Compliance Week: The Rise of Online Shareholder Activism

By Jaclyn Jaeger — March 11, 2008

Shareholder activists have always been a thorn in the side of companies. Today, however, thanks to the Internet, they are a sharper and more potent thorn than ever before.

What particularly pangs companies is the casual manner in which some of these activists have been able to gain recognition toward their causes; online tools, such as e-mail, blogs, video Websites, and electronic shareholder forums have all made activist campaigns much more well-organized and visible forces to be reckoned with.

Just ask shareholder activist Eric Jackson. In less than 12 months, he has managed to oust the chief executive officers of both Yahoo and Motorola with a few thousand dollars and series of well-timed mouse clicks.

In the case of Motorola, Jackson says, good timing and media attention really helped promote his cause. Only two days after his “Plan B” campaign was launched, which included getting rid of CEO Ed Zander, the $43 billion company announced a poor quarter. The stock dropped, “and that got the media’s attention for the changes we were advocating,” he says.

Also helpful was the support among the Motorola community that the campaign generated. “We had a lot of internal Motorola employees, as well as ex-employees, who supported our group and culture changes, because they were concerned that the company wasn’t moving in the right direction,” Jackson says.

In November, five months after Jackson began his campaign, Zander stepped down, “which is roughly the same timing as what happened at Yahoo,” he says. “However, the company still has a lot of problems. They haven’t moved quickly enough on all fronts that we had suggested to really address them. I think it will take a couple of years to really turn that company around.”

Jackson adds: “What that campaign … showed me is that a lot of companies are poorly run and, therefore, could be targets for an activist campaign.” To further promote his cause, Jackson in February launched his own investment activist firm, Ironfire Capital. “So I’m now going to be heading these campaigns more and more frequently.”

SEC Weighs In

That sort of pronouncement from Jackson won’t thrill many companies. And it gets worse: Ever-more activists are following Jackson and using the Internet to state their case. And in a perfect example of “if you can’t beat ‘em, join ‘em,” the Securities and Exchange Commission has adopted final amendments to federal proxy rules to encourage the creation of, and participation in, company-sponsored electronic shareholder forums.

The amendments, which went into effect Feb. 25, are “intended to tap the potential of technology to help shareholders communicate with one another and express their concerns to companies in ways that could be more effective and less expensive,” SEC Chairman Christopher Cox remarked at the Commission’s Nov. 28 meeting.

The amendments clarify a few housekeeping details, such as when a comment on a company-sponsored forum would constitute a solicitation subject to proxy rules, and whether forum operators could be held liable under federal securities law for any statements participants in the forum make. (Generally speaking, the answer will now be “rarely” for both concerns.)

Overall, the majority of comment letters received by the SEC expressed favor toward such electronic shareholder forums. “We believe that a system that can facilitate increased dialogue between investors and a company’s management helps to build investor confidence through increased understanding of the company’s policies and operations and management’s awareness of shareholder concerns,” Martha Carter of RiskMetrics Group wrote in one letter.

Carter went on to say that RiskMetrics opposed substituting such forums for the current means of presenting non-binding shareholder proposals in the company’s proxy statement. “While electronic forums are useful as a supplement to the current shareholder proposal process, they are not a replacement for procedures that have successfully been in place for decades,” she wrote. “Part of the value in allowing shareholders to vote on non-binding shareholder proposals is in the information that the proposals and, more importantly, the vote results convey to the company.”

Several other comment letters expressed similar concerns. As noted in a comment letter from the California Public Employee Retirement System, General Counsel Peter Mixon wrote: “CalPERS believes that non-binding shareowner proposals are too important to the corporate and shareowner community to be replaced with an unproven chat-room concept.”

Another comment letter by the Calvert Group, a $15 billion socially responsible investment fund, noted that electronic forums would not adequately replace the focus and structure that current advisory resolution processes allow, especially given that “an electronic chat room is an idea with a number of unanswered questions.”

The letter continued: “It is difficult to imagine a Web-based chat room providing a focused discussion or debate on an issue of importance. Such a forum would likely lead to unmanaged discussions that provide little guidance to corporate management or a board in regard to shareholder sentiment.”

In response, the final rule spells out that electronic shareholder forums are an additional, rather than a substitute, means of shareholder communication.

Glorified Chat Rooms

Many companies also worry that company-sponsored electronic shareholder forums will be nothing more than what is seen on a Yahoo Finance message board, where shareholders just complain and use the chat room as an opportunity to take potshots at management and the board, Jackson says. “Obviously, that would be a lost opportunity if that’s all that they were,” he adds.

