Chicago Tribune: Motorola Activist Wielding Cyberclub

From last week's Chicago Tribune by Mike Hughlett:

Eric Jackson's timing couldn't have been better. Just days before Motorola Inc. warned it will post another grisly quarter, he launched a Web campaign to oust the company's embattled chief executive, Edward Zander.

Of course, this raises a question: Who the heck is Eric Jackson, and why would anybody listen to him? Ask Terry Semel, Yahoo Inc.'s former CEO, who resigned under fire last month.

Jackson, a 35-year-old corporate consultant, owned fewer than 100 shares of Yahoo, but wanted to rally his fellow shareholders. So last winter he created an online offensive, including YouTube videos and a Flickr page, aimed at booting Semel and forcing other changes at the underperforming company.

He wasn't Yahoo's only critic, as several big institutional investors were down on Yahoo too. But his effort helped create momentum and won lots of attention, and he was quoted widely in the business press. Jackson's campaign may indeed have added to the pressure on Semel and Yahoo's directors, corporate governance experts say.

Jackson's sudden ascension to a public pulpit is another example of the power that can be granted by the Web. In the old days, gadfly investors with 100 shares and lots to say didn't have much of an audience beyond annual meetings.

"What's new about this is the use of the Internet to contact others and get the message out," said Warren Batts, an adjunct management professor at the University of Chicago's Graduate School of Business. "In the end, it's not the individual, it's the message."

With that in mind, analysts say Jackson's voice could be heard on Schaumburg-based Motorola, which Wednesday warned that its ailing mobile phone business would lose more money during the second quarter and is expected to be mired in red ink for the rest of 2007.

"If there's growing dissatisfaction with [Motorola's] management, [Jackson's campaign] certainly could have some impact on the situation," said Lawrence Harris, a stock analyst who follows Motorola for Oppenheimer & Co. "But the person to watch is still Carl Icahn."

The billionaire financier snapped up 2.9 percent of Motorola's shares early this year and ran for a seat on the company's board. Icahn lost in May but not before stirring up shareholders and calling for Zander's exit if he can't fix things. Icahn couldn't be reached for comment Thursday, but he has said he doesn't plan to go away.

Icahn has been an inspiration to Jackson, who lives in Naples, Fla., and runs Toronto-based Jackson Leadership Systems. The company, which has 10 employees, consults on corporate leadership and strategy issues.

In October, Jackson penned a critical essay on his blog, "Breakout Performance," about Yahoo, which earlier in 2006 had begun disappointing Wall Street. He was bombarded by positive e-mails and blog comments by Yahoo employees and shareholders.

"It started making me think about an activist campaign," Jackson said.

A prime motivator: He said if he could succeed in a grass-roots shareholder activist campaign, he could make a reputation for himself and one day perhaps attract money to start his own hedge fund, like the Icahns of the world.

So in January he rolled out his first campaign. There was video on YouTube explaining his Plan B for Yahoo, which included several other changes besides removing Semel. There also was a page on Facebook and, perhaps most important, a wiki, an online site where shareholders could collectively comment on Plan B, adding their suggestions.

"The extent to which he used the Internet was unprecedented," said Patrick McGurn, executive vice president of Institutional Shareholder Services, a corporate governance advisory firm.

Jackson asked shareholders to pledge shares to the principles laid out in Plan B. Seventy-five investors collectively pledged 2.1 million shares, he said. That's a piddling 0.2 percent of Yahoo's share base, yet Jackson made waves.

ISS, which advises big institutional investors, summarized Plan B in its own analysis for Yahoo's annual meeting. And Jackson got a lot of media attention, landing quotes in scores of news articles, all the while stirring the pot for his cause.

"He was quite successful at Yahoo," said Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. "The CEO left very shortly thereafter. It's hard to find cause and effect, but he certainly raised awareness."

Jackson, who said he owns 134 shares of Motorola, said he chose the cell phone-maker for his next project because in some ways it is like Yahoo.

Motorola is a big, well-known company, so more people pay attention to it. And despite his disenchantment with Motorola's governance, Jackson said it is "a good company with fundamentally good assets."

With Motorola, Jackson is using the same approach as he did with Yahoo: a "Plan B" manifesto that includes several other changes besides axing Zander. He is using the same Web tools, too, including a page on Flickr, the photo-sharing site.

Thursday, the Flickr page had five images of Zander, including three that could best be described as goofy, and one featuring the trio of Zander, Tom Cruise and Katie Holmes. What's the point?

"As a shareholder, you look at that and say, 'How does that make them a better company?'" Jackson said.

Motorola declined to comment.

If Jackson gets his wish, and Zander exits, analysts say Motorola's problems won't go away.

A new CEO might improve morale at the company and provide a psychological boost, instilling a "clean slate" mentality, said Oppenheimer's Harris. That's what Zander brought to Motorola when he arrived in early 2004, after Wall Street hounded Christopher Galvin out of the CEO post.

But Motorola's woes are rooted in its lack of compelling new products, and new mobile phones take a couple of years to develop, Harris said.

Jackson acknowledges that, but believes that the sooner Zander leaves, the sooner Motorola will solve its problems.

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