IT Management, Microsoft, and "fair dealing"



Table of Contents


As has been amply demonstrated in antitrust lawsuits, Microsoft plays hardball. As long as they remain on the legal side of the line, that is their perogative.

Individuals may buy Microsoft products if they wish, no matter what the financial consequences might be.

Corporate directors, officers, and agents, however, are held to a stricter standard. They must demonstrate "fair dealing", and loyalty to their corporations rather than to personal gain. There is growing evidence that at least some officers and agents have made pro-Microsoft decisions which do not meet these standards.

The payoff for IT managers

What might a CIO or IT manager gain from illegally favoring Microsoft products? Following the career path of Rick Belluzzo, we see:

  • Head of HP Printers. Pushed HP to be difficult to use with UNIX, and easy with Microsoft. After he left, HP has made some overtures to the UNIX community.

  • Head of SGI. Pushed SGI to become an NT box builder. After he left, SGI rejected that direction and turned to UNIX and Linux.

  • Moved to Microsoft for undisclosed remuneration.

In other words, as long as you are willing defer payment until you can "come in from the cold", there may be substantial rewards for making pro-Microsoft decisions. Proving (in court) a pattern of abuse would of course be difficult. For now we are establishing the plausibility of such abuse, so that the courts will take the follow-on arguments seriously.

This is analogous to the problem of "revolving door" employees in positions of responsibility in government. The legal argument here will have to target fair dealing under corporation law instead of under governmental/public service law, but the basic structure of the investigation will be the same.

As with governmental revolving doors, the pot of gold might not be at Microsoft itself, but at a Microsoft-financed ventures elsewhere. For example, Microsoft invested in Anderson Consulting. AC responded by pushing its staff of consultants to MCSE certification and committing to Microsoft products. Shortly thereafter, several CIO-level Boeing IT managers (who had pushed Boeing very hard toward Microsoft) moved to AC.

The payoff for Microsoft


First, it is essential to Microsoft to lock-in corporations via proprietary formats, and thus lock-out *NIX (UNIX, LINUX) alternatives. Microsoft takes this seriously:


One can therefore expect to see corporate IT deriding (without adequate cost-benefit justification) *NIX solutions to corporate IT needs. We will look for evidence of this. For example, one particular study has been touted by Microsoft in many languages. The study took place at Boeing, headquartered near Microsoft's own headquarters.

Here is the english rendition. A careful reading shows the comparisons were made to antique voice and PROFS communications mechanisms, not contemporary alternatives such as Lotus Notes.

Is there any evidence that Microsoft and Boeing IT management collaborated on such a maneuver? See Microsoft's_Might, from BusinessWeek, 1998.

Example: Boeing. A few months before the Exchange launch, Boeing officials told Microsoft it probably wasn't going to get the business but gave it four days to convince Boeing otherwise. Microsoft Executive Vice-President Steve Ballmer convened an emergency meeting of sales and engineering people and launched a 72-hour, round-the-clock strategizing and software coding binge. The result was a plan and software that convinced Boeing that Microsoft could make Exchange run well on Unix-based computers sold by its competitors, not just Windows machines. The result: Boeing is Microsoft's biggest customer for Exchange, with 100,000 copies installed already and on the way to perhaps 215,000.

That's odd...Exchange still doesn't run on *NIX. Clearly, Boeing was taken for a ride on that one. As they say

Fool me once, shame on you. Fool me twice, shame on me.

In other words, Boeing has lost the legal position to claim that handshake deals with Microsoft can be explained as "business judgment". Decisions favoring Microsoft over alternatives must now be based on an auditable cost-benefit analysis. Anything less must be considered "inexplicable" misuse of public traded stock value.

An enterprise-scale testbed

Now that the question has been raised, just what are the relationships between Boeing IT and Microsoft? Beyond lucrative sales, what does Microsoft get from such efforts?

Microsoft needs a Fortune 100 corporation for alpha/beta testing its forays into enterprise-scale computing. Boeing is conveniently a few miles away. Is Microsoft using Boeing as a testlab? if so, does Boeing get a net positive return from the arrangement?

I have not found a publically visible website explaining any benefits to Boeing from this arrangement. Certainly no reporting line in the annual report for "revenues from services as alpha/beta test site". Rumors from inside the company certainly suggest that the costs of e.g., Melissa and LOVEBUG viruses have been high.

One must thus suspect the plausibility of questionable dealings from Boeing's upper echelon of IT management.

