Brad Smith 2.0

Microsoft’s GC on myths about the company, the financial crisis and why he wouldn’t amend the Constitution

Published in Corporate Counsel Edition - September 2009 — September 2009

Now that Bill Gates is no longer a daily presence at his iconic software company, Microsoft has undergone a profound cultural change. Nobody personifies that change better than Brad Smith, the company’s senior vice president, general counsel and corporate secretary. Smith filled Bill Neukom’s shoes seven years ago when the notoriously combative litigator stepped down after 22 years as general counsel. Smith, a genial, Ivy League-educated lawyer who developed an early interest in computer software, recently sat down with us in his office overlooking Microsoft’s Redmond, Wash., campus.

 

Super Lawyers: How did you get into this business?

Brad Smith: It was all rather serendipitous, really. I started using a computer in 1984, when computers were relatively new, and developed a love for PCs and software. I’d just gotten married; my wife was a law student as well. We’d been overseas studying for a year, came back, bought a PC and MS Word, version 1.0, and I got fascinated with it. A year later, I graduated from law school and worked for a federal judge, and I was one of the first to take a PC into the federal courthouse in Manhattan to write opinions.

When I went down to Washington, D.C., to join Covington & Burling, one of the largest firms there, I was still addicted to MS Word. Everybody knew I was interested in software. So in 1989, when we were moving to the London office of our firm, the European Commission was considering new copyright protection for software. And they suggested I might want to develop some background and expertise in that area. I ended up doing a lot of work for Microsoft and other software companies.

Then, in 1993, I took a leave of absence and moved to Microsoft in Europe—headed the European corporate affairs group.

 

How has Microsoft’s culture changed since those days?

Microsoft’s culture is always changing. If it hadn’t continued to change, the company would have been much less successful over the years. I’ve seen change come in three- to five-year cycles. We went through a big change in the Internet era of the late ’90s. We went through another change in the early part of this decade, when we had to adjust to the outcome of the antitrust trial. And these days, we’re dealing with Bill [Gate]’s transition and other things. The company had the opportunity to be very thoughtful in planning for Bill’s transition. Now the most important thing is that all of us be stronger leaders.

 

How much of your work involves being a lawyer?

A significant portion. But I also spend time in other roles. There is the government affairs work. There is the work related to company philanthropy, and executive management. I do a number of different things, but I’m a lawyer first.

 

How is Microsoft being affected by the continuing financial crisis?

I think Steve [Balmer] put it well when he said no company will be immune to its effects. There’s a lot we don’t know. We don’t know how broad and deep and long-lasting this will be. We have greater uncertainty in this economy now than we’ve had in generations. It’s an unusual time, and we have to adapt. And that requires that we remain nimble, following where it goes. For instance, we decided to speak out on the financial bailout package last fall, which was somewhat unusual for us. But we thought it was important to underscore the impact of that package on the economy as a whole.

 

This year, Microsoft announced its first-ever round of layoffs. How did you go about that?

Whenever you do something for the first time, it creates special challenges. We tried to focus on two things: First, how do we make thoughtful and compassionate decisions that eliminate the right positions while being as helpful as we can to the people being laid off? Second, how do we remain focused on the long-term health of the company? We’ve studied what made great companies successful through the Great Depression, and one of those was RCA. When the Depression started, RCA was one of the country’s most research- and development-oriented companies, and it remained so and emerged from the Depression as the leader in radio and television.

 

In a recent speech, you indicated you expect increased regulation of business. Is this a concern of yours?

It’s less about regulation being good or bad, and more about regulation being thoughtful and consistent, so the business community knows where the regulatory environment is going. There are times when regulation can supplement what the marketplace is doing. It can complement self-regulation by the industry itself. We are big believers in the industry taking steps to address consumer needs like privacy and security. Where the marketplace falls short of solving a problem, there can be an important role for government, as long as government takes the time to do things in an incremental and technology-neutral way, so that government isn’t proscribing a particular technology solution.

 

One of the lessons of the current crisis seems to be that everything is so interconnected.

We’re all involved in this huge wave of globalization. These waves have been occurring for over a century, but this is the biggest wave anybody has seen. The whole technology sector is so much more dependent on what’s happening in Russia, China, India and increasingly Brazil. … A related challenge is this notion of regulating in a global environment. Increasingly, we see governments trying to deal simultaneously with the same issues. That can be very complicated and difficult. We’ve been at the forefront of that phenomenon with our antitrust and competition issues. One of the challenges occurs when governments deal with the same issue from different directions, or even in conflict with each other. Governments haven’t yet developed mechanisms for international coordination.

 

Let’s talk politics. When it comes to the political issues you care about, are there fundamental ideological differences between the political parties?

Traditionally, intellectual property law has come from bipartisan consensus. That can always change, but it hasn’t to date. We’ll see.

Trade has also been a bipartisan issue, but there are signs that the parties may be diverging. That could be important. As a company and an industry, we benefit greatly from free trade. It remains very important to get access to foreign markets. It’s also important that those foreign markets be governed by sound copyright principles and a healthy rule of law.

A third issue is immigration. We’re dependent, as a company and an industry, on being able to hire and attract the best and brightest engineers. High-skilled immigration traditionally has been bipartisan. But the issue has become so politically charged that there is now more uncertainty.

