Sunday, April 01, 2007

Stanford Cardinal Inquirer: Minor Yahoo Investor Fights for Big Change

From last week's Stanford Cardinal Inquirer:

By Kristen Sullivan

STANFORD, Calif., Feb. 28 – Eric Jackson only owns 45 shares of Yahoo stock. But armed with a PhD from Columbia University in Strategic Management,earlier this year he devised a strategy for shareholder activism traditionally limited to hedge funds and major investors.

A 34 year-old "leadership consultant" from Naples, Fla., Jackson has set out ot rally disappointed shareholders against Yahoo management and corporate strategy. He's successfully built a community of online supporters over the past few months via a blog, YouTube videos and a wiki, a user-generate content site. His success, suggests that a new form of shareholder democracy could be emerging on the Internet.

Earlier this year, Jackson delivered “Plan B,” a nine-step proposal to improve Yahoo performance, to company management. The plan’s top three points called for the ousting of Chief Executive Officer Terry Semel and a slew of Directors, and the closing of Yahoo’s Los Angeles Media Group and campus. Jackson also nominated himself as a candidate for Yahoo’s Board of Directors.

“Plan B” premiered on Jackson’s blog Breakout Performance on January 7. Jackson then posted a video of himself introducing the plan on YouTube. On both forums he invited investors to share their ideas and to help finalize “Plan B” using a wiki. During the ensuing weeks he covered investor and media response on his blog and posted more videos to YouTube.

In March, he partnered with, a new company that runs online pledge campaigns. The site tracks shares or signatures committed, posts relevant news articles, and hosts discussion forums.

Jackson did not completely forget old technologies: He also picked up the phone and called the company’s top institutional shareholders. They include mutual fund powerhouses like Legg Mason, Vanguard and Janus.

“The response has been positive,” Jackson said. “People are saying: 'Thank you for doing this. I have 100 shares, count me in,'” he said. About 75 investors holding 1.91 million shares signed on to “Plan B,” according to Jackson. The commitments represent a small sliver of the 1.36 billion shares outstanding. To date, the group does not include any of the company’s top ten intuitional investors and falls short of Jackson’s 10 percent of market cap, or 136 million share target.

The majority of the pledges were made anonymously over the Internet. “Whether institutional or individual investors, most people like to remain anonymous,” Jackson said. “They don’t like to stick their necks out. That is what I am doing.”

Jackson first grew interested in shareholder activism, and the people who are willing to “stick their necks out,” while studying at Columbia. There he met investors like Ralph Whitworth of the hedge fund Relational Investors who recently forced change at Home Depot.

“I became familiar with the strategy of buying a small stake in a company that’s poorly run, advocating change, and moving the stock price up,” Jackson said.

At the same time, Jackson began noticing how politicians like Ned Lamont (D-Ct.) used new community-building techniques on the Internet to gain support. Lamont beat Senatorial incumbent Joe Lieberman (D-Ct.) in the primary election before losing to Lieberman in the general election. “Lamont came out of no where,” Jackson said.

“I began thinking that maybe all these things could come together so that the individual investor could use web elements to advocate change like large hedge funds do,” Jackson said.

Last year he did not have a take-over candidate in mind so he started blogging about a variety of leadership issues. “I stumbled upon writing about Yahoo,” he said. When he did, he was surprised by the strong reaction. Former employees, current disgruntled Yahoos and investors alike responded to his posts.

Jackson believed he had found his company. Not only did Yahoo have an active community of followers on the web, it was at a critical juncture. For the past year the Yahoo’s lackluster performance under-whelmed analysts, the company continued to lose market-share in the search world to competitor Google, and the whisper that Semel was not fit to command buzzed on Wall Street.

The stock fell from its 52-week high on April 21 of $34.09 to a low of $22.65 on October 26. Since then the stock price steadily rose and closed at $30.33 yesterday.

Jackson made his move and bought 45 shares of Yahoo stock in early January, when the price registered in the high twenties. “Right now Yahoo is a pretty big chunk of my personal portfolio,” he said.

“I maximized my investment because I saw that the company was undervalued. Yahoo is at a critical point right now, and if it continues to drift then we could be in a tough spot in six to 12 months,” he said.

On the one month anniversary of “Plan B,” Jackson wrote: “In activist investing, sunlight is truly the best disinfectant. One thing I've learned from this effort so far is that the best ideas trump all at the end of the day. You can have money and power, but, if you don't have the best ideas, it's difficult to refute others who do. The best ideas for Yahoo! haven't come from me, but from our community. And that is the power that blogging/community tools/wikis gives us.”

Jackson devotes between 35 and 40 hours a week to this campaign. “Whether this succeeds or not, I hope I am laying the groundwork for others to follow the model. I hope I am creating a new form of shareholder democracy and I hope that shareholders will become more active and vigilant,” he said.

“Whenever a communication innovation lowers the barrier for collective action, then a group can do things that they would not have believed possible,” said Howard Rheingold, author of Smart Mobs: The Next Social Revolution.

“But it’s important to stay away from technology determinism,” he added. “Just because a wiki is available doesn’t mean there will be a shareholder revolution. You need leadership, and that leader needs to attract attention.”

“Plan B” is garnering some attention from Yahoo. Negative comments from current employees emerged on Jackson’s blog after he posted a letter from a former employee that outlined Yahoo’s perceived weaknesses.

Helena Maus, Director of Corporate Communications at Yahoo, declined to comment on Jackson but said in a statement:“We are always interested in the views of our shareholders. We understand that Eric Jackson sent a proposal to Yahoo!, and we plan to review it."

The company noted that under Semel’s guidance, Yahoo’s profits and stock price had grown over the past five years.

Jackson’s success may be determined at the upcoming annual shareholders meeting in May. Shareholders are scheduled to elect next year’s Board of Directors. Time will tell whether a majority of shareholders will follow Jackson’s direction to fire the current Directors and elect him to the Board. He will need votes from many more shareholders than the 75 who have pledged their support thus far.

Of course, the financial success of Jackson, Semel, and employees with company stock also rides on Yahoo’s share price. Since the beginning of the year the stock price climbed 18 percent.
During this period Yahoo released fourth quarter and year-end financial results that narrowly beat analyst expectations, rolled-out a new advertising platform, and launched Brickhouse, an in-house incubator for new business ideas.

Jackson said that he will remain active on the Internet whatever the outcome. “I would like to do this for other companies,” he said. “It is a sound strategy and makes a lot of sense.”

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