Jackson says he hopes such forums will raise “real concerns and questions” that generate positive responses from management over investor concerns. “That hasn’t really happened yet. I hope there are some early success stories that will inspire other companies to follow suit.”

Jackson likens companies’ fears of electronic shareholder forums to the advent of blogs. “When blogs first appeared I think a lot of companies were worried that they couldn’t control the message and that you would have a lot of people getting on blogs and criticizing the company, and they didn’t want that to happen,” he says.

On the other hand, he says, companies that did embrace blogs—even the ones that were criticized—eventually gained a lot of credibility in the eyes of the users, because the blogs ended up leading to useful dialogue. “I think the same could happen here,” he says.

That doesn’t mean that companies should give in to every shareholder demand. “Just because you’re a shareholder doesn’t mean you have the right idea of how a company should be run,” he says. “I think companies are smart to be critical of the ideas that are brought forward to it” but still remain open-minded to ideas that have value.

That open-mindedness will be particularly beneficial as online shareholder activism continues to grow. In fact, Jackson predicts that future online forums will include not only questions and answers among companies and shareholders, but also include features like campaign-style political ads on sites like YouTube in relation to upcoming shareholder votes.

“It’s going to be exciting. I think there is going to be much more interactivity between shareholders, in general, but especially individual shareholders and larger companies that people certainly would not have thought possible five years ago,” he says. “I’m going to be interested to see—and I know the SEC will be, too—just how successful these early adopters are.”

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ISS Governance Weekly: The Power of Protest Votes

From the recent "Governance Weekly" newsletter put out by the ISS:

By Ted Allen, Director of Publications

The resignation of CEO Terry Semel at Yahoo! this week is the latest example of the growing power that investors wield with “withhold” and “against” votes in board elections.

“Shareholders used to be quite reluctant to vote no,” Amy Borrus, deputy director of the Council of Institutional Investors (CII), told Governance Weekly. “Shareholders are becoming more emboldened and more willing to hold directors personally accountable for their performance.”

Semel stepped down June 18, less than a week after at least one director received 34 percent opposition, in part because of a “vote-no” campaign by investor Eric Jackson. The Internet company hasn’t released specific vote totals, but news reports indicate that all board members were elected with at least 66 percent support. That was significantly less than last year, when all the directors received more than 98 percent support.

Jackson and other shareholders complained that Semel’s generous pay package wasn’t justified by the company’s lagging shares, which fell almost 10 percent in the past year, while rival Google's increased by more than 30 percent. In 2006, Semel received an estimated $107.5 million pay package, which included 6 million stock options, according to ISS data.

While the shareholder opposition wasn’t the only reason for Yahoo’s CEO change, the negative votes at the June 12 annual meeting appear to be the final straw that persuaded the board to replace Semel with Jerry Yang, one of Yahoo’s founders. Semel will remain at the Sunnyvale, California-based firm as chairman.

Traditionally, the act of withholding support in an uncontested director election has been viewed by investors as a symbolic protest. While the importance of board elections has increased in the past year as scores of firms, including Yahoo, have adopted majority voting and/or resignation policies, very few directors at U.S. companies ever get more than 50 percent opposition. Last year, just eight directors out of more than 31,000 on corporate ballots failed to receive majority support, according to ISS data.

The vote at Yahoo is further evidence that a significant (but less than a majority) negative vote can prod companies to make management and governance changes. At Home Depot, labor funds and other shareholders withheld more than 30 percent support from 10 directors last year amid criticism of CEO Robert Nardelli's compensation. In January, the company replaced Nardelli and announced several pay reforms.

Last May, the California Public Employees’ Retirement System (CalPERS) and other shareholders withheld 28 percent support from two compensation committee members at UnitedHealth Group. The investors targeted the directors after the health insurance company disclosed that CEO William McGuire held $1.6 billion in unexercised stock options, including options dated when the company's shares were at quarterly lows. McGuire announced his departure in October.

In perhaps the most famous example of a successful vote-no campaign, a coalition of public pension funds and other investors withheld 45 percent support from Walt Disney CEO Michael Eisner in 2004, prompting the board to strip him of his chairman title.

The vote at Yahoo may also persuade other investors at other firms that protest efforts can have an impact. Jackson, who owns 45 Yahoo shares, recalled that his campaign was initially derided by some investors as “futile” and “useless.”

“I do think this is a signal to all shareholders, large and small, that they shouldn't be shy,” Jackson told Governance Weekly. “They should articulate their views.”

