MSFT Microsoft Corporation

Notice of 2019 Annual Shareholders Meeting

By Order of the Board of Directors

Dev Stahlkopf

Secretary

Redmond, Washington

October 16, 2019

Proxy Statement Table of Contents

1. Governance and Our Board of Directors

Trust and Governance

We believe that earning the trust of our customers, partners, shareholders, and other stakeholders is a foundation of our business success and is fundamental to realizing Microsoft’s mission to empower every person and every organization on the planet to achieve more.

Our focus on earning trust positions us well as technology companies face new scrutiny and demands for accountability. The technology sector faces greater expectations than ever from governments and other stakeholders to address the impacts of technology on individual rights, cybersecurity, and environmental sustainability. Customers embrace technology they understand and trust, and we expect they will increasingly turn away from products and companies that fail to uphold that trust. Governments and investors are increasingly focused on the importance of the effective engagement and action on environmental, social, and governance (“ESG”) topics.

To meet the expectations of our stakeholders and to earn and maintain their trust, we are committed to conducting our business in ways that are principled, transparent, and accountable. The foundation of these commitments is expressed in Microsoft’s Standards of Business Conduct (“Standards”) at https://www.microsoft.com/en-us/legal/compliance/sbc/ which apply to our employees, officers, Board of Directors, and our subsidiaries and controlled affiliates across the globe. These Standards require not only legal compliance, but also broader commitments to address accessibility, diversity and inclusion, human rights, and privacy. In support of these Standards, we strive to build a workplace culture that embraces learning and fosters trust—a culture where every employee feels free to ask questions and raise concerns when something doesn’t seem right. We extend our high expectations to suppliers who do business with Microsoft, requiring them to uphold the human rights, labor, health and safety, environmental, and business ethics practices prescribed in our Supplier Code of Conduct at http://aka.ms/scoc.

In addition, we have made a broad range of commitments on issues of significant concern to the public, including privacy, security, and environmental sustainability. We believe privacy is a fundamental human right and demonstrate our belief with concrete actions to protect our customer’s privacy and give them control over their data. We take a broad view of cybersecurity and work to protect our customers and the wider community through our own security operations, the security products and services we offer, and our investments in technology, industry, and policy partnerships. As part of our commitment to environmental sustainability, we’ve achieved carbon neutrality for our global operations every year since 2012. In 2019, we also set our next milestone on the path to powering our datacenters with 100% renewable energy, aiming to surpass a 70% target by 2023.

We also aim to hold ourselves accountable by publicly reporting on our policies, practices, and performance to provide our stakeholders visibility into how we are meeting our commitments and responsibilities. Our Reports Hub available at www.microsoft.com/transparency provides a consolidated, comprehensive view of our ESG reporting and data ranging from our carbon footprint to workforce demographics to political donations. We work to align our ESG reporting to global standards such as the Global Reporting Initiative Sustainability Reporting Standards. In addition, we were among the first companies to align our human rights work with the United Nations Guiding Principles on Business and Human Rights and to adopt the United Nations Guiding Principles Reporting Framework.

Our commitment to strong corporate governance and effective board oversight plays a critical role in ensuring accountability and earning trust. Below we describe Microsoft’s corporate governance policies and practices that foster effective Board oversight in service of the long-term interests of our shareholders, explain the process for selecting director candidates, and present the 2019 nominees for election to our Board.

Board of Directors Oversight Roles

Shareholders elect our Board to serve their long-term interests and to oversee management. Our Board and its committees work closely with management to provide oversight, review, and counsel related to long-term strategy, risks and opportunities, and feedback from shareholders. In particular, the Board oversees business affairs and integrity, works with management to determine our mission and long-term strategy, oversees risk management, performs the annual CEO evaluation, oversees CEO succession planning, and oversees internal control over financial reporting and external audit. The Board looks to the expertise of its

committees to provide strategic oversight in their areas of focus. Examples of oversight areas are provided below and further below we describe the Board’s committee structure and each committee’s areas of focus and oversight.

Strategy

Led by the CEO, the Senior Leadership Team (“SLT”) drives Microsoft’s strategy and operations and works to develop and execute business strategy, foster our desired culture, create innovative products, establish accountability, and control risk. The SLT also aligns our structure, operations, people, policies, and compliance efforts to our mission and strategy.

Overseeing management’s development and execution of the Company’s strategy is one of our Board’s primary responsibilities. The Board works closely with the SLT to respond to a dynamically changing business environment. The SLT and other leaders from across the Company provide business and strategy updates to our Board quarterly, and the Board participates in an annual strategy retreat with the SLT and other leaders. At meetings throughout the year, the Board also assesses the strategic alignment of the Company’s budget and capital plan and strategic acquisition and integration process. For large acquisitions such as LinkedIn and GitHub, the Board engages management on a broad range of considerations, such as due diligence findings, valuation, and integration planning.

