Steve Jobs's Best App Might Be Succession Plan: Eric Jackson

By Eric Jackson - Mar 9, 2011 7:00 PM ET

Bloomberg Opinion

Apple Inc. (AAPL) suffers from a Steve Jobs discount, and it’s not fair.

Ever since Jobs, the chief executive officer, disclosed that he had a rare form of pancreatic cancer in August 2004, Apple’s stock has been underpriced. That assertion may seem absurd, given that the shares have risen more than 2,000 percent since then and the company’s market value of $325 billion is second only to that of Exxon Mobil Corp. Apple’s share price is now hovering at about $355.

It should be much higher. Since 2004, Apple earnings have gained 134 percent a year on average. In 2009, net income rose 35 percent, during the biggest economic collapse since the Great Depression. And they increased 70 percent last year. Yet Apple’s price-earnings ratio based on expected earnings in fiscal 2012 is only 11, compared with the Standard & Poor’s 500 Index’s average of 15. Trading at the S&P 500 multiple, Apple’s stock should be more like $480.

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Turning the Page at Google

By Eric Jackson
RealMoney Contributor
1/24/2011 5:04 PM EST
Click here for more stories by Eric Jackson

My first reaction to the news on Thursday that Google (GOOG - commentary - Trade Now) co-founder Larry Page would be taking over as the CEO from Eric Schmidt starting April 1 was that it was a negative for the stock in the short term.

This was counter to the initial jump in the stock in the response to the strong quarterly results. The stock initially bounced from $626 at the close of Thursday to $644 about 45 minutes after the news broke about Schmidt's departure from the top job. Those who were bullish on the stock were making the case that a strong company trumps the importance of the CEO.

Although I agree with the power of a group over any one individual or leader, a CEO carries significant weight for investors when looking at a public company. Although Google is a known company -- now public for over six years -- the price action in Google on Friday suggested that people are nervous about Larry Page's ascension.

If you sold your Google stock immediately at the open on Friday, you got $640 for the stock. It immediately dropped below that and didn't stop all day. It closed below $612 by the time Friday's session was over.

What does the market have to fear from Page leading the company? The hundreds of profiles about him describe him immediately as "smart." They say that "he's always been interested in the business" -- that's supposed to be a selling point? They say that he's driven and that he has always admired Apple (AAPL -commentary - Trade Now) co-founder Steve Jobs. And Schmidt and former IPO banker and Google employee Lise Buyer have gone out of their way to say that this succession has always been planned and that Page was always slated to take the top job.

I don't know Larry Page, haven't met him and have barely ever heard him speak, aside from his brief comments on Thursday's earnings call. (Is it unreasonable to expect that the new head of a $200 billion company would stick around longer than 10 minutes to answer questions, including the bland comment, "I'm incredibly excited about the possibilities to come"?)

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Google's CEO Switch Raises Many Questions

By Eric Jackson
RealMoney Contributor
1/21/2011 11:30 AM EST
Click here for more stories by Eric Jackson

Last night's surprise announcement that Google (GOOG - commentary - Trade Now) Co-Founder Larry Page would take the CEO post from Eric Schmidt on April 1 caught everyone off guard.

A few years ago, Schmidt had talked about the "troika" of him, Page and Sergey Brin working together for the next 20 years. And the market seemed to like that because Google had been extremely successful up to that point. The thinking was, if it ain't broke, don't fix it.

The stock is up today because of Google's strong earnings last night, but I believe there could be trouble ahead for the company based on this move.

Google used to be thought of as unassailable in ads. It perfected AdWords, which revolutionized the media world over the last 10 years. However, it has had a hard time leveraging that success into other businesses.

There are some areas of real promise. Google is starting to fire on all cylinders in the display segment, where it used to trail Yahoo (YHOO) badly. This improvement is also helping Google to take advantage of the YouTube acquisition. YouTube still dominates the user-generated space and Google hopes to expand its uses to include professionally streamed content as well. Meantime, Android phones are helping ensure that Google will play a central role in the mobile world. Just yesterday, the company said it is now activating 300,000 Android devices a day.