Michael Garland, director of value strategies at the CtW Investment Group, which manages labor funds, said a CtW study of 2006 voting found that some large mutual fund companies are starting to vote against directors in certain cases. “It's changing and it's progress,” he noted, which he attributed in part to the funds having to disclose their votes.

Close Vote at CVS/Caremark

In addition to the Yahoo vote, there have been other notable negative votes this season. At CVS/Caremark, Roger Headrick received a 42.7 percent “against” vote amid criticism over his role as a Caremark director in approving the pharmacy-benefits company’s sale to CVS earlier this year. A second director received 33.4 percent opposition.

The CtW Investment Group has called for Headrick's resignation and argues that he would have failed to get a majority of votes cast (which is now required for election at CVS) had uninstructed “broker votes” been excluded. CalPERS has urged the board to “strongly consider” asking Headrick to step down, while CII and North Carolina Treasurer Richard Moore have requested that the company disclose the number of broker votes cast for Headrick.

CVS/Caremark officials, which have said the “broker votes were spread among the votes cast for and against the directors,” have stood by Headrick and not disclosed that number.

CtW's Garland criticized CVS/Caremark for failing to respond to the vote, recalling that Disney's board took action “within hours” of the vote against Eisner in 2004. Given that CVS/Caremark now has majority voting, Garland said the board can't dismiss the vote as a symbolic protest.

“At CVS, the intent was not ambiguous; shareholders knew that they were voting against Headrick,” Garland told Governance Weekly.

Meanwhile, CtW, CII, and other investor advocates are pointing to the close CVS/Caremark vote to build support for a proposed New York Stock Exchange rule to bar broker votes from uncontested director elections. These advocates contend that broker votes are routinely cast in favor of management nominees and “taint the integrity” of director elections.

That rule, which is to take effect Jan. 1, 2008, requires the approval of the Securities and Exchange Commission, which held a roundtable on the issue last month. Borrus of CII said the importance of voting in director elections will only increase if the SEC approves the NYSE rule change. “With the SEC taking action, all these votes on directors will become front and center,” she said.

So far, it’s not possible to determine the full extent of withhold votes this year, since many companies don’t immediately release vote results for specific directors. While firms typically report that every director was reelected, just a few companies provide a detailed breakdown of votes in board elections before filing their quarterly 10-Q reports. Based on the limited results that are available, it appears that many investors are no longer reluctant to use director votes to protest company practices. (On the other hand, some governance observers expect that protest voting will decrease in the future as more firms adopt majority voting and shareholders realize that their votes could bar a board nominee from taking office.)

Compensation Concerns

For the second year in a row, it appears that compensation concerns are generating significant “no” votes. At Occidental Petroleum, six compensation committee members received more than 34 percent opposition amid investor complaints over CEO Ray Irani’s pay package. That negative vote was even higher than last season, when four pay panel members received 20 to 21 percent withhold votes. Irani received a $62 million pay package in 2006; The Wall Street Journal estimated that exercised stock options helped increase his total compensation to $416 million.

Irani also serves on the board at KB Home, where he received 19.3 percent opposition. CalPERS was among the investors that voted against Irani, who chaired the home builder’s compensation committee during a period when stock option grants were improperly dated. Three other directors received withhold votes that ranged from 15 to 19 percent.

Past stock option problems have led to significant shareholder opposition at other companies. At Brocade Communications, investors withheld 42.7 percent support from Sanjay Vaswani, who joined the board in 2004 and now serves on the compensation committee. Former CEO Gregory Reyes went on trial this week on securities fraud charges and is accused of misleading investors about backdated options from 2000 to 2004. Reyes has pleaded not guilty. The company’s board also has not responded to a majority-supported shareholder proposal that seeks to abolish supermajority requirements.

Like Yahoo shareholders, investors have voted against directors at other companies to express concerns that CEO pay doesn’t reflect corporate performance. At homebuilder Toll Brothers, Carl Marbach, who chairs the compensation committee, received a 25 percent withhold vote after the Laborers’ International Union of North America and the Amalgamated Bank mounted a vote-no campaign. The two labor investors complained that CEO Robert Toll received $28 million in 2006, while profits fell almost 15 percent.

At electronics manufacturer Solectron, four pay panel members received more than 26 percent opposition. In 2006, CEO Michael R. Cannon received a 170 percent pay increase, while the company’s shares declined 23 percent.

Failure to Respond to Shareholder Proposals

In recent years, a significant number of shareholders have opposed directors who fail to respond to investor proposals that get majority support. In 2006, directors at five S&P 500 firms received more than 20 percent withhold votes after not acting on majority-backed proposals.

