Sunday, January 07, 2007

Shareholder Activism, Blogging, and a 'Plan B' for Yahoo!









I'm a Yahoo! shareholder and user and am using this video and blog post to reach out to all current and future Yahoo! stockholders.

Yahoo! is drifting; and its board and management have been too slow to act to this fundamental problem.

As shareholders, we don't have to sit by and watch this; the company is not private and is not by management, for management. When Jerry Yang and David Filo decided to take this company public in 1996, they were agreeing to the participation of shareholders in the direction of the business.

We live in an era of Shareholder Democracy. However, most mutual funds, institutional investors, and especially retail investors have typically not been activists where they used the voting power of their shares; through this apathy, they have ceded their power to management.

In recent years, some investors have been able to successfully advocate for change (like Pershing Square with Wendy's and McDonald's, Private Capital with Knight Ridder, and Relational Investors with National Semiconductor, JC Penney, and -- most recently -- Home Depot).

Activist Investing has principally been the domain of hedge funds -- well, no longer.

With the help of the web, blogs, and wikis, I'm asking all current and future retail investors in Yahoo! to join me in pushing for a change.

I like the founders, I like some of the directors, and I like some of the Yahoo! management a lot; yet, for whatever reason, they are not moving fast enough … we can help.

Let's take back control of one of the greatest Internet companies in the world and see the stock price finally start moving up.

It's been a terrible last two years for Yahoo, in terms of its stock price. YHOO is down 32% for the last 2 years (even after the whole Internet market blipped up in the last couple of days); the S&P500 is up 17% over this time; the NASDAQ is up 11%; GOOG is up almost 150%.

The "Peanut Butter Manifesto" leaking to Page One in the WSJ in November is a sign of internal disarray. Change is needed.

Yahoo! management responded with a reorganization plan on December 5th; however, in our opinion, this reorg is not enough.

I'm asking all of you who are YHOO shareholders to join me in proposing a "Plan B for Yahoo!" which we will take to management and the board.

Here's my strawman Plan B. If you have edits/suggestions, let me know in the comments section below. Once we wiki-ize it, we will take it forward and present it to Yahoo's management and board:

1. Appoint Susan Decker CEO immediately; implement pay-for-performance for all YHOO execs going forward.

2. Restructure the board immediately with more active outside directors who own stock; 10 year term limits for directors should also be introduced.

3. Set up a special committee of the board to study and then articulate the company's vision/strategy and start executing it.

4. Step up the pace of the $3B stock repurchase plan announced in October 2006.

5. Begin a cash dividend immediately.

6. Reduce overlapping internal divisions (e.g., del.icio.us/MyWeb, Flickr/MyPhotos.)

7. Remove anti-takeover provisions which are not shareholder-friendly.

Here's what I'm asking from each current and future YHOO shareholder:

1. If you're not a YHOO shareholder, I'm asking you to join me and buy 10, 20, 50, or 100 shares; at $27.74, they are still a bargain relative to the company's collection of assets and potential; we believe that our engagement with Yahoo! will spur an increase in the stock price.

2. Let me know if you are willing to join us in proposing our "Plan B" to Yahoo's Board and, if so, what your ownership stake is; we would like to put together a group speaking on behalf of 10% of the company. Yahoo! has 250MM registered users. If 10% of those purchased 50 shares and joined our group, we would easily hit our goal. There's nothing magical about 10%. However, it's large enough to give us a strong voice among shareholders.

3. Comment/Make suggestions on our "Plan B" below.

Once we finalize our Plan B, we will take it to Yahoo's management and board and suggest that they adopt the plan immediately; if they don't, we will use our ownership stake in the company to effect change to Yahoo!'s board composition.

Together, we can make a difference.

Let's take back control of one of the greatest Internet companies in the world and see the stock price finally start moving up.

Thanks.

Update: Jan. 12th -- As of this morning, our committed investors in Yahoo! have a collective ownership stake worth approximately $1.8MM -- and YHOO is up 5.27% since we began our activism at the start of the week.

We've had many good suggestions/additions for "Plan B." To vote on our initial 10 possible steps, go here: http://breakoutperformance.blogspot.com/2007/01/polling-yahoo-plan-b.html

I am limited to 10 options with this polling software. I'll put up new polls with the new suggested options in the coming day. Keep the great ideas coming. You can vote for as many options as you like.