But Google faces a huge challenge from Apple (AAPL - commentary - Trade Now) in the mobile market. Steve Jobs recently said that users interact with ads very differently on mobile devices than on computers. If true, this could greatly hurt the cash cow AdWords business.

Facebook has also made Google's attempts to build up a social networking business (remember Wave?) look silly.

Despite the Google troika's valiant efforts yesterday to make it sound like this transition is the culmination of years of planning, I don't buy it. Schmidt admitted yesterday that internal decision-making issues at Google have hindered the company's ability to respond to competitive threats in recent years.

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Bank of America Must Remove Ghost of Hugh McColl from Board

By Eric Jackson, Senior Contributor

12/02/09 - 01:02 PM EST

Stock quotes in this article: BAC

NEW YORK (TheStreet) --

Reports are out today that several of the candidates under consideration for the top job at Bank of America(BAC Quote) have called on the board to consider breaking up the bank. They are having none of it. As a result, the CEO search for Ken Lewis' replacement continues.

All in all, you would have to give the board of Bank of America an "F" for how they've monitored management and succession planning since a firestorm enveloped the company last Fall.

Primarily blame for the lack of preparedness the board has shown to having a successor for Ken Lewis waiting in the wings lies at the feet of Hugh McColl, Lewis' predecessor. McColl has really shaped what Bank of America has grown into. It won't change until his ghost leaves the board by having directors he appointed step down.

On a "Frontline" episode from last year describing the financial meltdown, McColl, who is still the bank's chairman, recounted how he'd masterminded turning the small NCNB National Bank of North Carolina into the Bank of America juggernaut. He said that, as a company, "you're either growing or you're dying."

He took that advice to heart and did a series of acquisitions of companies to create a national titan in banking. And that's why it's unlikely this bank will break itself up now or while McColl is still around. It's just not in their corporate DNA.

Bank of America is the house the Hugh built. He hand-picked his board to be his lapdogs. He hand-picked his successor, Lewis, to carry on exactly in the fashion he had led the bank.

Lewis didn't miss a beat. In fact, he took it up a notch, making increasingly bigger acquisitions. Lewis' tenure as CEO will be defined by his acquisitions of MBNA, Fleet Bank, Countrywide, and Merrill Lynch. The bank is now enormous.

Yet, Lewis didn't like how he was treated by the government and the press. He was used to being seen as Ken the Conqueror, not a lightning rod for criticism. So, he decided to take his ball and go home. His decision to quit after the summer left the board completely flat-footed.

Succession planning is only something a company is judged on when they do it badly. The fact that Bank of America is now having such a hard time filling the top spot signals how poorly equipped this board was to do scenario planning.

It's a pretty basic question that every board must always think about: what would we do tomorrow if the CEO got hit by a bus? Most of the time, there are two to three internal candidates' names which easily come to mind. Nine times out of 10, a board would rather select an internal candidate for the knowledge of the company, industry, customers, and employees who will be able to take the company forward.

All of the largest banks in America appear to have done a poor job of internal talent development, but Bank of America is by far the worst. Why?

At the end of the day, the bank's directors were charter members of the "Friends of Hugh" club. Their primary job as a director was to rubber-stamp whatever Hugh wanted to do. If Hugh didn't bring up the issue of succession planning, it didn't need to be considered.

That's why, starting after the spring shareholders' meeting (at which there were several directors who received large numbers of "against" votes) the Federal Reserve has started reassembling the board of directors. That's something we first started mentioning here over the summer.

This revamped board was still not able to get an effective succession process in place to prepare for Lewis' surprise departure. They should entertain all kinds of scenarios such as breaking up the bank. In my view, it epitomizes a "too-big-to-fail" financial institution and hasn't demonstrated that it can manage the disparity and scope of so many businesses.

If the Fed really wants to see the company change though, it should remove all directors who have ties to Hugh McColl. Once that happens, this board will start to rethink how this bank should be run from a truly fresh perspective. And they’ll probably conclude it does need to be broken up.