This season, six directors at FirstEnergy received 32 to 42 percent opposition after they failed to implement a shareholder proposal to rescind supermajority voting requirements. That resolution received 73 percent investor support last year and also got majority backing in 2005.
Likewise, two International Paper directors received 25 percent and 38 percent negative votes, respectively, after the company did not adopt annual elections for all directors, as requested by a shareholder proposal that won almost 80 percent support last year.

At Peabody Energy, five directors received 24.2 to 27.9 percent withhold votes after failing to act on a majority-supported proposal that seeks annual elections for all directors.

Other Notable Votes

At apparel marketer Kellwood, Jerry Hunter received a 48.9 percent withhold vote at the company’s June 7 meeting. He was opposed by CalPERS, which questioned his independence and noted that he received a 51 percent negative vote when he last was on the ballot in 2005. Hunter, who serves on the compensation committee, is a partner in a law firm that provided more than $86,000 in legal services to the Missouri-based company last year.

One director at Penn National Gaming received a 36 percent withhold vote, while another had 32.7 percent opposition, according to UNITE HERE, which led a vote-no campaign. The union, which represents hotel and casino workers, opposed three incentive plans proposed by management and criticized the board's maintenance of a “dead-hand” poison pill defense that can't be undone by future directors.

At the New York Times Co., the four directors who are elected by public shareholders received 42 percent withhold votes. Morgan Stanley Investment Management and other investors opposed the directors for a second year to protest the newspaper company’s dual-class equity structure. In 2006, those directors received 30 percent opposition.

Not all high-profile vote-no campaigns received wide support this year. At ExxonMobil, a coalition of 17 institutions, including state pension funds and proponents of socially responsible investing, opposed Michael Boskin, who chairs the company’s public issues committee. While news reports indicated that Boskin received 7 percent opposition, that was less than the 20 percent votes against three compensation committee members last year as investors protested former CEO Lee Raymond's $98.4 million retirement package.

At Verizon Communications, the AFL-CIO and two communications workers' groups waged a vote-no campaign against the compensation committee over the pay received by CEO Ivan Seidenberg. While the company hasn't released specific board vote totals, Verizon did report that all the directors were elected with at least 90 percent support.

Staff Writer L. Reed Walton contributed to this article. Unless otherwise stated, the vote results in this article are drawn from company quarterly filings or press releases.

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Business News Network Interview: Mutiny at Yahoo!

I was interviewed today by former CNBCer Pat Bolland on Canada's Business News Network on the whole Yahoo! "Plan B" Campaign.

Here is a link to the 6 minute interview.

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TheStreet.com: Grass-Roots Activist: Yahoo! Just the Start

From this morning's TheStreet.com:

To watch the video news clip of this article on TheStreet.com TV, click here.

By Brett Arends
Mutual Funds Columnist
6/22/2007 7:16 AM EDT
Click here for more stories by Brett Arends

Look out, high-tech fat cats. Eric Jackson, the private investor and blogger who helped bring down Yahoo!'s (YHOO - Cramer's Take - Stockpickr - Rating) Terry Semel, is turning his sights on other underperforming CEOs.

"I have a list, and I'll be taking action," he tells me. "There are a number of other companies that are ripe for the same kind of approach. This won't end with Yahoo!"

He's naming no names, though he says several of his possible targets are "mid-cap tech companies."

After taking on the board at Yahoo!, which has a market cap of $37 billion, that should be a breeze.

Semel stepped down this week after a remarkable shareholder revolt at last week's annual meeting. The board suffered a major humiliation after one-third of the votes were cast against management on some ballots.

Yes, as with all such issues, Semel's was finally decided by the big institutional investors. And yes, the ultimate factor was Yahoo!'s lackluster performance in the last few years.

But none of that might have coalesced into a coup without the grassroots campaign to bring change.

And what made this revolt unusual was the way small shareholders were able to use blogs, online videos and other "netroots" tools to start the ball rolling and build up momentum.

Thanks to the Web, small shareholders didn't have to sit around in frustration waiting for fat cats to act. They could push things along.

Principal among them was Jackson, a business consultant with his own firm in Naples, Fla. He even made a pitch to other shareholders via YouTube.

Jackson says his campaign techniques weren't just inspired by past proxy battles waged by top financiers but also by recent "netroots" political campaigns. "I took my inspiration from the likes of Carl Icahn, but also from the likes of Howard Dean and Ned Lamont," he said. "We used YouTube and blogs and wikis. We used the Internet and the blogs to come out of nowhere and build support at the grassroots level."