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37 comments:

Anonymous said...

Amen brother

Anonymous said...

I wholeheartedly agree with Plan B.. I cant think of any additions but I am in full agreement and you have my support.

I am long YHOO with 7000 share.

sprince33@yahoo.com

Eric Jackson said...

Thanks, Anon.

Have gotten some great comments this morning. I'm going to put up a new post with a sign-up sheet.

Cheers, Eric

David Neubert said...

I'm in. I'm also go to publicize what your doing in my blog and on thepanelist.com.

Anonymous said...

I fully support the idea of giving the management of any company a plan developed from its shareholders via a wiki. I am confident that mass collaboration will generate a Plan B superior to any plan they are following now. Traditional methods are not producing the results Yahoo shareholders expect. I am in with my shares.

ml2@sbcglobal.net

Eric Jackson said...

Thanks, David and ml2.

Can you let me know how many shares you each own -- either by email or by comments.

Cheers, Eric

Anonymous said...

Hi ! I would suggest to include others in the CEO search besides Susan Decker.

- Suggest spinning of Yahoo Japan to unlock the value of that asset.

Anonymous said...

I've been reading the Intelligent Investor by Benjamin Graham over the break.

Shareholders - you are the business owners.

As a Yahoo shareholder, I agree with Plan B and will watch your site with interest.

Eric Jackson said...

Thanks, Anon. If you have shares or are going to buy them, let me know the amounts by email or comment. That way, I'll keep tabs. We're up to about $1MM is stock collectively as of this morning. Thanks, Eric

Maestrus said...

I fully agree with your Plan B.
Currently I own 400 shares of YAHOO!,YHOO, and planning to buy some more in the near future.

Thanks for your insight!

Eric Jackson said...

Thanks for your support, Maestrus.

salvador barbosa said...

I own 1000 Yahoo shares. You have my support. Salvador Barbosa

Eric Jackson said...

Thanks, Salvador.

Anonymous said...

Own about 3K shares.

Great idea, but in seriousness how much is Semel (who needs to be fired) going to take this. They need to:

1. fire semel
2. bring back yang as head yahoo
3. open up the YPN from beta
4. eliminate their min bid within panama (allows all the long tail kws to be monetized by publisher arbritage)

Eric Jackson said...

Hi Anon: Thanks for your support.

Point 1 of the plan is to replace Terry Semel immediately. We're going to take the plan to Yahoo! mgmt and the board. I assume Terry won't agree but hopefully the board will. If not, we'll use our ownership position to push for change through other avenues, including seeking board representation ourselves.

Thanks again for this support.

Anonymous said...

I think this is a very interesting movement, and some of the suggestions you make are reasonable. However, I would offer the following (hopefully) constructive comments:

1. Appointing Susan Decker CEO immediately would be a grave mistake. Odds are she's the right person to run the company, but now's the wrong time. Decker has been handed control over the key elements of the company's strategy (their relationships with advertisers and publishers), which is a great 1st step, but it will be at least 12 months before it will be clear how she's doing. Yes, Wall St. loves her, but the minute she becomes CEO a thousand nay-sayers will emerge questioning her ability to operate the business. In her current role, she can prove herself as an operator (I believe she will), and re-build Y!'s management team. In short, business results trail leadership by at least 1 - 3 years. She's leading the company now, but the right time for her to formally take over is after she's proven herself. Semel should continue to take the heat of unsatisfied investors for the next 12 months or so in order to allow Sue to do what she needs to do in the business. If she can't get it done, they'll have no choice but to look outside for their next CEO, or take other measures (merger/acquisition).

5. Regarding your suggestion of a cash dividend, can you explain why you propose this? They are locked in competition with a competitor with far more valuable stock and a dramatically larger cash position. How does taking cash out of the company help them compete long-term on the R&D and acquisition front with Google.

Last point - I think your plan fails to address the biggest key challenge the company faces. How does Yahoo! best leverage it's strength and leadership in non-search media to fend off Google's efforts in this area.

