Microsoft CEO Nadella says company must rebuild trust with employees

Microsoft CEO Satya Nadella told employees in a meeting on Thursday that the company has work to do to smooth relations with employees after announcing several rounds of layoffs and a mandated partial return to in-person work.

In the meeting that was held online, an employee asked executives to speak about a perceived lack of empathy in the company’s culture as of late and steps Microsoft is taking to rebuild trust with its workforce.

“I deeply appreciate that, the question and the sentiment behind it,” Nadella said, in audio that was obtained by CNBC. “I take it as feedback for me and everyone in the leadership team, because at the end of the day, I think we can do better, and we will do better.”

Nadella’s comments come after Microsoft slashed 9,000 jobs in July, following smaller reductions in the months prior. On Tuesday, Microsoft said workers living near its headquarters in Redmond, Washington, must come into the office three days a week, starting in February, with a broader rollout to follow.

Amy Coleman, Microsoft’s human resources chief, said at Thursday’s meeting that reception to the return-to-office announcement has been mixed, with some workers feeling like they’re losing autonomy. But she said that employees in and around Seattle already come in, on average, 2.4 times each week.

Like most of the tech industry, Microsoft went fully remote during the pandemic, and made particular use of its internal Teams video and chat offerings, which gained rapid adoption during that period. Microsoft has been slower than many of its peers to put a mandate in place for coming back to the office. Amazon, one of Microsoft’s top rivals, called employees back to offices five days a week in January.

While Nadella and the executive team are taking criticism from some staffers, Wall Street is applauding the company’s growth and execution. The stock is up almost 20% this year, outperforming the broader market, pushing Microsoft’s market cap to $3.7 trillion, which trails only Nvidia among the world’s most-valuable companies.

In July, Microsoft reported a 24% increase in net income to $27 billion. The company’s gross margin was under 69%, compared with 71% in late 2023. It’s rapidly building and renting data center infrastructure to meet artificial intelligence demand.

Nadella said at the meeting that with remote work, new employees and those who are early in their careers don’t always feel a sense of apprenticeship or mentorship.

“Management is just mostly all remote, but the interns are all, you know, in one location,” he said. “And so those are things that just will break a social contract.”

Microsoft didn’t immediately provide a comment.

Even with Microsoft’s rapid expansion, Nadella said the company is feeling the pressure. It’s a common theme in the software industry, as concerns proliferate about the impact of AI and its potential to automate work.

“We have some very, very hard work ahead of us, and that hard process of renewal is essentially what we have to do,” Nadella said. “You have to be hardcore in terms of an intellectual honesty about what really needs to happen.”

Microsoft’s Azure cloud business grew 39% in the latest quarter, but revenue in the Windows and devices business increased by just 2.5%.

“Some of the biggest businesses we built may not be as relevant going forward,” Nadella said. “Some of the margin that we love today may not be there tomorrow, and that means you have to be way ahead of all of those going away, right?”

Microsoft, which celebrated its 50th anniversary in April, will retain its core values as it confronts market realities, Nadella said.

“Capital markets have one simple truth,” he said. “There is no permission for any company to exist forever.”

That wasn’t the only contentious topic at the meeting.

Employees are awaiting details from a third-party investigation after The Guardian said in August that Israel’s military used Microsoft’s Azure cloud infrastructure to store Palestinians’ phone calls as part of Israel’s invasion of Gaza. Microsoft has fired five employees following protests at its headquarters in Redmond, according to a statement from the group No Azure for Apartheid.

Microsoft President Brad Smith, whose office the protesters entered, addressed the issue on Thursday. He said that he and Coleman met with Jewish Microsoft employees, who have been harassed and threatened and have seen their public information shared online.

“We don’t get to control what happens outside Microsoft, but we need to be clear about one thing,” Smith said. “There is no room for antisemitism at Microsoft, and as a company and as a community, we will protect this group and defend them from that.”

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