It was a fitting end for Semel. During his tenure from 2001 to 2007, he had missed out on whole swathes of new developments on the Internet, from Google (GOOG - Cramer's Take - Stockpickr - Rating) to Wikipedia to social networking sites such as MySpace. In the end he was brought down by an online revolt he never saw coming.

"I don't think anyone would have predicted this outcome a few months ago," says Jackson. At the start of his campaign, he remembers, Semel's defenders mocked it. "Words like 'feeble' and 'useless' were used," he recalls.

His takeaway from it all now? "In the age of the Internet, the best ideas will rise to the top. It doesn't matter how large or small you are. If you can put together a compelling argument and bring others together, you can have a voice."

The video clip of this article, from TheStreet.com TV, is here.

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PaidContent: Yahoo CEO May Face Dissenting Shareholders At AGM On Tuesday

From today's PaidContent.org:

By Rafat Ali - Sun 10 Jun 2007 10:43 PM PST

Terry Semel will surely face some tough questions from investors at its annual general meeting this Tuesday. Not much will happen with these protest, but at least one activist investor believes it could add momentum to campaigns to overhaul its executives and replace Semel, reports WSJ.

Among the gripes: Semel’s annual salary, in face of continued stock and performance decline for the company. Semel’s total compensation last year of $71.7 million put him at the top of the list of highest-paid CEOs at Standard & Poor’s 500 companies that have filed with regulators this year, according to an AP analysis of the filings.

AP: “The company is drifting,” said Eric Jackson, who intends to confront Semel during the meeting on behalf of about 80 Yahoo stockholders who own a combined 2 million shares (about 0.2 percent of Yahoo’s outstanding stock) in the company. “And its problems ultimately lie at Terry’s feet.” Besides pushing for Semel’s ouster, Jackson’s group believes six other directors on Yahoo’s 10-member board should be bounced: Roy Bostock, Ron Burkle, Eric Hippeau, Arthur Kern, Robert Kotick, and Gary Wilson. Only Yahoo co-founder Jerry Yang, HP executive Vyomesh Joshi and Ed Kozel, CEO of Silicon Valley startup Skyrider Inc., have done enough to remain on the board, Jackson contends. Lots more details in the AP story.

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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 YouChoose.net, 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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Yahoo! "Plan B" Campaign Ad #2

Why is it important to vote "Withhold" for 7 Yahoo! directors at the upcoming May annual meeting of shareholders? Watch the following campaign ad.

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Yahoo! "Plan B" Campaign Ad #1

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TechCrunch: Yahoo's Terry Semel: Call for His Head

From Monday's TechCrunch, by Michael Arrington: (Note: The large majority of comments are quite supportive and shocked at the size of Mr. Semel's compensation for the past 6 years of work.)

Seeking Alpha has a long story outlining Yahoo CEO Terry Semel’s failings since his hiring in 2001, and basically calls for his head on a platter. The bottom line: Google has grown its shareholder value 21 times more efficiently than Yahoo during the time Semel has been at the company. Semel supporters point out the Yahoo did buy Overture, keeping them in the game, but others note that Semel had the opportunity to buy Google instead for $3 billion or so in 2002 (Yahoo also didn’t buy YouTube or MySpace when the opportunity came up). The article also mentions Semel’s total compensation over the last 5 years - $550 million.

Panama is off to a brisk and surprisingly strong start (more on this in an upcoming post). Forgetting Semel for a moment, it may be the single most important factor keeping Yahoo an independent company in the near term. It also might be the product that allows Semel to keep his job, or at least make a graceful exit later this year.

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Yahoo PR Spin

It was predictable that the Yahoo! corporate PR department would shift into high-gear to defend Terry Semel in the wake of yesterday's finalized "Plan B" which was submitted to them.

When they were able to finally get back to Riva Richmond of Dow Jones last night at 11:03pm with a response to her question about their reaction to "Plan B," they stated that the company has:

"a clear strategy to create shareholder value," through aggressive pursuit of its ongoing efforts to improve its ability to make money from search advertising, expand its lead in display advertising and secure leads in emerging areas like social media, video and mobile services.

"Under Terry Semel's leadership over the past five years, Yahoo! has achieved tremendous growth, consistent profitability and impressive returns for shareholders, with our stock price rising four fold, " she said. "As the Internet continues to grow and evolve rapidly, Yahoo! is in a strong competitive position to be a leader in this transformation and to capitalize on the huge growth opportunities ahead for the Internet. We intend to do just that."

Yahoo!'s stock price is up 4 times from its $7 all-time low. However, that low was hit under Mr. Semel's leadership. To be completely accurate, Yahoo! should acknowledge that, from Mr. Semel's May 1, 2001, start date, Yahoo!'s stock is up 229% through yesterday's close.