Risk

Microsoft’s Corporate Governance Guidelines at https://aka.ms/policiesandguidelines describe our Board’s risk oversight roles. The Board and the Audit Committee assess whether management has an appropriate framework to manage risks and whether that framework is operating effectively. On a regular basis, the Board and its committees engage with management on risk as part of broad strategic and operational discussions which encompass interrelated risks, as well as on a risk-by-risk basis. The Board executes its oversight responsibility directly and through its committees, who regularly report back to the Board. For information on specific areas of risk oversight, each committee has a charter describing its specific responsibilities which can be found on our website at https://aka.ms/boardcommittees. The Board exercises direct oversight of strategic risks to the Company and other risk areas not delegated to one of its committees. We believe that the Board’s leadership structure, including its independent chair, supermajority of independent directors, and allocation of oversight responsibilities to appropriate committees, provides effective board-level risk oversight.

Culture, Workplace, and Succession Planning

We focus on creating a respectful, rewarding, diverse, and inclusive work environment that allows our employees to build meaningful careers. Key to this environment is cultivating a growth mindset, where our workforce is focused on learning, listening, and growing. We have established a set of five “People Priorities” that ground our Human Resource strategy: talent that can change the world, an evolving culture with a growth mindset, an exceptional place to work, transformational leadership, and empowering at scale. Each SLT member serves as a “sponsor” for one or more of the priorities and all are accountable to help achieve them. We consider employee input from our annual anonymous poll and other feedback channels in designing talent programs, rewards, and benefits, and building the overall employee experience.

The Board, the Compensation Committee, and the Regulatory and Public Policy Committee engage with the SLT and Human Resources executives across a broad range of human capital management topics including culture, succession planning and development, compensation, benefits, employee recruiting and retention, and diversity and inclusion. Additionally, each year the Compensation and Audit Committees evaluate management’s annual assessment of risk related to our compensation policies and practices. The Compensation Committee also oversees our sales incentive programs through engagement with management’s Sales Incentive Compensation Governance Committee. The Board and the Compensation Committee work with the CEO and our head of Human Resources to review CEO and senior executive succession plans, considering the qualifications and experience of potential leadership candidates.

Our Governance Structure

Framework

We have developed a corporate governance framework designed to ensure our Board has the authority and practices in place to review and evaluate our business operations and to make decisions independent of management. Our goal is to align the interests of directors, management, and shareholders, and comply with or exceed the requirements of the NASDAQ Stock Market, LLC (“NASDAQ”) and applicable laws and regulations. This framework establishes the practices our Board follows with respect to, among other things, Board composition and member selection, Board meetings and involvement of senior management, director

compensation, CEO performance evaluation, management succession planning, and Board committees. The Board is committed to seeking opportunities for improvements on an ongoing basis. Each spring, the Board updates our corporate governance framework based on shareholder feedback, results from the annual shareholders meeting, the Board and committees’ self-assessments, governance best practices, and regulatory developments.

These documents are available on our website at https://aka.ms/policiesandguidelines.

Shareholder Rights

Microsoft strives to implement best practices in shareholder rights and to ensure the Company and Board align with the long-term interests of shareholders. We have enhanced our corporate governance framework over time based on input from our Board, shareholders, and other governance experts. Shareholder rights provided include:

Other requirements that align Company and long-term interests of shareholders include:

Shareholder Engagement

Effective corporate governance includes regular constructive conversations with our shareholders to proactively seek shareholder insights and to answer shareholder inquiries.

We maintain an active dialogue with shareholders to ensure a diversity of perspectives is thoughtfully considered on issues including strategy, business performance, risk, culture and workplace topics, compensation practices, and a broad range of ESG issues. Our Office of the Corporate Secretary coordinates engagement with Investor Relations and provides a summary of all relevant feedback to our Board. In fiscal year 2019, our Board Chair and members of management engaged with a cross-section of shareholders owning over 49% of Microsoft shares. In addition, throughout the year our Investor Relations group engages with our

shareholders, frequently along with Mr. Nadella, our CEO, or Ms. Hood, our CFO. As noted above, each spring the Board updates our corporate governance framework based on a number of inputs including shareholder feedback.

To communicate broadly with our shareholders, we also seek to transparently share ESG information relevant to our shareholders through our Investor Relations website, our Annual Report, this Proxy Statement, our Reports Hub, and in posts about Microsoft On the Issues blog.