I hold a substantial position in yahoo 10's of thousands of shares. I will consider supporting your plan based on the finished product. As it is today, I don't see much new thought in the plan to get me any more excited about the plan's contribution to company strategy than current management's. this is not a shot...i find what you're doing very interesting, just reserving judgement until the plan is fleshed out.

Diran Edinjiklian said...

Eric, Plan B is a super great idea. I also own 1,000 shares of Yahoo and fully support your cause, as well as other shareholders who want to add to plan B.

The reason I own Yahoo is because I am a big fan of Yahoo and have been since the 90s. I am also a veteran Internet marketer.

For the longest time, I have had an idea that will surely add super great profit to Yahoo's bottom line. (and the idea is something that they already have and own).

I do not know how to get my idea across, so I am hoping this forum will help.

The idea is this, and I ask that it be included in Plan B, upon shareholder approval:

Add and design a model for customized CPC ads to appear in Yahoo mail.

Yahoo mail is a very big asset to the company and if designed right (tailored to displaying CPC ads based on keywords in an email) Yahoo will capitalize on a very big stream of clicks, as well as take big advantage of its super strong user base.

Basically, you open your yahoo email and based on keywords in your message, CPC or CPM ads appear in the right or top panel exclusively tailored to keywords in your email message.

It is a very simple concept and one that can really produce profits, as well as provide a great service to Yahoo users.

The cost to develop such a system should not cost that much, but the profit yield will be exponential.

To be honest, I can't believe Yahoo is not capitalizing on this great real estate that it (yahoo mail) already owns.

I believe Yahoo ranks in the top 2 worldwide (if not #1) for email subscribers and is not taking advantage of serving more ads in its email.

If you ask me, that is a big waste and lost opportunity that must be addressed, immediately, and for my 1,000 shares, I request that it be added to plan B, if possible, and call it “email profit development,” or any other name you want to call it, but please add to plan B, if possible.

Also, to comment, the #1 competitor successfully does this in their email system, so why shouldn't Yahoo?

Eric Jackson said...

Thanks for the last two comments. Appreciate the idea, Diran. Anon: I will respond to your points shortly. Thanks again, Eric

Diran Edinjiklian said...

I also agree with the anonymous post above my prior posting. (great comments, btw)

I support leaving Semel for the next 12 months, to see how he can perform, as well as leaving Decker in the position she was appointed to, to see how well she can do. I think firing Semel this year will be premature.

I mean there are many new things that Yahoo has recently done to make me happy (Y Answers, Y Mobile, Y tech) (great job, btw) and some other great accomplishments to get better geared for the new web 2.0 (social networking, video) and even web 3.0 (mobile search and media).

My hopes for this year with the current management team are that there will be no more internal problems and Yahoo can roll out great new products in a sufficient amount of time, and establish new relationships and partnerships for their new products, as well as maintaining and improving upon old products, relationships and services.

I also do not agree with a dividend at this point.

Until Yahoo can get its internal act together, I say we leave the dividend issue alone and not request a dividend from the company, until they get their act straight.

Diran Edinjiklian said...

Thanks Eric, for this forum, it is a super great idea and cause, and I support you 100%(And so do my 1,000 shares). I will buy more, if Plan B takes off.

Anonymous said...

Forget to tell you how many shares: 4700.

Josh Leiby said...

Eric,

Thank you for being a pioneer in what I believe to be the future for active investors (a little help from Congress wouldn't hurt). Just the united presence of Yahoo shareholders alone is likely to stir things up in Yahoo central. I am a first time investor with little understanding yet of the inner workings of corporate management. That being said, from your blogs, youtube video and my own research, I am beginning to see that Yahoo management is like a Prehistoric dinosaur attempting to ward off it's own extinction.

I purchased 610 shares and commit them to your cause. I trust that the combined experience of the united shareholders will enable you to draft a superior proposal. I cast my vote in favor of several of your initiatives, save one. I prefer to see bad management leave of their own accord. I feel it sends the wrong message to the Yahoo team to terminate their Leadership, as well as to any prospective replacements. If several of the changes you propose were instituted, the atmosphere may become unpalatable forcing them to head for their vacation home (with a reasonable severence package in tow). I recognise there are disgruntled employees who would love to see upper management terminated, but they cannot, nor can we, predict with any certainty how this might affect OUR investment in the short term. I feel the reasonable compromise is to work with the current regime placing the appropriate amount of pressure on the wound.