At the time of publication, Jackson did not have any position in the stock mentioned.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Inside Yahoo: Behind the Purple Curtain

Time Magazine came out yesterday with a special on "Inside Yahoo: Behind the Purple Curtain." Here is one of the articles in the special mentioning our dissident shareholder activity.

T H E B I G S E A T

Analysts expect that if CEO Terry Semel succeeds in wringing profits out of the company's new Panama advertising system, the project could be his last hurrah as leader. "Terry has no plans to leave the company and is energized about the future," says Helena Maus, Director of Corporate Communications. But others expect a change. "It looks like Sue [Decker] is going to get the prize when Terry decides to leave," says Youssef Squali, Internet analyst for Jeffries & Co. "My best guess is Terry puts Yahoo! on the growth path on the search side, sees the stock react favorably, and then he leaves. When? By the end of this year, or early next year." Dissident shareholder Eric Jackson says if the company looks beyond Decker for a leader from outside, other candidates could include Jonathan Miller, formerly of AOL, or Tom Freston, former Viacom CEO.

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Industry Insiders Praise Yahoo Choice for Key Post

Interesting commentary from today's NY Times:

SAN FRANCISCO, Dec. 6 — Shortly after Susan L. Decker was appointed chief financial officer of Yahoo in mid-2000, the bottom fell out of the Internet business. Within a year, Yahoo’s shares lost more than 90 percent of their value, as scores of Yahoo’s dot-com advertisers went bust.

Throughout that challenging period, Ms. Decker played a leading role in helping reset expectations on Wall Street and inside the company. She was also instrumental in helping recruit a management team that put the company on a path to renewed growth.

Those accomplishments earned her a healthy dose of credibility and loyalty, according to people inside and outside Yahoo.

“The last time they went through a challenging period, she was very effective at helping rebuild the team,” said Mary Meeker, an analyst with Morgan Stanley. “She was very aggressive internally about forcing the company and the employees to be realistic about the business and she was extraordinarily candid.”

Now, as Yahoo faces challenging times again, Ms. Decker’s credibility is being rewarded and tested.

On Tuesday, in an attempt to compete better with faster-moving rivals, the company announced a restructuring of its operations into three business units. As part of the reshuffling, Terry S. Semel, the company’s chairman and chief executive, tapped Ms. Decker to run the unit that arguably faces the biggest challenge: reducing Google’s lead in Internet advertising.

Some analysts say the appointment of Ms. Decker to head the advertiser and publisher group may indicate that she is being groomed to succeed Mr. Semel as chief executive.

The company declined to comment or to make Ms. Decker or other executives available for this article.

Those who know Ms. Decker, 44, say that despite her lack of extensive operational experience, she has the skills to do the job.

“It would be difficult to find a job for which she is not intellectually capable,” said Geoff Ralston, Yahoo’s former chief product officer, who left the company in April. “That doesn’t mean there aren’t a lot of challenges for her. But she is one of the clearest- thinking minds at Yahoo.”

Rob Solomon, a former senior vice president at Yahoo who is now chief executive of SideStep, a travel-oriented search business, added: “I was always in awe of her brilliancy. Any time I interacted with her, she didn’t need much explanation. She understood things quickly, and then she would start tearing through the numbers and seeing where the opportunities and the risks were.”

Indeed, whenever the subject of Ms. Decker came up in interviews with nearly a dozen former colleagues, analysts and other people who know her, Ms. Decker’s keen intellect was the first thing cited.

“She is truly one of the smartest executives I ever worked with,” said Jana Rich, a managing director at Russell Reynolds, an executive search firm with Yahoo as a client.

Ms. Rich also credited Ms. Decker with strong personal and leadership skills. As Ms. Rich searched for the right candidates to present to Yahoo, Ms. Decker was always hands-on, helping her understand not only the qualities needed in a person but also working through detailed analyses of companies to find which ones were facing challenges similar to Yahoo’s — and hence might have candidates with suitable skills.

Ms. Rich now credits Ms. Decker’s approach with teaching her critical lessons about leadership. “Involve your key people strategically, set a high bar and work with them to solve the problem,” Ms. Rich said.