Here's an excerpt from the finalized "Plan B" on why that 229% is not acceptable, given what return Yahoo! shareholders should have received:

Terry Semel and his defenders will argue that Yahoo!’s stock price has gone up 227% since his start date of May 1, 2001 through today. However, if you properly analyze his tenure, there have been three distinct periods:

May 2001 – December 2002: Yahoo! drops 7% in value.

January 2003 – December 2004: Yahoo! grows by 355% in value.

January 2005 – Present: Yahoo! drops 14% in value.

There has only been one period in which Yahoo!’s valuation has increased under Terry Semel’s watch and we would argue that this had to do with a general recovery in the Internet Advertising market, which benefited Yahoo! and its two main rivals – Google and Microsoft – during this time. The rising tide lifted all boats/companies which were dependent on the ad market for the majorities of their revenues. As Yahoo! also had amassed enough cash before Mr. Semel’s arrival, it had the fortitude to go through the Internet Advertising drought which claimed the lives of many pre-Bubble competitors (e.g., Excite, Lycos, etc.). The only credible remaining search players post-Bubble were Yahoo!, Google, and Microsoft and advertising dollars could only go to these three players after the general market recovery began to happen. Yahoo! benefited from this rising tide (especially in display ads), for a while.

Yahoo!’s market share has been flat and steadily eroding over the past 4 years, while Google’s has dramatically accelerated. Yahoo! had a 28.9% share in February 2003 (according to Neilsen NetRatings[10]), compared to 29.5% for Google. However, Yahoo!’s share had dropped to 19.5% as of December 2006, and Google’s had increased to 65.4% (according to Bank of America Equity Research). The total ad market has increased from $1.4B in 2002[11] to $15B annually today (and growing at 50% per annum)[12]. Had Yahoo!, under Terry Semel, been able to grow its share to even 30% today, Yahoo! shareholders would have received an additional $1.6B in revenues last year – or 25% higher than their reported $6.4B in revenues, but still well below Google’s $10.6B in revenues last year.

The bottom line is that – in the most relevant and direct comparison to its arch-rival, Google – since Google’s IPO in August 2004 through today, Google’s stock price is up 336% versus Yahoo!’s stock price being up only 16%. Google has grown its shareholder value 21 times more efficiently than Yahoo! over this time period, when the Internet ad market has been booming. We don’t believe that any CEO should keep his/her job when your #1 competitor is 21 times as successful as you over an extended period of time.

Conclusion: Yahoo!’s board needs to immediately remove Mr. Semel – who is 64 – and begin a search process to find a new Chairman and CEO. This Chairman and CEO search should examine all qualified internal and external candidates.

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Yahoo Shareholders Submit "Plan B"

From yesterday's BusinessWeek.com /AP by Riva Richmond of Dow Jones:

Eric Jackson, the minor Yahoo Inc. shareholder who has been leading a Web effort to organize dissident investors, on Friday submitted the group's strategic "Plan B" for the company while also nominating himself to the board.

Jackson, who owns only 45 Yahoo shares, said he delivered the plan to Yahoo and intends to present it at the company's annual meeting in May. He also submitted a formal request to have his name added to the slate of potential directors up for vote at that meeting. Yahoo didn't immediately respond to a request for comment.

Using community-building tools that have grown popular on the Web, Jackson has assembled a group of shareholders -- who together own 911,666 Yahoo shares worth about $29 million -- to push for the plan. His organizing drive began in early January and has employed a blog, YouTube video appeals and a wiki, a collaborative Web site that allows supporters to take part in creating the alternative strategic plan.

Jackson said he has lobbied half of Yahoo's largest institutional holders to join the group.
"While none will publicly support our Plan B, they all have vowed to review it thoroughly and vote independently," Jackson wrote on his Breakout Performance blog Friday.

Jackson announced the finalized plan online beside a picture of Martin Luther King Jr. delivering the "I Have a Dream" speech. In a YouTube video, he promised to "campaign" for the plan by using the Web, since he doesn't have the funds to wage a traditional proxy fight, which he said would cost $200,000.

"I'll be kissing some babies. I'll be kissing some gray-haired money managers," Jackson said.

The group's nine-point plan calls for Terry Semel to be replaced as chairman and chief executive, citing "strategic missteps" that include his failure to acquire Google Inc. in 2002. The plan also faults Semel for loss of search-market share to Google and outsized compensation despite a 14 percent share-price decline since January 2005.