We are proud to have helped pioneer a director video series that gives shareholders and other stakeholders insight into the thinking of our Board members. We recently released a new installment featuring an interview with Hugh Johnston. The videos provide an opportunity for our directors to discuss how they approach their role and responsibilities and to provide a behind-the-scenes look into the boardroom. The series can be viewed on our website at https://aka.ms/DirectorVideoSeries.

Annual Board and Committee Evaluation Process

The Board is committed to a rigorous self-evaluation process. The Governance and Nominating Committee annually evaluates the performance of the Board. The evaluation includes feedback from each director, and the results are reported to and discussed with the Board. The report includes an assessment of the Board’s compliance with the principles in the Corporate Governance Guidelines and identifies areas in which the Board could enhance its performance.

In addition, each committee annually evaluates its performance and reports the results to the Board. For each committee, the evaluation includes feedback from directors, as well as key members of management and consultants who regularly attend the meetings. Each committee’s report includes an assessment of the committee’s compliance with the principles in the Corporate Governance Guidelines and its charter and identifies areas in which the committee could enhance its performance. Results requiring additional review or consideration are discussed at subsequent Board and committee meetings.

Director Attendance

Each quarter, our Board holds two-day in-person meetings. Committee meetings occur the first day before the Board meeting. Once a year, committee and Board meetings occur on the same day so that the evening and following day can be devoted to the Board’s annual strategy retreat, which includes presentations and discussions with our SLT and other senior management about our long-term strategy. In addition to the quarterly meetings, typically there are other regularly scheduled Board and committee meetings and several special meetings each year. At each quarterly Board meeting, time is set aside for the independent directors to meet without management present. Our Board met five times during fiscal year 2019.

Each director nominee who is a current director attended at least 75% of the aggregate of all fiscal year 2019 meetings of the Board and each committee on which he or she served.

Directors are expected to attend the annual shareholders meeting, if practicable. All directors attended the 2018 Annual Meeting.

Director Orientation and Continuing Education

Our orientation program familiarizes new directors with our businesses, strategies, and policies and assists new directors in developing Company and industry knowledge to optimize their service on the Board. Regular continuing education programs enhance the skills and knowledge directors use to perform their responsibilities. These programs may include internally developed programs, programs presented by third parties, or financial and administrative support to attend qualifying academic or other independent programs.

Director Stock Ownership Policy

To align the interests of our directors and shareholders, our directors are required to own Microsoft shares equal in value to at least three times the base annual retainer (cash and stock) payable to a director. Each director must retain 50% of all net shares (post-tax) from the retainer until reaching the minimum share ownership requirement. Stock deferred under the Deferred Compensation Plan for Non-Employee Directors counts toward the minimum ownership requirement. Each of our directors complied with our stock ownership policy in fiscal year 2019.

Derivatives Trading, Hedging, and Pledging

Our directors and executive officers are prohibited from trading in options, puts, calls, or other derivative instruments related to Microsoft equity or debt securities. They also are prohibited from purchasing Microsoft common stock on margin, borrowing against Microsoft common stock held in a margin account, or pledging Microsoft common stock as collateral for a loan. Employees, other than executive officers, are generally permitted to engage in transactions designed to hedge or offset market risk.

Board Independence

Having an independent board is a core element of our governance philosophy. The Corporate Governance Guidelines provide that a substantial majority of our directors will be independent. The independent members of the Board annually appoint an independent Board Chair to facilitate the Board’s oversight of management, promote communication between management and our Board, engage with shareholders, and lead consideration of key governance matters.

Board Committees

To support effective corporate governance, our Board delegates certain responsibilities to its committees, who report on their activities to the Board. These committees have the authority to engage legal counsel or other advisors or consultants as they deem appropriate to carry out their responsibilities. Our Board has an Audit Committee, Compensation Committee, Governance and Nominating Committee, and Regulatory and Public Policy Committee. In addition, our Regulatory and Public Policy Committee holds joint meetings with both the Audit Committee and the Compensation Committee on areas of complementary responsibility.

The table below provides summary information about each director nominee followed by a summary of each committee’s responsibilities. Each committee has a charter describing its specific responsibilities which can be found on our website at https://aka.ms/boardcommittees.

Membership

Director

Audit

Compensation

Governance and Nominating

Regulatory and Public Policy

William H. Gates III

Reid G. Hoffman

Hugh F. Johnston

Teri L. List-Stoll

Satya Nadella

Charles H. Noski*

Helmut Panke*

Sandra E. Peterson

Penny S. Pritzker

Charles W. Scharf

Arne M. Sorenson

John W. Stanton

John W. Thompson

Padmasree Warrior

Number of meetings in fiscal year 2019

9

5

4

3

* Charles Noski and Helmut Panke will not seek  re-election at the 2019 Annual Meeting.				Chair               Member               Financial Expert

Effective December 1, 2019, changes to the committee chairs will be: Audit Committee, Hugh F. Johnston; Compensation Committee, Sandra E. Peterson; Regulatory and Public Policy Committee, Penny S. Pritzker.

