was increase the compensation of our people. And then the second thing we did was work through a series of these changes, like pay transparency, which we’ve also been expanding over time.
TB: This idea that in job listings, you’ll list the pay range, the salary range, for that role.
Smith: Exactly, both internally and externally. When we have jobs that open up.
The non-compete clause — you see how these things start to fit together.
And then you get to, in some ways, the part that may feel a little more unusual to some, which is this issue around labor relations. So we had labor principles that we forged after talking to a lot of experts, and I personally benefited from talking to labor leaders. This is an area where they have a century of experience, and we have about three months. I mean, literally, they just know so much more than we do. And we talk to people in other businesses, as well.
And this agreement with the Communication Workers of America, which I really do think breaks new ground for how a company and a labor union can work together as we approach the second quarter of the 21st century.
Labor relations are always in a state of evolution. I do think that one of the things that we’re going to see for the rest of our lives and the rest of this century is a changing demographic picture for the United States. The population isn’t growing the way it used to. The size of the workforce-age population, those between the ages of, say, 20 and 64. that’s almost flattening in the United States, it’s actually falling in places like Japan and Western Europe.
And I think if you want to succeed as a company, you’re going to have to change, at least we’re going to have to change if we’re going to succeed in recruiting and retaining what we hope will be the most creative and talented workforce in the tech sector. That’s our goal.
TB: Those union principles and CWA agreement were also in your pragmatic interest, given the pending Activision-Blizzard deal and the fact that CWA represents the software testers who make Call of Duty.
Smith: Yes, and that was part of the conversation. They initially expressed concerns about our acquisition of Activision-Blizzard, they express concerns at the FTC, which is the regulatory agency in Washington D.C., responsible for making a decision about it. And the FTC sometimes does consider the impact of an acquisition on, say, a labor market, labor relations in that market. And so it was important to us and for us and for this acquisition to have the CWA now come forward and say they support this, that this is an acquisition that will advance the state of labor relations in the tech sector, and in gaming in particular.
External reviews of Microsoft practices
TB: If I’m counting right, you’ve got two external reviews going on right now. First, Microsoft has brought in an outside firm to review its sexual harassment and gender discrimination policies and practices. This was in response to the shareholder proposal that received 78% of the vote last fall. Separately, Microsoft is commissioning and committing to publish findings from a third party civil rights audit, scrutinizing workforce policies and practices that impact diversity and inclusion.
Can you give a sense for the timeline for these things, the outcomes, what you hope to accomplish through each of these outside investigations?
Smith: The first one is an obvious response to a shareholder resolution. As you point out, our shareholders voted in favor of it. Now shareholder votes are advisory. One of the things that I think is interesting is to, frankly, compare our reaction to a shareholder vote in favor of a resolution. And take a look at other tech companies when their shareholders have voted in favor of resolutions. In some cases, you can go back now months, and the companies haven’t yet spoken about resolutions that passed, they haven’t said what they’re going to do.
The very day it passed, we said we would listen to our shareholders and we would take action. And so the real purpose of this study, which is being done by a law firm in Washington, D.C., Arent Fox is not a firm that hasn’t worked with us on these or really other substantial matters, is to take stock of our policies and our practices, our work around sexual harassment and gender discrimination, and to benchmark us against other companies.
From my perspective, I think the most important thing this gives us the opportunity to do is have an objective third-party, give us feedback, and help us learn and get better. I don’t think that this is work that’s ever complete, because the world continues to change; the needs of our employees will always continue to change. So to answer your question about timeline, I hope it will be done soon. They started in the January timeframe. I feel confident that we’ll have the final report from the firm and be in a position to present our board of directors with what management will do in response to it by say early fall. But the sooner the better, in many ways from my perspective.
TB: The civil rights audit was announced more recently.
Smith: That was announced just in the last couple of weeks really. And in a way, this is something else. That is a trend of our times; there are civil rights groups in the United States, perhaps especially in Washington, D.C., urging companies to do this kind of review to ask what kind of impact we are having on the civil rights of our people or other people.
I think this is also an opportunity to combine this kind of step, that will do good for us and our stakeholders, with also a sense of pragmatism, because I think that this, too, is clearly going to more shareholder meetings. And among other things, we looked at ourselves and said, ‘Well, if this seems like a good thing to do, then let’s go ahead and do it. Let’s not force our shareholders to go through the exercise of asking us to do it.’ But we’re just getting started. And the work needs to be done. A law firm needs to be retained. But in a similar way, I think the ultimate goal of all of these things is very similar. It’s to help us learn. And I think the goal of learning is to keep improving.