The plan also calls for the ouster of six other directors, the shuttering of Yahoo's media group and Los Angeles offices, additional investment in technology research and development, reduced product overlaps, pay-for-performance compensation for managers, stepped-up stock buybacks, a cash dividend, and elimination of antitakeover measures.

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Yahoo Gets a Copy of Jackson's Plan B

From yesterday's Globe & Mail and WebProNews by Mathew Ingram. It's also on Mathew's blog.

Like many shareholders of Yahoo — whose stock has climbed somewhat in the past few months, but is still well below where it was at the beginning of last year — blogger and management consultant Eric Jackson has been less than pleased with the company’s performance over the past year or so.

Although the Internet “portal” and search company has finally rolled out enhancements to its search-related advertising system, in an attempt to compete with the more successful platform run by you-know-who (hint: it starts with a G), Yahoo is still seen by many as lagging when it comes to its online strategy, or perhaps lacking one altogether. But rather than just complain, Mr. Jackson wrote a blog post back in January in which he tried to rally other disgruntled shareholders to his cause.

He described a refocused strategy for Yahoo that he called Plan B (including the removal of Terry Semel as CEO), and posted a video of himself outlining the idea to both his blog and to YouTube. As he put it in his original post

“Yahoo! is drifting; and its board and management have been too slow to act to this fundamental problem. As shareholders, we don’t have to sit by and watch this. Activist Investing has principally been the domain of hedge funds — well, no longer. With the help of the web, blogs, and wikis, I’m asking all current and future retail investors in Yahoo! to join me in pushing for a change.”

Eric’s campaign has been written about at TheStreet.com and the Internet Outsider blog, which belongs to former Wall Street technology analyst Henry Blodget, as well as Red Herring magazine.

And over the past couple of months, he has gotten a substantial amount of support from other Yahoo shareholders, including a couple of fairly large institutional shareholders whom he says would rather remain anonymous. In all, he says he has $29-million worth of Yahoo stock behind him, and recently filed the required papers to be nominated for the company’s board of directors.

“Some have told me I will need $200,000 to run a “proxy contest” to get elected to the Yahoo! board and — even with that — the odds are stacked against us, as most institutional shareholders tend to be “pro-management,” he says on his blog. “I don’t have $200,000, but I have a love for Yahoo!, the great employees who work there, and we have a plan that has merit — thanks to your input.”

Best of luck, Eric.

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Finalized "Plan B" Sent to Yahoo! Today

Today, I submitted a finalized version of our "Plan B" for Yahoo! to their Corporate Secretary as nine points of business that I will ask to bring forward at this May's Yahoo! annual meeting of shareholders.

As you know, on January 7th, I first asked fellow Yahoo! shareholders to contribute your ideas towards a "Plan B" that we could present as an alternative to Yahoo!'s Board, Management, and Shareholders. You have responded with very thoughtful and creative advice, as well as with your support of the Yahoo! common shares you own.

I have spoken to half of Yahoo!'s largest institutional holders since then and, while none will publicly support our "Plan B," they all have vowed to review it thoroughly and vote independently. All acknowledge that they are aware that Google has performed 21 times as well as Yahoo! since Google's August 2004 IPO (+336% vs. +16%).

As of this morning, our group of stockholders collectively owns 911,666 shares worth $29MM. We aim to grow that group between now and the May annual meeting.

Today, I also put my name forward to the Yahoo! Corporate Secretary to be included on the slate of possible directors to be elected at the annual meeting by shareholders. I am running on this "Plan B" and because of your support.

Some have told me I will need $200,000 to run a "proxy contest" to get elected to the Yahoo! board and -- even with that -- the odds are stacked against us, as most institutional shareholders tend to be "pro-management." I don't have $200,000, but I have a love for Yahoo!, the great employees who work there, and we have a plan that has merit -- thanks to your input. We'll see what happens.

Thanks again for your support. Here's the plan....

Finalized Version of "Plan B":

1. Terry Semel should be Immediately Replaced as Yahoo!’s Chairman and CEO

We believe that Yahoo! requires a new Chairman and CEO and Terry Semel no longer deserves these key two jobs.

During his tenure, Terry Semel has made the following strategic missteps:

· Failing to buy Google in 2002. Mr. Semel claims that he could have done this in 2002 for $3B[1]. It would have been a bargain, compared to Google’s current $144B market capitalization today.

· Destruction of Yahoo! Shareholder Value in Past 2 Years. Yahoo!’s stock price is down 7% for the past 2 years, compared to Google’s 151% increase and NASDAQ’s 20% increase over that same time period. This decrease for Yahoo! still includes the 14% increase in its stock price since our “Plan B” campaign of shining a light on Yahoo!’s underperformance which began on January 7th, 2007.