If nominees are elected by shareholders, committee composition immediately following the Annual Meeting will be: (i) Audit Committee: Hugh F. Johnston (chair), Teri L. List-Stoll, Arne M. Sorenson, and John W. Stanton; (ii) Compensation Committee: Sandra E. Peterson (chair); Charles W. Scharf, and Padmasree Warrior; (iii) Governance and Nominating Committee: John W. Thompson (chair); Teri L. List-Stoll, Sandra E. Peterson, and Charles W. Scharf; and (iv) Regulatory and Public Policy Committee: Penny S. Pritzker (chair); John W. Stanton, and John W. Thompson. Emma N. Walmsley is nominated for election to the Board at the Annual Meeting. The Board will consider committee appointments for Ms. Walmsley if she is elected to the Board.

Director Selection and Qualifications

Shareholders elect our Board of Directors annually. In making its annual director nominations determination, the Board’s objective is to recommend a group of directors that can best ensure the continuing success of our business and represent shareholder interests through the exercise of sound judgment using its diversity of experience and perspectives.

The Governance and Nominating Committee recommends to the Board director candidates for nomination and election during the annual shareholders meeting or for appointment to fill vacancies. The Committee works with our Board to determine the characteristics, skills, and experience for the Board as a whole and its individual members with the objective of having a board with diverse backgrounds, skills, and experience. In making its recommendations to our Board, the Committee considers the qualifications of individual director candidates applying the Board membership criteria described below. The Committee retains any search firm involved in identifying potential candidates and approves their fees.

For all directors, we require independence, integrity, personal and professional ethics, business judgment, and the ability and willingness to commit sufficient time to the Board. Our Board considers many factors in evaluating the suitability of individual director candidates, including their general understanding of global business, sales and marketing, finance, and other disciplines relevant to the success of a large, publicly traded company; understanding of our business and technology; educational and professional background; personal accomplishment; and national, gender, age, and ethnic diversity. The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected. We work with our search firm to ensure the candidate slate provided to the Committee includes diverse candidates.

The Board does not believe that directors should expect to be re-nominated annually. In determining whether to recommend a director for re-election, the Committee considers the director’s participation in and contributions to the activities of the Board, the results of the most recent Board evaluation, and meeting attendance.

When the Committee recruits new director candidates, that process typically involves either a search firm or a member of the Committee contacting a prospect to assess interest and availability. A candidate will then meet with members of the Board and Mr. Nadella, and then meet with members of management as appropriate. At the same time, the Committee and the search firm will contact references for the candidate. A background check is completed before a final candidate recommendation is made to the Board.

Shareholders previously elected all Board nominees, except Ms. Walmsley. In recruiting Ms. Walmsley, the Committee retained the search firm Egon Zehnder to help identify director prospects, perform candidate outreach, assist in reference checks, and provide other related services.

The Committee assesses its efforts to maintain an effective and diverse board as part of its regular responsibilities, which include annually:

Shareholder Recommendations and Nominations of Director Candidates

Recommendations

The Governance and Nominating Committee considers shareholder recommendations for candidates for the Board of Directors using the same criteria described above. The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of Company stock must be sent to the attention of MSC 123/9999, Office of the Corporate Secretary, Microsoft Corporation, One Microsoft Way, Redmond, WA, 98052-6399.

Nominations

Our Bylaws provide for proxy access shareholder nominations of director candidates by eligible shareholders. A shareholder who wishes to formally nominate a candidate must follow the procedures described in Article 1 of our Bylaws. Proxy access candidates will be included in the Company’s proxy statement and ballot.

Board Composition

Our Board of Directors believes that having a diverse mix of directors with complementary qualifications, expertise, and attributes is essential to meeting its oversight responsibility.

The table below summarizes the key qualifications, skills, and attributes most relevant to the decision to nominate candidates to serve on the Board. A mark indicates a specific area of focus or expertise on which the Board particularly relies. Not having a mark does not mean the director does not possess that qualification or skill. Our director nominees’ biographies describe each director’s background and relevant experience in more detail.

Our Director Nominees

Following are biographies for the 13 directors nominated by the Board for election during the 2019 Annual Meeting.

		William H. Gates III
		Age: 63 | Director Since: 1981 | Birthplace: United States

		Reid G. Hoffman
		Age: 52 | Director Since: 2017 | Birthplace: United States | Independent