With regards to my own experience with Yahoo, I find the site to be a little dated in appearance. With all of the graphic capabilities available, why not jazz it up? As a member of the much coveted 18-34 year old male demographic, I have to say the Yahoo site would not attract my attention if it wasn't for the free email accounts. With so many alternatives out there for the same products, Yahoo needs to work on the visuals and appeal to the next gen video game generation, if they want a leg up on Google. I have to agree as well, with the previous comment regarding Yahoo's greatest asset, their email account database. Forget about the "clicks" and start working on drawing people into the interface. You've got to hold their attention for those advertising dollars to be effective.

Eric Jackson said...

Thx for the comment and support, Josh.

Also, wanted to thank the previous commentator with tens of 1000s of yahoo shares. I hope you see that I've modified some of the options in the current polling to address parts of your concerns.

I recognize that r&d is very important vis-a-vis google. However, a modest cash dividend is a discipline for mgmt. It is partly symbolic but important for mgmt's mindset.

We will keep the polling open for the next week or so and then start to further define it. I hope to address your other points then and win your support.

Our investment is up 5.27% since our advocacy began at the start of the week.

Best wishes, Eric

Neal S. Lachman said...

Eric,

I came to your blog from Henry Blodget's Internet Outsider.

On his blog readers have discussed Yahoo at length, most recently and most relevantly on Sue Decker. I have put in my two cents a few times, too.

http://www.internetoutsider.com/2006/12/yahoo_study_gro.html

I commend your effort, but as you will see on the link, I share the opinion with the Anonymous commentor who said that it would be a grave mistake to appoint Susan Decker as CEO right now. I also agree with his other points.

You have an interesting movement here, but I am not confident that it will make a big difference. You should know that most likely Semel and the board gets letters and opinions from large and medium-large shareholders, too. I don't think a grassroot movement will make a change in the decision-making of Yahoo's board. Why not? Because the majority of the small shareholders will not join your effort. They will choose to remain silent, and let the company proceed as it is.

As a matter of fact, I think what you are doing is a waste of Management's time. With all due respect, the power of communciations and combining forces doesn't give every Tom, Dick, and Harry the right to interfere in serious matters such as restructuring, which is what Semel is doing already. What you are proposing is just some hasty wasty changes that doesn't have any substantial or solid arguments other than "we waited long enough, changes must be made". It is easy to blame the guy, but he pulled Yahoo out of the shitter when he took the reigns. Cut his some slack, he is already working on improving Yahoo.

Last but not least, don't you think Semel -with his 2 million shares- has a bigger interest in Yahoo's success than you, with what is it... 1,000 (one thousand shares)?

Anonymous said...

To the last poster, Neal Lachman - give me a break!
1) Your comment that Terry is so concerned with the future of Yahoo because he has 2,000,000 shares tied up in the company's performance is a joke. Well, let's see, those 2,000,000 shares were GIVEN TO HIM by the board, more specifically Ron Burkle, head of the compensation committee. They are NOT the same as, oh say Eric Jackson's 1000 shares or my measly 8000 shares because WE PURCHASED OURS AND DID NOT HAVE THEM HANDED TO US AS OPTIONS!
2) Also to that point, Terry Semel has already made a half a billion dollars off of Yahoo in his five years there. He has been very well compensated. I am sure he would be fine with flying back down to Bel Air on his jet and hangin with the TomKats. In fact, I am sure he has some fat exit package lined up, also given to him by Mr. Burkle, that will pay him far more than any of his existing shares will. Bottom line - I don't think he really cares about the $$$
3) To your comment that he pulled Yahoo out of the shitter... that can't be farther from the truth. There were many MORE people MORE engaged with pulling the company out of the shitter back in the dark days and I know because I was working there.
4) You are right about management not caring about a revolt like this - and I could care less about what they think. I care about what the board thinks because they are the ones in control of the company's destiny. And I DO believe a grass roots effort such as this will make a difference and if you don't think the small Yahoo investor will get involved then you don't know the Yahoo small investor very well.
So if you don't want to add to this effort that is fine, you don't have to and you don't have to waste your time posting on this blog. Leave it for those that want to influence change.