Does Microsoft win on merit?

Is there any reason to believe Microsoft is not in fact the best technical and financial solution? In other words, couldn't these decisions be honest business judgments? Please see:

In other words, choosing Microsoft over, say, UNIX is not a simple matter. A fair dealing IT manager must do an appropriate cost-benefit analysis. Given the legal analysis of the NASA situation, we can consider absence of such analyses to be prima facia evidence of unfair dealing.

How high does it go?

Let's suppose we determine IT managers have in fact made illegal deals with Microsoft. Do higher level officers and even directors have legal liability? They do if they are informed of the problem or the reasonable potential of the problem, and have failed to take reasonable and prudent corrective action.

First, given the high visibility of the Microsoft antitrust cases, and the explicit testimony of corporate pressure, no U.S.-based director or officer can claim ignorance of the possibility and even plausibility of the problem.

Second, a reasonable and prudent response is to:

  1. Audit the decision making process, to assure it provides a level playing field
  2. Audit past decision for evidence of unfair dealing
  3. Submit to legal authorities evidence of criminal action. Handle non-criminal but unethical actions per the corporate policy re ethics.

Frankly, no one expects directors and officers to expose themselves to these charges, so it will probably be up to external agents (e.g., CALPERS) to force the issue. Government contracts can also be held up pending resolution of such issues.

The Law

Teddy Roosevelt on fair dealing, 1925

And in every case the individual corporation officer responsible for such unfair dealing should be punished.

We grudge no man a fortune which represents his own power and sagacity exercised with entire regard to the welfare of his fellows. We have only praise for the business man whose business success comes as an incident to doing good work for his fellows. But we should so shape conditions that a fortune shall be obtained only in honorable fashion, in such fashion that its gaining represents benefit to the community.


2. Exclusive Dealing. Subsection (b) integrates the various bodies of law that pertain to exclusive dealing relationships in information. Unlike for goods, the typical case here does not necessarily entail production and delivery of copies for resale by the other party. Article 2-306 creates a best efforts rule for goods. That rule, however, is not the law in any other field governed by Article 2B. This Section adopts a good faith effort standard: honesty in fact and adherence to commercial standards of fair dealing. This allows courts to draw appropriate balances in light of the commercial context and the existing traditions of that context in the atypical case where the contract is silent on the issue.

Fairness opinions

The touchstone for judging director behavior is the "Business Judgment Rule" which presumes that directors have acted responsibly as long as they act:i) on an informed basis, ii) in good faith, iii) in a manner they believe to be in the best interest of shareholders, and iv) without fraud or self dealing. In transactions where management may have a significant self interest, there is a heightened duty of care. An expert valuation opinion is one factor considered in determining whether directors have acted on an informed basis and have critically examined relevant information

From Prickett Review 20000:

3. Goodwin v. Live Entertainment, Inc., Del. Ch., C.A. No. 15765, Strine, V.C. (Jan. 22, 1999), aff'd, 741 A.2d 16 (table) (Del. 1999) - Class action by stockholder of Live Entertainment challenging the acquisition of Live by Bain Capital. Plaintiff asserted unfair dealing and breaches of care and loyalty and claimed that defendants failed to satisfy entire fairness standards.

The Court of Chancery, inter alia, granted defendants summary judgment on plaintiff's unfair dealing claim. Relying on Cinerama, Inc. v. Technicolor, Del. Supr., 663 A.2d 1156, 1167-1168 (1995), the Court stated that, to rebut the business judgment rule on the basis of board self interest, the plaintiff must show (1) material self-interest by the directors in the challenged transaction, and (2) that the materially self-interested directors constituted a majority of the board, dominated the board or failed to disclose their interests in the transaction. After carefully analyzing the record, the Court concluded that plaintiff had failed to produce record evidence creating a genuine issue of material fact as to the independence of a majority of Live's board.

Hilton/Bally merger

The presumptive validity of a business judgment is rebutted in those rare cases where the decision under attack is "so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith.

Which cites: In re J. P. Stevens & Co., Inc., Del.Ch., 542 A.2d 770, 780-81 (1988).


R. W. Hamilton. The Law of Corporations (in a nutshell) , 4th ed. West Publishing, 1996

E.S. Podgor, J. H. Israel. White Collar Crime (in a nutshell) , 2nd ed. West Publishing, 1997

Creator: Harry George
Updated/Created: 2009-02-25