Thursday, August 30, 2007

What Now, Yahoo!?

Several people have asked me in the last few weeks whether I'm still involved in a "campaign" against Yahoo! My "Plan B" activist effort against the Internet company started in early January and culminated in a substantial "against" vote, which was registered by shareholders at the June 12th annual meeting. The 3 Compensation Committee members all received at least 35% of votes cast against them. However, all other directors -- including benevolent co-founder and now CEO, Jerry Yang -- received 6 - 8% of votes cast against them.

These are historic negative votes. To put them in perspective, Michael Eisner -- at the height of his unpopularity, when Roy Disney campaigned against his reelection as Disney CEO -- received a 43% against vote. This led to his removal shortly thereafter.

Yahoo!'s vote also led to some changes, namely Terry Semel's move upstairs to Chairman - with Jerry taking over as CEO and Sue Decker assuming the role of President.

In some press accounts of my involvement with this result through the "Plan B" campaign, it was portrayed as a victory - and it was, of sorts (although I certainly don't take full credit for this result).

However, no one can look at Yahoo! and claim that all the work is done. Removing Terry Semel was point 1 of a 9 point "Plan B." They are endeavoring to reduce the overlapping divisions and closing underperforming groups. They have added one new highly qualified director, but the rest of the board remains the same.

I've been quiet publicly since the change in the leadership ranks announced June 18th - but, by no means do I consider my work done at Yahoo! as an activist investor. Anyone who pledged their YHOO shares towards our current count of 2.1 million shares can be assured that I am not going away.

I have communicated several times with Yahoo!'s management since the annual meeting. Although I can't disclose what was shared to me at past meetings I've had with Yahoo! management, I commend them for their open-mindedness in meeting with me and having an open and constructive dialogue around several continuing criticisms I have with the company.

This is a far cry from the response that I have received from Motorola's non-executive directors. I'm currently involved in a fervent battle to unlock shareholder value at that company and have proposed another "Plan B" with a different recipe to ail that once proud communications company. Though we have a significant number of shareholders behind us, a credible plan -- which looks even more credible as the days tick by and MOT's stock price continues to drift lower and under-perform Nokia's -- we received nothing more than a cursory form letter from one of Motorola's directors who declined to have a meeting.

Not so at Yahoo! For that, the company's leadership deserves kudos. As yesterday's reorg announcement came out in another painfully awkward way, the company has again drawn more complaints from the press -- some justifiable.

I'm not going to outline every beef I shared with Yahoo! I had the chance to speak to them on behalf of our supporters and they responded to each and every complaint that I laid out to them. Several of their responses I found comforting. Some, I frankly disagree with -- but they have their arguments and I have mine.

That said, here are three high-level recommendations which I suggested are critical for the company to address in the coming weeks:

1. The V Word - Vision. We need to know what the new Yahoo! will stand for. There have been hints at this in the last earnings call, but they need to hit us all over the head with it. In "Built to Last," the precursor to Jim Collins' "Good to Great", co-authored with Stanford GSB Prof JerryPorras, the authors used the term "Big Hairy Audacious Goals." Yahoo! needs to articulate what these will be - both internally and externally.

2. Renewing the Org Culture and Flattening the Org Structure. The company's culture needs to demand and reward performance - from all employees. Partly, this will happen through flattening the organization and pushing out decision-making aggressively. I don't think it's a bad thing that there has been turnover recently at the company. It's never easy when people leave - voluntarily or forced. Hopefully, the changes will be done soon and the organization can move forward with the new group/structure in place.

3. Renew the Board. After the high "against" votes that I referred to earlier, it's a must. With change comes opportunity. Bringing in new blood with industry experience and diverse views will make Yahoo!'s management team stronger and this will trickle down. More youth would be a plus too. After all, by any standard, Yahoo! is still a young company competing with even younger companies. If their directors don't have Facebook pages, do they really understand the world in which Yahoo! is operating in? (Bravo, Ed Kozel.)

I am as energized as ever about Yahoo!'s future prospects, but I am a realist and see the good and the bad. I will continue to speak out on behalf of Yahoo! shareholders who believe this company can be better. We will speak with the voice of a friend who is respectful - but a friend who isn't afraid to be honest with you when you make a mistake.

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