Mr. Solomon said, and others confirmed, that Ms. Decker once rode to an all-staff meeting on a Harley-Davidson motorcycle.

“She is pretty cool and very affable,” he said. “For her to ride into this all-hands corporate meeting on a Harley says that she is a very different type of C.F.O.”

Ms. Decker joined Yahoo from Donaldson, Lufkin & Jenrette, where she worked for 14 years, first as a publishing and advertising research analyst and eventually rising to become head of global research.

Since joining Yahoo, her successes have been noticed throughout Silicon Valley. In 2004, Ms. Decker was appointed to the board of Pixar Animation Studios, and last month, she joined the board of Intel, whose chairman, Craig R. Barrett, referred in a statement to her “extensive business background, leadership and understanding of the technology industry.”

Ms. Decker also serves on the board of Costco Wholesale.

In recent months, she was put in charge of Yahoo’s marketplaces business unit, where she recruited Hilary Schneider, a former newspaper industry executive with Knight Ridder. The two helped broker a landmark deal to share content, advertising and technology with a consortium of publishing companies representing more than 175 daily papers.

Ms. Decker’s success may ultimately hinge on her ability to broker more such deals and improve the company’s ability to turn its existing audience, the largest on the Internet, into more advertising dollars.

“I don’t think she gets credited enough with how good she is at understanding businesses,” said Ellen Siminoff, the chief executive of Efficient Frontier, an Internet marketing firm, and a former senior vice president at Yahoo. “She will have to go to her top advertisers and publishers and understand what it is going to take to get more dollars.”

Ms. Siminoff said that her success in cashing in on Yahoo’s audience will depend, at least initially, on things that may already be outside Ms. Decker’s control. Project Panama, an overhaul of Yahoo’s advertising system, whose delays have been a symbol of the company’s troubles, is already being rolled out, Ms. Siminoff noted. “The train has left the station,” she said.

It is not clear whether Yahoo’s shake-up will be enough to turn around the business. On Wednesday, its shares dropped 57 cents in regular trading, to $26.86, or more than 2 percent.

Part of Yahoo’s challenge in catching up with Google is technological. Yet despite Ms. Decker’s lack of technology background, associates say she is up to the job.

“What I was really impressed with Sue over the years is that she moved from a very nuts-and-bolts approach to management to a much more strategic perspective,” Mr. Ralston said. “She really shifted over time. I’m sure that in the end is why Terry gave her this job.”

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What Didn't Happen at Yahoo!

An article from today's TheStreet.com by Vishesh Kumar:

What Didn't Happen At Yahoo!

By Vishesh Kumar

TheStreet.com Senior Writer

12/6/2006 3:15 PM EST

Click here for more stories by Vishesh Kumar

Despite the hype, the most important piece of news to come out of Yahoo! (YHOO - news - Cramer's Take - Rating) recently is what the company didn't do.

The intrigue swirled Tuesday evening as news of a Yahoo! senior-executive meeting spread through the blogosphere. And while speculation ranged from the company announcing that it would be acquired to the eagerly gamed resignation of CEO Terry Semel, the end result was seemingly lackluster.

Chief Operating Officer Dan Rosensweig, Senior Vice President Jon Marcon, and Media Group Chief Lloyd Braun will be departing. The company also said it would reorganize itself into two separate business units.

The news may have rattled -- or soothed -- investors at other tech behemoths. But Yahoo! is a company with recent antics such as the famed Peanut Butter manifesto, a leaked internal memo urging a firing of up to 20% of the workforce, and another claiming last quarter that the Internet-advertising sector was facing an overall slowdown -- only to see rival Google (GOOG - news - Cramer's Take - Rating) blow away its numbers.

Investors shrugged off the news, with Yahoo! shares decreasing a modest 50 cents to $26.93 in midday trading Wednesday.

Still, investors should be relieved by a few predictions that did not pan out Tuesday.
First, Yahoo! CFO Sue Decker did not get promoted to the top CEO spot, as a growing chorus of commentators was hoping for. Decker, who will now head up a new group responsible for ad sales, deserves kudos for her solid performance as a CFO and more.