TB: How do you make sure that this is more than lip service; that this isn’t just window dressing to make it look like you’re addressing the issue?
Smith: The real test is whether we do things differently after it’s complete. If we get a report that says that we’re already perfect, I will be very disappointed. And I’ll know that the report can’t possibly be true, because I don’t think perfection is part of this world or this life. So I think the way to test us always on everything is through our deeds and not our words. And so I am hoping that we’re going to get some good suggestions. I know there’s other companies doing great things. And I am very confident that some of them are doing great things that haven’t yet occurred to us or that we’re not doing as well as they are. So hey, let’s keep learning from the best in every field and we can aspire to be at the forefront.
Microsoft internal cultural issues
TB: One of the things that I hear behind the scenes from a lot of current and former Microsoft employees is complaints about the HR review system when there are allegations of discrimination or mistreatment internally, and Microsoft’s handling of these claims. There’s a group of people who feel like their claims have not been reviewed seriously, nor adequate action taken; and then there’s others who feel like they’ve been unfairly accused and terminated without due process. Would you acknowledge that Microsoft’s HR system is broken?
Smith: I would not say it’s broken. I would say that it is like everything else. It addresses important and sometimes challenging aspects of human life, and we are on a constant journey to continue to adapt and make things better. I think that’s the right approach for us to take.
I think we have to strike this balance between appreciating the strengths without getting defensive about the opportunity to address things where there might well be ways to continuing improvements. If ever there is an area for continuous improvement forever, this has to be on the list.
I would offer then a couple of other thoughts. I’ve been connected with these kinds of processes now for close to three decades. These are always very human challenges for people. It is a tense and sensitive moment for somebody who has a concern and a complaint, and we want people to raise their concerns and complaints. It often raises anxiety for the people who are then the subjects of investigation.
One of the goals has been to go faster, which we are making more progress in doing especially when it’s a claim around sexual harassment. One of the goals is to be more transparent. I think one of the ongoing lessons we continue to learn is how important it is to provide someone who has a concern with information about what was done. Five years ago, we consider that to be a matter of privacy in terms of any discipline taken with the subject of an investigation. But what we’ve learned is that if people hear nothing, then they assume that nothing was done, even if something quite substantial was done. And so we’ve worked to advance transparency.
To me, then, the ultimate goal of every investigation is always the same. It’s to get at the truth, it’s to find out as much as one can about what happened. That’s sort of the foundation for everything else. That connects then directly with this other goal of holding people accountable. And there’s a variety of ways to hold people accountable. You definitely want discipline that is aligned with the severity of the misconduct that took place as well as the attitude of somebody. Did they learn? Do they accept responsibility? Do you have confidence that they’re going to go forward and be different in the future?
But when you just put those things together, you start to realize how complex this is. Speed matters, transparency matters. The truth matters, perhaps more than anything, but the truth needs to lead to accountability, and change when change is needed. And you get 190,000 people living under one corporate roof. There’s a challenge, at least somewhere in the world every day.
TB: I think the thing that I take away from the people that I speak with on this issue is a bit of surprise and disappointment that some of these things are still happening inside Microsoft, given the change that Satya has brought on, big picture, in terms of the culture. Why is it still happening?
Smith: I think that every day when somebody goes astray is a cause of disappointment. I don’t think that any of us on the company’s senior leadership team would look at it any differently from that. We do aspire to a high standard. We not only aspire, we expect people to achieve it. At the same time we live in a world of human beings. I think the real challenge for us is to, frankly, get better and move faster in addressing these problems sooner.
When I hear of people who are disappointed, perhaps it’s less about the person who did something wrong, perhaps even grievously so, and more about the institution. I think people want to see us, as a company, continue to improve the capability to identify these problems quickly, hold people accountable, and really live up to the standard we set for ourselves. And I’m constantly asking myself, and I think all of us at the senior leadership team are asking ourselves, how do we do better in that regard? How do we use data? How do we get all the insights we need? How do we ensure that our processes are working well, and especially as we come out of COVID, and we try to find our way towards whatever the new normal is going to be? Let’s make sure that we continue to improve in this space, and we have more work to do. But I hope that people know how committed we are to doing it.
