In an SEC filing, Microsoft announced that shareholders will vote on the " consideration of an investment in bitcoin" at the annual meeting on 10 December. The board of directors is recommending a vote against the proposal.
As part of its obligations as a publicly traded US company, the tech giant outlined in an SEC filing which items will be discussed at the upcoming annual meeting. One of the proposals, submitted by the conservative think tank National Center for Public Policy Research (NCPPR), suggests diversifying Microsoft's balance sheet with bitcoin. The proposed investment aims to protect the company's reserves from inflation.
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The MicroStrategy success story
In times of sustained inflation, a company's financial health is judged not only by its business success, but also by how it invests its profits. This is where NCPPR comes in. Companies with a wise investment strategy often increase their value more than more profitable competitors who do not invest their cash. Accordingly, companies have a responsibility to protect their earnings from devaluation. Microsoft currently holds USD 484 billion in cash, much of which is invested in US Treasuries and corporate bonds.
However, to outperform inflation over the long term, companies should consider diversifying into assets that appreciate more than bonds, the paper argues. MicroStrategy is a prime example. Since 2020, the software company has been aggressively raising capital to invest in bitcoin. As a result, MicroStrategy has outperformed Microsoft by 313%, despite being a much smaller company. Microsoft's second largest shareholder, BlackRock, also offers a bitcoin ETF to its clients.
Board recommends "no" vote
Due to bitcoin's volatility, companies should not risk their entire balance sheet, the NCPPR argues, although at least 1% diversification could be considered. The SEC filing also includes the board's recommendations on each of the discussion items. On this item, the board recommends that shareholders vote against the proposal, calling it unnecessary. Microsoft's management is already thoroughly evaluating potential bitcoin investments.
"Microsoft’s Global Treasury and Investment Services team evaluates a wide range of investable assets to fund Microsoft’s ongoing operations [...]. Past evaluations have included Bitcoin and other cryptocurrencies among the options considered, and Microsoft continues to monitor trends and developments related to cryptocurrencies to inform future decision making." - The Board of Directors
As noted in the proposal itself, volatility is a factor that must be considered when evaluating crypto investments for use on the company's balance sheet. Microsoft has strong and appropriate processes in place to manage and diversify its funds for the long-term benefit of shareholders. Therefore, the requested public valuation of a bitcoin investment is considered unwarranted.