But much of the gushing support for the former Wall Street research analyst comes from people who are accustomed to thinking about Wall Street first -- not the least of whom are other research analysts.

"Institutional investors love Sue Decker," Laura Martin, an analyst with Soleil/Media Metrics, told Forbes in November. "She was there as the stock plummeted, providing a very material piece of information that the prior management team didn't give out," Mark Mahaney, a Citigroup analyst, said in the same Forbes article.

When CFOs Take the Reins

Though Decker may have done a top-notch job managing Wall Street and giving research analysts the data points they need to do their job, there's no guarantee that this translates into the ability to take the helm of one of Silicon Valley's iconic tech companies.

In fact, there are virtually no examples of CFOs with research-analyst backgrounds who have gone on to run tech companies as CEOs in the tech field, with the closest example perhaps being Charles Phillips, who garners the number two spot as co-President of Oracle (ORCL - news - Cramer's Take - Rating).

But the nearly 30-year-old Oracle is a much more mature business than Yahoo!, with more predictable revenue streams that lend themselves to a CFO's acumen.

More importantly, the last thing Yahoo! needs to elevate as a priority right now are Wall Street's concerns. Just take a look at the roaring success of rival Google, famous for snubbing Wall Street and putting the long-term prospects of its business ahead of all else.

Shares of Google, which does not provide quarterly guidance and has mocked analyst concerns about its growing technology spending, continue to march forward, trading up $3.99 at $490.99.
How Yahoo! is thought about in Silicon Valley will have much more bearing on the company's success in the long term than Wall Street's daily machinations. Yahoo! is increasingly seen as a technology laggard when compared with Google and the hundreds of cutting-edge startups blossoming in Silicon Valley's latest renaissance.

The company will need to enlist the best and brightest technologists to thrive in an industry famous for dependence on the innovativeness of its rank and file. A companywide push toward the short-term, cookie-cutter metrics Wall Street considers paramount will only alienate these people.

Google, an engineers' paradise famous for encouraging employees to spend 30% of their time working on ambitious pet projects, again provides a useful foil.

Yahoo!'s already-stifling posture would only be furthered by a greater orientation toward Wall Street. "We believe Yahoo!'s myopic focus on protecting its margins has come at the expense of technology investments, as evidenced by two consecutive quarters of R&D spending declines," writes Jeetil Patel, an analyst at Deutsche Bank, which has a banking relationship with Yahoo!

"In contrast, its competitors continue to aggressively spend on R&D and product innovation as a means of user growth," writes Patel.

That said, Sue Decker may demonstrate the makings of a fine Internet CEO over time, even if she is the first to come from a financial background. "Her's is not seen as the traditional background to come from, and when you are working with a board to find candidates, there is often the hope you will come up with a magic bullet," says Eric Jackson, CEO of consulting firm Jackson Leadership Systems and among the first to call Decker the odds-on favorite to succeed Semel.

"But all candidates have their strengths and weaknesses, and when you look at Decker, she is the top person from an internal perspective on balance."

That's why Yahoo!'s wait-and-see approach -- giving Decker a promotion and a good chunk of operational responsibility, without vaulting her to the top spot -- is the best of both worlds.
The position will test Decker's operational ability, leaving the door open to an outside CEO down the road if things don't work out. And it will give Decker, who is lately being noticed more and more, greater incentive to stay with Yahoo! in what promises to be an uphill battle.

The other piece of good news was that Yahoo! signaled that it would not be cutting any jobs, despite the Peanut Butter memo's pushing for one-in-five employees to be canned.
Instead, Semel wrote on the company's blog that Yahoo! was positioned for growth and would be hiring -- not firing -- in the near future.

While Wall Street often reacts positively to the cost-cutting that comes with layoffs, the announcement could prevent many Yahoo! employees who were previously afraid of losing their jobs from preemptively jumping ship.

And at a time when it's imperative for the company to deliver its new advertising platform, dubbed Project Panama, on time, Yahoo! needs those people more than it needs Wall Street.