Eric Jackson said...

Thanks to the Anonymous who jumped to the defense of what we're doing here.

Neal: It seems your first point is 'why bother?' What difference can a bunch of rag-tag individual investors make, when -- in order to get the 10% we're seeking -- we need to accumulate 133MM shares? At the moment, our group has about 70K shares. Why bother? A week ago, we had 0 shares committed to the cause of trying to improve shareholder value for ALL Yahoo! shareholders. Now, we have 70K shares. It's interesting that, since our shareholder advocacy began, Yahoo!'s stock price is up 6.16%. Congrats "Plan B" Group. Your efforts do matter. We'll see how many shares we have next week, and the week after that.... Obviously, anyone who doesn't agree with our "Plan B" or doesn't want to help improve it, shouldn't get involved. For those that do, and who think that it will help the company and all shareholders, we want and need your support.

I don't agree with you that our suggestions lack substance. However, part of the point of putting these ideas out there for consumption is to tap into the collective wisdom of the group. Please feel free to make additional suggestions to the plan.

Do we -- as shareholders -- have the right to speak up to management and the board? Obviously, we do. Even Yahoo! acknowledges that, according to their response to the Dow Jones article from yesterday. We always have the right. It doesn't mean that every idea coming from every shareholder everywhere is going to be right. What we're trying to do at the moment, in addition to gathering support through share pledges, is polish up our "Plan B" and ensure we've captured the best ideas from our group before we take it to management and the board.

I hope Yahoo!'s management isn't distracted by this. They have a business to run to increase shareholder value. We all - as shareholders - want to see them do that. However, one of the tenents of "corporate governance" is that a management team or board that is more closely monitored by its owners will do a better job than a management team or board that is not closely monitored. You've probably experienced this yourself working in a job -- when the boss is in the office, you work a little harder than when he/she's not there. If I was on the Yahoo! management team, I would be continuing to execute the plans and would take comfort that this "Plan B" group (which includes several current Yahoo! employees) believes in us, supports us, and is pushing for other changes in the company that will unlock shareholder value.

Your point on Terry is -- and Yahoo! made this point to the Dow Jones reporter -- the stock is up 4x during his tenure, so lay off. The question is: what would the stock done without Terry in place and someone else there? The rise in Yahoo's stock from early 03 to the end of 04 was simply an Internet market rebound. Since Google (its most direct competitor) went public in late 04, GOOG is up over 400% and Yahoo! is flat. I discuss more of the point around what would have Yahoo!'s stock have done over the last five years if someone other than Terry been in charge here: http://breakoutperformance.blogspot.com/2006/10/terry-semel-cause-of-yahoos-success-or.html

Lastly, yes, I agree with Anon that there is a big difference between a shareowner and a shareholder through grants and stock options. The latter is treated as "found money." If you would like proof of this and the way this plays out with directors and firm performance, I encourage you to read this paper: http://www.jacksonleadership.com/whats_new/Linchpin.pdf

You could also read this post from Breakout Performance on this, as it relates to Yahoo!'s board: http://breakoutperformance.blogspot.com/2006/12/why-outside-directors-should-have-skin.html

This forum is all about interaction. It's also about: may the best ideas for helping Yahoo!'s share price improve through unlocking hidden value in that company. Thanks for everyone's input. Your support DOES matter. The better we make our plan, the more likely the larger Yahoo! holders will support us. In the end, I'm confident in this group that we'll hit our 10% goal.

I encourage everyone interested in "Plan B" to send me or post your ideas on how we additionally get from 70K shares to 133MM.

Anonymous said...

This is an interesting approach. Eric, I am curious to get your thoughts on the iPhone launch and the Google/Yahoo duet.

On the one hand, Eric Schmidt is here to represent Google and on the other, Jerry Yang is here to represent Yahoo. It seems to me that a logical approach would have been to have either the founder(s) of both or the CEO of both companies present.

Was Semel too busy that day? (insert sarcasm here) or is that a sign of things to come?

Good luck.

Anonymous said...

