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Microsoft and Steve Ballmer have a major shareholder problem

Microsoft’s stock plunge in the wake of disappointing earnings could force a compromise with shareholders pushing for a change.

Activist investor ValueAct has been in talks for a few months about getting a seat on the technology company’s board, according to sources. Microsoft had been resisting, but its recent performance—it lost $33.7 billion in market value on Friday—puts more pressure on Microsoft and its CEO Steve Ballmer to answer to investors.

Quartz had previously reported that ValueAct was seeking a board seat, and Reuters said on Friday that two sides recently held discussions. Ballmer is largely handling the negotiations himself, the sources say. If ValueAct gets a board seat, it would likely be filled by the firm’s chief, Jeffrey Ubben.

Another big Microsoft shareholder, Capital Research, has also been unhappy with Microsoft’s performance and is said to support ValueAct’s push for change at the company. Some of the weakness in Microsoft’s stock has been blamed on Ballmer. In 2011, hedge fund manager David Einhorn of Greenlight Capital publicly called for Ballmer’s removal.

One of the main shareholder complaints is that Microsoft is spending too much on its weakening consumer business instead of its enterprise customers, which are the company’s biggest source of revenue. Ballmer’s recent restructuring of Microsoft is indicative of his continued push in the consumer space, even though the company doesn’t have a large market share in mobile phones or tablets.

Investors criticized Microsoft’s recent move to launch 600 Windows stores at Best Buy locations in the US; Microsoft has just a 3% market share in smartphones. And part of the reason for Microsoft’s disappointing earnings report was a $900 million charge it took after weak sales of its Surface tablet, which was recently discounted by as much as 30% to boost slow demand.

It’s not only investors who have been unhappy with Microsoft’s focus on its consumer business. As Quartz reported previously, Ballmer also debated such issues with former CFO Peter Klein, who opposed spending more on tablet and mobile phone businesses. He left Microsoft in April, saying he wanted to spend more time with his family.

Now some shareholders have their hopes pinned on ValueAct, which is known for working behind the scenes to push for changes at a company. Microsoft has given ValueAct access to its financials, sources say. In the past, ValueAct has been able to force major change at other firms—for instance, Sara Lee and Motorola—even when it only had one board seat.

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