Proxy advisory firm Glass Lewis is opposing the re-election of John Thompson, lead independent director on Microsoft's board and CEO of cloud startup Virtual Instruments, because Microsoft is one of his customers, the Seattle Times reported Tuesday.
Virtual Instruments, based in San Jose, Calif., sells cloud-based infrastructure performance management software, a fast-growing category that lets organizations track how efficiently their virtual and cloud environments are performing and pinpoint any problems.
Microsoft, in its proxy statement filed with the Securities and Exchange Commission earlier this month, said it paid Virtual Instruments around $2.3 million for software licenses and hardware devices during its fiscal 2013, which ended June 30.
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Microsoft chose Virtual Instruments after senior management conducted an independent review of the technology and found it effective at optimizing performance of its storage area networks, according to the proxy statement.
"The purchases were negotiated at arms-length between the Virtual Instruments sales account team assigned to Microsoft and the business groups that wished to implement the technology," Microsoft said in the SEC proxy statement, later adding that it plans to buy more Virtual Instruments technology in the future.
Glass Lewis, however, thinks Thompson's role as CEO of Virtual Instruments could represents a potential conflict of interest.
"Given the increased likelihood that Mr. Thompson may be presented with situations in which his duties to his employer and those to [Microsoft's] shareholders are not aligned, we do not believe shareholders should consider him to be completely independent," Glass Lewis said in a note sent to clients Monday, a portion of which was republished by the Seattle Times.
Microsoft, in its proxy filing, said the $2.3 million it spent with Virtual Instruments amounted to less than 5 percent of the vendor's annual gross revenue. Privately held Virtual Instruments doesn't report revenue, but in an April interview, Thompson told CRN he's expecting sales to hit the $100 million mark this year.
A Microsoft spokesperson told CRN the independence standard established by NASDAQ and the SEC is 5 percent and said Thompson "meets that standard." Virtual Instruments didn't respond to a request for comment on the Glass Lewis recommendation.
Microsoft will hold its annual meeting with shareholders on Nov. 19 in Bellevue, Wash.
Thompson, who joined Microsoft's board in February 2012 and was re-elected last November, is also head of the committee charged with finding a replacement for departing Microsoft CEO Steve Ballmer.
In an interview with The Wall Street Journal last month, Thompson was asked about his role as lead independent director at Microsoft and whether Bill Gates is really calling the shots from behind the scenes.
Thompson responded by saying he "didn't accept the role on the board or the role as the lead independent director to be Bill's pawn, by any stretch of the imagination."
PUBLISHED OCT. 29, 2013