Two comments from a former YHOO investor:

1. How are key employees incentivised to grow profits of their division? E.g. Yahoo Finance.

2. Yahoo Finance has a large (older) user population that it will slowly lose if it does not pursue excellence better. They are improving the message boards and ETF coverage; but the new stock charts appear to have been designed by a teenaged non-investor. Again, how are they incentivised for excellence?

Eric Jackson said...

Hi Last Anon: Thanks for the comment.

Previous Anon: I'm not sure what the connection was supposed to be between GOOG/YHOO and iPhone. What's the story? Was Terry supposed to be at the launch?

Anonymous said...

I worry about Susan Decker. I don't think she's senior enough.

More to the point, I think a technology company needs to be run by a technologist: Just ask Apple and HP shareholders.

But, I love pay-for-performance and am willing to give her a chance under that condition.

So, I have 20,000 shares and am in, too.

Anonymous said...

Eric, I am in total agreement with you on Plan B. There needs to be some change at Yahoo. I am long Yahoo 800 shares.

garytenn@aol.com

Eric Jackson said...

Hi Gary: Thanks a lot for your support! Eric

Anonymous said...

The problem is not yahoo, the problem is Google. Google is a company that's engaged in questionable practices akin to what was being done before the bubble bursted, the same as what Worldcom and Eron did. No, they are not cooking the books the same way, but they are driving up the stock with tactics that is defruading advertisers and eventually shearholders. and is now benefitting from that. Eventually there is going to be a rebellion and Google will find itself not the company that it is today. It will be worth a faction of today's value. Google know how to SPIN, but look at it's success other than the scheme which it is engaged in (search). Look at all the failed beta test that they have done. They really know how to hype themself, that is why the stock is so high. This is not a race with UNETHICAL Google. Slow and steady will win this race. Remember the turtle and the Hare?

The real competition will not be with Google, but from the many company that will emerge as the techology improve. New IDEAS will
begin to rise and new niche will be created. Google is involved in the kind of recklesness that cause the bubble to burst before, and Yahoo should not follow. This time it will Google's greed and new competition that will cause Google to fail, but Yahoo will once again reign.

Remember slow and steady wins THIS race.

Anonymous said...

Whoops... recanting my statement about Sue Decker... a technologist should run a technology company... for Plan B to work, Decker should be COO... please don't set her up to fail like Semel.

P.S. Heard that Semel only spends two days a week at HQ... can anyone verify?

Eric Jackson said...

Last Anon: I have heard rumors but I just don't know.

Previous Anon: Have never heard anything along those lines.

Anonymous said...

Plan B sounds great - some execs need to leave (primarily Semel). I disagree with letting go of talent. In the current job market in Silicon Valley, it would be hard to replace that talent if it were deemed necessary in the future. Slowing down hiring and being more selective (and then aggressive on those selected) would be a better plan there.

Outside the hiring issue, I'm all for it. We have another issue. I question the board's competence. Execs should be paid for performance. The stock dropped over 30% in 2006 and Panama was delayed multiple times. I would say that is poor performance. Why, then, would the board grant 800,000 shares - immediately vested AND allow them to be exercised 3 years after he leaves the company? Pay for poor performance? Seems like a strange theory. How would we include revoking such offers in this bid? Compensation should be removed from the grasps of the board - which in reality, are a group of peers - and the "you scratch my back, I'll scratch yours" philosophy reigns supreme. Motley Fool has a rule to NOT invest in a company when the board/execs are more worried about lining their pockets than doing what is right for the company. I mean - come on - "saving the company money" by trading his $600K salary for 6M shares of options... again, fully vested and with the same post-employment 3 year window. Insanity!

Eric Jackson said...

Hi Anon:

Thanks. In some ways, you can't blame Semel for taking home $575MM since he arrived. The blame does lie at the feet of the board.

That's why, in "Plan B," we're advocating all shareholders vote "withhold" for 7 of the 10 current directors. We're only recommending "for" votes for Yang, Kozel, and Joshi. I've also nominated myself for the board and so hopefully you'll vote "for" me too.

That's the only way to change this -- in your words -- 'insanity.' We need to change the monitors.

It's probably unlikely that we'll be able to change any retroactive pay. However, we can certainly correct gross over-payment for under-performance going forward.

Thanks.