 

Can intellectual property law keep up with technology?

It’s a challenge. This has been an issue since about the 1870s, when the nation was connected by a transcontinental railroad and you had the invention of electricity, the telephone, the phonograph … devices that had a more profound impact on people’s daily lives than any [other] decade in any century. So Congress and the courts have been dealing with changing technology for 150 years.

By and large, the law has kept up pretty well. I think one reason is because Congress generally focuses on general principles that are broadly applicable, regardless of how technology changes. If Congress tries to pass a bill in response to a particular device, it will be almost impossible to keep up. That’s why legal principles should be technology-neutral.

The second reason is this: Political leaders and judicial leaders, especially on the Supreme Court, have shown a sound instinct and political judgment for incremental changes in a middle ground.

 

Does it help that the basic party constituencies—fundamentalist Christians or unions—aren’t terribly interested in intellectual property law?

For the most part, that’s true. One of our core values has to do with the desire to promote innovation by giving people the incentive to invent. That’s been a core value since the Constitution was written. I might argue that it was this combination of political invention of a constitutional republic and the economic invention of encouraging individual incentive that came together in Philadelphia in 1787 and has persisted ever since.

 

Where are we with network security? Is there a gap in national or international law that needs to be filled?

This is an issue that requires a strong public-private partnership. Once people realized they could use the Internet and e-mail to steal people’s credit card numbers, we had to improve the security of our products. Security is an interesting issue, because once you lose something, you seldom get it back. As late as 1907, any American could go to Washington, D.C., and the White House and meet the president. I don’t think we’ll see that again. Closer to home, we grew up in a time when nobody thought of putting a lock on their mailbox. And yet, once people realized their credit card numbers could be lost, everybody went out and bought new, locking mailboxes. We’ll probably never go back to that day.

 

Are there one or more lingering myths about Microsoft? Something that drives you crazy?

There is a fundamental passion for what people here believe technology can do to change the world in a better way. In the years when people were so focused on stock options and stock prices, I think people outside the company tended to lose sight of the fact that passion was the single biggest motivator. And that remains the glue that knits together all of our almost 100,000 employees—a genuine excitement for what they see our products doing. One of the great things about working at Microsoft … [is that] you can dream up an idea and create it and, in a relatively short period of time, it may actually be on hundreds of millions of PCs around the world. That’s a very exciting thing—not just for engineers, but for lawyers and marketing people and salespeople and support people.

Another thing some people miss is the intensely self-critical nature of the internal culture. We do something, we complete it and then we sit down and tear it apart intellectually. That’s one of the sources of the company’s longstanding success. But we’re better at sharing that internally than externally. And maybe that’s just human.

 

If you could amend the U.S. Constitution to accommodate technology, what would you do?

Probably nothing. The real beauty of the Constitution is that the framers incorporated in the document the authority for Congress to encourage invention through copyright and patent protection. And that was no accident. It just so happened that, that summer of 1787 in Philadelphia, one of the two inventors of the steamboat was working on the banks of the Delaware River. And in August 1787, they took a break from the deliberations, and a large number of the attendees went for a ride on this steamboat with the inventor, John Fitch. A week later, after getting this early glimpse at invention and innovation, they added this clause to the Constitution.

The irony is that Fitch, a backwoods inventor, got this steamboat up and working. Then it stopped working several months later, and he was never able to get it working again. So it was 20 years later, 1807, before Robert Fulton got one working. But they saw the magic of invention, and they made a place for it in the Constitution.

Secondly, we have so much opportunity to experience legal systems around the world. There are few institutions, private companies or otherwise, that experience legal systems as broadly as we do. And it gives me great appreciation for the strengths of our legal system, warts and all. It’s not just the principles that emanate from the Constitution, but also the ability for them to evolve over time, through both congressional action and judicial interpretation. And we have a relatively healthy and independent judiciary. At the federal level, we tend to have very talented and dedicated judges who are appointed for life. Once they’re on the bench, they most of the time act in a nonpartisan and nonpolitical way. So I’d be very reluctant to go back and rewrite anything in that Constitution, because, overall, it’s been a remarkable success.

 

What’s your weakness?

I love to come to work with new ideas. And it’s important for me to work with people who can take an idea and refine it and put legs under it, because I generate more ideas than I could ever pursue.

 

That’s a weakness?

The weakness is a tendency to get too excited by too many ideas. And the solution is to surround myself with honest people who add some balance.

 

Do you have a personal hero?

I have two. Growing up it was Bob Gibson, who was a pitcher for the St. Louis Cardinals. Aside from being an avid baseball fan, I gobbled up his biography, From Ghetto to Glory. He personified this ability to overcome discrimination, break through barriers.

The other is John Marshall, chief justice of the Supreme Court for the first two decades of the 19th century, who really defined the role of the Court in our society. And he defined the way our country works. The judiciary was by far the weakest of the three branches of government. No one expected it to have the power to declare acts of Congress unconstitutional. No one anticipated it would be able to play the role of a moderating force in society. He was a great jurist and a political genius and a fine fellow to boot.

 

But how was his curveball?

If they had played baseball in that time, he would have been throwing one.

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