An article from today's TheStreet.com by Vishesh Kumar:
What Didn't Happen At Yahoo!
TheStreet.com Senior Writer
12/6/2006 3:15 PM EST
The intrigue swirled Tuesday evening as news of a Yahoo! senior-executive meeting spread through the blogosphere. And while speculation ranged from the company announcing that it would be acquired to the eagerly gamed resignation of CEO Terry Semel, the end result was seemingly lackluster.
Chief Operating Officer Dan Rosensweig, Senior Vice President Jon Marcon, and Media Group Chief Lloyd Braun will be departing. The company also said it would reorganize itself into two separate business units.
The news may have rattled -- or soothed -- investors at other tech behemoths. But Yahoo! is a company with recent antics such as the famed Peanut Butter manifesto, a leaked internal memo urging a firing of up to 20% of the workforce, and another claiming last quarter that the Internet-advertising sector was facing an overall slowdown -- only to see rival Google (GOOG - news - Cramer's Take - Rating) blow away its numbers.
Investors shrugged off the news, with Yahoo! shares decreasing a modest 50 cents to $26.93 in midday trading Wednesday.
Still, investors should be relieved by a few predictions that did not pan out Tuesday.
First, Yahoo! CFO Sue Decker did not get promoted to the top CEO spot, as a growing chorus of commentators was hoping for. Decker, who will now head up a new group responsible for ad sales, deserves kudos for her solid performance as a CFO and more.
But much of the gushing support for the former Wall Street research analyst comes from people who are accustomed to thinking about Wall Street first -- not the least of whom are other research analysts.
"Institutional investors love Sue Decker," Laura Martin, an analyst with Soleil/Media Metrics, told Forbes in November. "She was there as the stock plummeted, providing a very material piece of information that the prior management team didn't give out," Mark Mahaney, a Citigroup analyst, said in the same Forbes article.
When CFOs Take the Reins
Though Decker may have done a top-notch job managing Wall Street and giving research analysts the data points they need to do their job, there's no guarantee that this translates into the ability to take the helm of one of Silicon Valley's iconic tech companies.
In fact, there are virtually no examples of CFOs with research-analyst backgrounds who have gone on to run tech companies as CEOs in the tech field, with the closest example perhaps being Charles Phillips, who garners the number two spot as co-President of Oracle (ORCL - news - Cramer's Take - Rating).
But the nearly 30-year-old Oracle is a much more mature business than Yahoo!, with more predictable revenue streams that lend themselves to a CFO's acumen.
More importantly, the last thing Yahoo! needs to elevate as a priority right now are Wall Street's concerns. Just take a look at the roaring success of rival Google, famous for snubbing Wall Street and putting the long-term prospects of its business ahead of all else.
Shares of Google, which does not provide quarterly guidance and has mocked analyst concerns about its growing technology spending, continue to march forward, trading up $3.99 at $490.99.
How Yahoo! is thought about in Silicon Valley will have much more bearing on the company's success in the long term than Wall Street's daily machinations. Yahoo! is increasingly seen as a technology laggard when compared with Google and the hundreds of cutting-edge startups blossoming in Silicon Valley's latest renaissance.
The company will need to enlist the best and brightest technologists to thrive in an industry famous for dependence on the innovativeness of its rank and file. A companywide push toward the short-term, cookie-cutter metrics Wall Street considers paramount will only alienate these people.
Google, an engineers' paradise famous for encouraging employees to spend 30% of their time working on ambitious pet projects, again provides a useful foil.
Yahoo!'s already-stifling posture would only be furthered by a greater orientation toward Wall Street. "We believe Yahoo!'s myopic focus on protecting its margins has come at the expense of technology investments, as evidenced by two consecutive quarters of R&D spending declines," writes Jeetil Patel, an analyst at Deutsche Bank, which has a banking relationship with Yahoo!
"In contrast, its competitors continue to aggressively spend on R&D and product innovation as a means of user growth," writes Patel.
That said, Sue Decker may demonstrate the makings of a fine Internet CEO over time, even if she is the first to come from a financial background. "Her's is not seen as the traditional background to come from, and when you are working with a board to find candidates, there is often the hope you will come up with a magic bullet," says Eric Jackson, CEO of consulting firm Jackson Leadership Systems and among the first to call Decker the odds-on favorite to succeed Semel.
"But all candidates have their strengths and weaknesses, and when you look at Decker, she is the top person from an internal perspective on balance."
That's why Yahoo!'s wait-and-see approach -- giving Decker a promotion and a good chunk of operational responsibility, without vaulting her to the top spot -- is the best of both worlds.
The position will test Decker's operational ability, leaving the door open to an outside CEO down the road if things don't work out. And it will give Decker, who is lately being noticed more and more, greater incentive to stay with Yahoo! in what promises to be an uphill battle.
The other piece of good news was that Yahoo! signaled that it would not be cutting any jobs, despite the Peanut Butter memo's pushing for one-in-five employees to be canned.
Instead, Semel wrote on the company's blog that Yahoo! was positioned for growth and would be hiring -- not firing -- in the near future.
While Wall Street often reacts positively to the cost-cutting that comes with layoffs, the announcement could prevent many Yahoo! employees who were previously afraid of losing their jobs from preemptively jumping ship.
And at a time when it's imperative for the company to deliver its new advertising platform, dubbed Project Panama, on time, Yahoo! needs those people more than it needs Wall Street.Sphere: Related Content