Tuesday, September 22, 2009

Are these Disclosures Conflicts of Interest for Yahoo!?

If I told you that Yahoo! had made a charitable contribution to an American University in the last year, which one would you guess? Stanford University, where Jerry and David dreamed up the company in the computer labs more than a decade ago? Cal? San Jose State? Try Duke.

You probably weren't familiar with a long fabled relationship between the Silicon Valley-based Internet company and the fine academic institution on the other side of the country on Tobacco Road. Let me connect the dots for you. Yahoo!'s Chairman, Roy Bostock, and fellow director, Gary Wilson (both appointed by former CEO Terry Semel), serve on the board of the Fuqua School of Business at Duke.

Unfortunately, we don't know exactly how much Yahoo! gave to Duke. I don't see why shareholders shouldn't know the amount. The fact that it's the only university named in Yahoo!'s most recent proxy filing as having received such a contribution from Yahoo! last year, when there is this obvious relationship with two directors, calls for more disclosure -- not less.

It's also strange that the only other non-profit institution receiving a charitable contribution last year was The Partnership for a Drug-Free America, for which Mr. Bostock is also a director.

These donations are fully disclosed in the proxy under "Related Party Transactions" but are they right and proper? I don't think so. In my view, Mr. Bostock shouldn't be able to leverage his job as Chairman (which paid him $568,449 last year in total comp) to access the company's Treasury (the shareholders' money -- not his) for his pet causes.

Full disclosure: I don't think Mr. Bostock is fit to serve as the Chair of this dysfunctional board. He led the charge in the famously disastrous Microsoft merger negotiations last year. Then, he spoke at length at the 2008 shareholders' meeting, about just how hard Yahoo!'s board had worked to secure a deal. His words to the audience dripped with condescension.

I attended the meeting and asked him if he thought he deserved to make $500,000 for his Yahoo! job. He told me he didn't make that much money in the prior year and I had my facts wrong (they were the facts). I followed up by asking him to resign off the board based on how nearly half of shareholders had voted against his re-election at the prior year's shareholder vote. He told me I was a guy who looked at the glass half-empty and he saw the glass half-full with the number of "for" votes he did receive.

Given Mr. Bostock's rose-colored glasses, I have no doubt he saw no problem in seeking out a charitable contribution for his two affiliated non-profit organizations. How much were the contributions, Roy?

Perhaps more troubling for Yahoo! shareholders is that, in that same section of the proxy filing, there was the following disclosure:

- Transactions in the ordinary course of business between the Company and entities for which the following directors served as an executive officer, employee or substantial owner, or an immediate family member of an executive officer of such entity: Mr. Icahn, Mr. Joshi, Mr. Kotick, and Mrs. Wilderotter.

VJ Joshi runs the printer division at HP, so I can imagine that Yahoo! bought some ink cartridges from them last year. Bobby Kotick runs Activision, so maybe the company bought some recreational copies of "Guitar Hero" for the senior officer and director lounge. Maggie Wilderotter runs Frontier Communications which sells cheap phone and DSL service in upstate New York and the surrounding area. So, I have a harder time understanding Yahoo!'s need to do business with them -- although maybe there are some remote workers in Rochester who can't get AT&T access (with whom Yahoo! has a large strategic partnership).

It's the Carl Icahn connection that I have a harder time understanding. Certainly there shouldn't be any business dealings between Yahoo! and Icahn's hedge funds, where he's an executive officer and employee. Do his hedge fund investments qualify as him being a "substantial owner" even if they're relatively small? Even still, did Yahoo! do business with Blockbuster, Lions Gate Entertainment, Motorola, American Rail Car Industries, Biogen, Federal Mogul Corp., PSC Metals, or Endzon Pharmaceuticals? The company should more completely spell out the business dealings between Yahoo! and Carl Icahn. How much were they? To whom? And for what?

Later in the same section, they state:

- Relationships and transactions in the ordinary course of business involving aggregate payments greater or equal to $10,000 with companies and their applicable subsidiaries, for which the following directors served as non-employee directors during all or part of 2008: Mr. Biondi, Mr. Bostock, Mr. Burkle, Mr. Hippeau, Mr. Kozel, Mrs. Wilderotter, and Mr. Wilson

We've discussed the ties of Roy Bostock and Gary Wilson to Duke and The Partnership for a Drug-Free America. Now, we've expanded the relationships where Yahoo! paid these directors' companies to include Mr. Kozel (no longer on the board), Mr. Hippeau who makes investments for Softbank and took a job earlier this year for the Huffington Post (in which he's an investor), Mr. Burkle who is on the boards of Occidental Petroleum & KB Home, as well as the Frank Lloyd Wright Building Conservancy, and Mr. Biondi (friend and colleague of Carl Icahn) who is a director for Amgen, Cablevision, Hasbro, and Seagate.

Again, shareholders should fully understand the exact amounts of the payments being made and to whom they are being made in these related-party transactions.

Maybe these payments are all legitimate and above board. If they are, let's disclose them and let sunlight be the best disinfectant.

[Jackson's fund holds no position in YHOO at the time of publication.]

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