Microsoft’s purchase of gaming company Activision has been a challenging and complex process, showcasing the company’s power in legal, policy, and influence. With an annual expenditure of over $1 billion, Microsoft has become a leading American corporation in leveraging global corporate diplomacy to advance its interests and overcome regulatory hurdles.
Overcoming obstacles, Microsoft successfully defeated a US government attempt to block the deal in court and convinced UK regulators to reconsider their initial rejection. It also navigated through opposition from regulators in various other jurisdictions, including Brussels where Microsoft faced deep mistrust in the past. This achievement represents the culmination of decades of work to reshape Microsoft’s reputation as a dominant player in the tech industry.
Under the leadership of Brad Smith, who assumed the role of top legal officer in 2002 and also became president in 2015, Microsoft has adopted a more cooperative approach towards regulators. The company strives to build trust and offer assistance to governments on issues ranging from tech policy to cybersecurity, in a bid to enhance its chances of a fair hearing when its own business interests are challenged.
However, while completing the Activision deal is a significant triumph during a time when big tech acquisitions are scarce, it could also mark a turning point in Microsoft’s relationship with regulators worldwide. As one former Microsoft policy executive points out, it reminds everyone that Microsoft is also part of the Big Tech space.
When Smith took over as general counsel, Microsoft was at a low point due to the US Department of Justice’s near-success in seeking a court-ordered breakup. Smith’s ascent heralded a complete shift in strategy. Instead of confrontational tactics, Smith advocated for conciliation and transparency with regulators. He also spearheaded changes in Microsoft’s business practices to proactively address potential antitrust concerns.
Nevertheless, despite Microsoft’s proactive measures, criticism against the company is escalating. The tactics that bolstered Microsoft’s profitability for years are now facing challenges. For instance, the company recently received a demand for nearly $29 billion in back taxes in the US, reflecting allegations that it artificially lowered its taxes by channeling profits to low-tax countries.
This mounting pressure is evident in Smith’s uncharacteristic outburst in April when British regulators announced their intention to block the Activision deal. However, Microsoft managed to convince the UK’s Competition and Markets Authority to reconsider, resulting in a compromise that permitted the deal while extracting greater concessions from Microsoft than other regulators.
Microsoft’s success in completing the Activision deal is the product of meticulous legal maneuvering, negotiation, and a long-term campaign to improve its image. Smith has fostered a robust network of corporate diplomats within Microsoft, working on policy matters ranging from AI regulation to cybersecurity and election protection. This operation incurs an annual cost of over $1 billion and employs around 2,000 professionals.
Microsoft has taken its efforts to shape policy discussions to the global stage, with Smith asserting ambitious positions. However, some of these endeavors have fallen short of their intended goals. For example, Smith’s proposal for a “digital Geneva convention,” which called for a commitment by nation states to refrain from cyber attacks against civilians during peacetime, faced challenges and was not fully realized. Nonetheless, Microsoft remains committed to the idea as a long-term aspiration.
Smith’s role as an unofficial ambassador for the tech industry has yielded positive results for Microsoft. By establishing credibility and engaging with regulators, Microsoft has gained a stronger voice in shaping policies that impact its business. As Microsoft finalizes its largest acquisition to date, it is evident that this strategic approach is paying off.
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