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New Day for Yahoo!

Congratulations to Susan and the rest of the organization. They are a great company with a great future.

Reuters

Yahoo reorganizing, CFO Decker gets key role

Tuesday December 5, 11:45 pm ET By Eric Auchard

SAN FRANCISCO (Reuters) - Yahoo Inc. (NASDAQ:YHOO - News) on Tuesday announced a reorganization that marks Chief Financial Officer Susan Decker as a potential successor as CEO and simplifies its structure as it battles faster-growing rival Google.Decker, 44, will take the lead of a new unit focused on advertising, which is Yahoo's main source of income but has also seen growth slow in some areas. Media, communication, and other product groups will be merged into a unit focused on marketing and international businesses.

Chief Operating Officer Daniel Rosensweig, a possible rival to Decker for the mantle of successor to Chief Executive Terry Semel, will leave the company in March.

Also leaving is Yahoo Media Group chief Lloyd Braun, a former ABC TV executive hired two years ago to help Yahoo blend its Internet services with Hollywood-style showmanship.

Ushered in to help the company define a new hybrid that blended Hollywood and Silicon Valley, Yahoo was caught out by the explosive rise of video-sharing phenomenon YouTube, which was recently bought by Google Inc. (NASDAQ:GOOG - News) for $1.65 billion.

"This is just the beginning of what Yahoo needs to do," said RBC Capital Markets analyst Jordan Rohan in New York.

"It may take all of 2007. Change like this is evolutionary, not revolutionary. The new division heads will need time to grasp the enormity of the task at hand."

A spokeswoman said Yahoo does not publicly discuss its succession plans. Semel, 64, who is also Yahoo's chairman, has no plans to leave the company and is re-energized by the changes under way, she said.

SHIFT IN AD MARKET

Yahoo, a 12-year-old Internet pioneer, has struggled with a shift in the online ad market as corporate advertisers chase younger customers on new social networking sites such as MySpace and YouTube.

In its latest quarterly results, Yahoo posted a 37 percent drop in quarterly profit, prompting Semel to say he was not satisfied with the financial performance of the company.

Google, by contrast, said its profit nearly doubled as it tightened its grip on the online search market.

Shares of Yahoo are down about 30 percent this year, while Google shares are up about 17 percent.

Some of the details of the reorganization were prefigured in an internal memo written in October and leaked out in November, which was dubbed the "Peanut Butter Manifesto."

The memo argued Yahoo's investment strategy was like spreading peanut butter too thinly on bread -- and argued for "radical reorganization" and job cuts of 15 percent to 20 percent of Yahoo's 10,000 employees.

Yahoo said on Tuesday that no layoffs were planned in the restructuring. "As far as layoffs go, we are absolutely organizing for growth," Semel told Reuters in an interview to discuss the moves. "We continue to hire."

The company is reorganizing into two business segments: Audiences, which will oversee search, media and communication products and services, and Advertisers and Publishers, which makes money from ads aimed at the audiences. Yahoo's e-commerce business will join the ad group.

Decker, who will head the latter, was a top-ranked Wall Street media analyst, who joined Yahoo in 2000. She has emerged as one of Silicon Valley's most high-profile woman leaders.

As Yahoo moves to serve customers not only within its own network of properties but also via partnerships on other online properties, the need to restructure grew apparent, Semel said.

He pointed to high-profile advertising and Web services partnership deals Yahoo has struck in recent months with online auctioneer eBay Inc. (NASDAQ:EBAY - News), 170 U.S. daily newspapers and mobile phone powerhouse Vodafone (London:VOD.L - News) in Britain.

RBC's Rohan argues that Yahoo faces less competition from Google, but, like Google, it must become more nimble in order to grasp emerging opportunities on the Internet, where two- or three-year-old companies frequently set the industry's agenda.

"The competition with Google in search is done. Google won," Rohan said. "But Yahoo has a real audience advantage in everything except Web search," he said of its vast audiences for e-mail, instant messaging, news and other properties.

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