Pending antitrust legislation
TB: There are two key antitrust bills in the U.S. Senate, on app store fairness, and self-preferencing by tech companies. Microsoft seems to have been supporting the app store fairness act, and not as much the self-preferencing act. It seems more in your interest to have that self-preferencing act go away, in part because that keeps your ability to bundle Teams into Office 365, Microsoft 365. Am I interpreting that situation correctly?
Smith: It would be more accurate to say we’re at peace with Senator Klobuchar’s bill on self-preferencing. We fundamentally have applied the principles in the self preferencing bill to say windows for roughly 20 years now. A lot of what is in that bill really bears a close similarity to the rules that were created in the consent decree for us. And we’ve continued to apply those rules since the consent decree expired. So I don’t think we’re opposed to the self preferencing bill.
At the same time, when I was walking around Senate office buildings in the Capitol building last week, and people asked, What are you here for I said, it’s not antitrust. So you know, we’re not trying to lobby in favor of the bill. But that doesn’t mean we’re opposing it either. And, you know, when it comes to App Store fairness, we would like to see some changes. I do think that a disproportionately and even surprisingly high percentage of say the profits in gaming are going not to people who create games, not to people who create consoles, not to people who are really providing gaming services, but rather to the to mobile platforms and app stores to control whether you can just deliver what you create to users in the first place. And I think we’d benefit if there were some changes there.
TB: That would be good for Xbox and Activision. But would you be forced, if the self-preferencing bill went through as law, to get Teams out of Microsoft 365?
Smith: No. … I think it’s important to know that you can put things together. You would also have to sometimes have ways for people to take them apart. And you then have to be mindful of specific rules that often go more to how you market and sell things than how you build them. Teams is, I think, doing extraordinarily well. It has become important to Microsoft, but fundamentally because of the product itself, the services it provides, and the ease that we’ve created for other people to build applications on top of it. I don’t think it’s as connected to the other pieces of Office.
TB: Salesforce and Slack would argue with that.
Smith: Let’s go back to the opportunity we all have, always, to listen to what we say, and then watch what we do. I know people who work in sales at Slack, and for years they said, ‘Don’t buy a bundle.’ Now they’re part of Salesforce. You know what? They’re part of a bundle now. Life changes. As long as you follow the rules, I think that’s OK.
Microsoft and the climate crisis
TB: We’re running out of time, and I’m looking at my list of questions as an illustration of the broad set of things that are out there for you and other companies to grapple with. When you’re looking right now at the state of the world, what are the top two or three issues on your mind right now?
Smith: I think that we need to continue to advance the mission I described at the outset, we need to continue to innovate in the ways that we are building the technology that fundamentally is the digital infrastructure for the world, and for countries around the world, and companies and people so they can continue to use what we create and get the most value out of it. And that’s not just you know, having a service that runs better, it actually is impact.
But then I think we need to do that by navigating through some big challenges. Cybersecurity is one. The other one we haven’t talked about as much as sustainability. We live in this very interesting moment in time, it’s almost got this tension between a short-term need to in some ways, adapt to higher energy prices, while remaining focused on the need to change the nature of energy production, and shift away from fossil fuels to renewable energy and the like.
We have a very important and robust climate agenda and mission as a company. We have multiple roles that we’re seeking to play. Every day, when it comes to sustainability, we’re having to get ready for the world that will exist in 2050. So there’s this constant tension between short term and long term. What I know from my own experience, which started about 28 years ago, is that the 28 years between now and 2050 will go fast.
TB: It’s a good thing you’re not focused on product development. I can see why the leadership was bifurcated in that way.
Smith: In some ways, this is a real tribute to I think the one of the more important decisions that Steve Ballmer ever made, in 2013, when he shifted us to more of a functional organizational model as a company. And that’s something that Satya has retained throughout his tenure as CEO. It really does give our opportunity, the opportunity for our engineers to drive great engineering innovation.
It gives the opportunity for each of us, hopefully, to excel in our function. Certainly at the corporate level, when you look at what Amy Hood with finance, and what Kathleen Hogan with HR, and what I do with our external and legal affairs, when you look at how we fit together, it gives us the opportunity to do what is indispensable for success for a large global tech company, and that is, manage a lot of complexity, and manage through a lot of change.