· Continued Loss of Share in Search. While Yahoo! has hastily pushed out the new Panama platform in the last month, partly in response to criticism from our stockholder group and other critics, there is no denying that it has lost critical momentum and share in the battle for search advertising dollars. In fact, according to numbers from Banc of America Analyst Brian Pitz, Yahoo! lost share faster than Microsoft in the last quarter and year vis-à-vis Google.[2] Even with a better ad platform running, more and more users are turning away from Yahoo! for their search needs.

· Costly creation of Yahoo! Media Group and Burbank Campus. This entire investment has been a write-off for Yahoo!’s shareholders. Lloyd Braun was hired to lead this group in November 15, 2004.[3] The company announced it was setting up stakes in Burbank on January 15, 2005.[4] Braun left Yahoo! on December 6, 2006.

· Missing the Need to Overhaul the Overture Platform at a Critical Time in its Drive to Compete with Google. According to Fred Vogelstein’s Wired article last month: “When Yahoo decided it was going to buy Overture in 2002, Overture dominated search-related advertising; its revenue was two times Google's. By the time the deal was actually announced in 2003, the two companies were neck and neck. Two years later, Google's revenue was 2.5 times Overture's.”[5]

· Failing to buy YouTube in 2006. Google purchased this in late 2006 and Yahoo! has yet to define a credible video offereing.

· Failing to buy MySpace in 2005. MySpace recently surpassed Yahoo! for total page views.[6]

· Outsized Compensation for Small Shareholder Return. Mr. Semel’s first 4 years’ total compensation was $258.29MM[7]. In 2005, he received $56.8MM in compensation[8]. According to the 2006 proxy, Mr. Semel had $235MM in unexercised stock options, for a total of $550MM in total compensation, to date.[9]

Bob Nardelli started as CEO of Home Depot on December 1, 2000, and collected approximately $300MM in compensation for his 6 year tenure with a $210MM severance package. Thus, his combined compensation for his time at Home Depot was $510MM. Terry Semel is already ahead of Mr. Nardelli, before mr. Semel receives any severance/retirement package.

Last June, Yahoo!'s compensation committee set Mr. Semel's annual salary to $1 for the next 3 years. However, it included an annual grant of 1MM shares (which would amount to approximately $30MM at today's stock price) with further options that can be exercised above $31. A guaranteed $30MM a year is not the same as being paid $1.

Terry Semel and his defenders will argue that Yahoo!’s stock price has gone up 227% since his start date of May 1, 2001 through today. However, if you properly analyze his tenure, there have been three distinct periods:

May 2001 – December 2002: Yahoo! drops 7% in value.
January 2003 – December 2004: Yahoo! grows by 355% in value.
January 2005 – Present: Yahoo! drops 14% in value.

There has only been one period in which Yahoo!’s valuation has increased under Terry Semel’s watch and we would argue that this had to do with a general recovery in the Internet Advertising market, which benefited Yahoo! and its two main rivals – Google and Microsoft – during this time. The rising tide lifted all boats/companies which were dependent on the ad market for the majorities of their revenues. As Yahoo! also had amassed enough cash before Mr. Semel’s arrival, it had the fortitude to go through the Internet Advertising drought which claimed the lives of many pre-Bubble competitors (e.g., Excite, Lycos, etc.). The only credible remaining search players post-Bubble were Yahoo!, Google, and Microsoft and advertising dollars could only go to these three players after the general market recovery began to happen. Yahoo! benefited from this rising tide (especially in display ads), for a while.

Yahoo!’s market share has been flat and steadily eroding over the past 4 years, while Google’s has dramatically accelerated. Yahoo! had a 28.9% share in February 2003 (according to Neilsen NetRatings[10]), compared to 29.5% for Google. However, Yahoo!’s share had dropped to 19.5% as of December 2006, and Google’s had increased to 65.4% (according to Bank of America Equity Research). The total ad market has increased from $1.4B in 2002[11] to $15B annually today (and growing at 50% per annum)[12]. Had Yahoo!, under Terry Semel, been able to grow its share to even 30% today, Yahoo! shareholders would have received an additional $1.6B in revenues last year – or 25% higher than their reported $6.4B in revenues, but still well below Google’s $10.6B in revenues last year.

The bottom line is that – in the most relevant and direct comparison to its arch-rival, Google – since Google’s IPO in August 2004 through today, Google’s stock price is up 336% versus Yahoo!’s stock price being up only 16%. Google has grown its shareholder value 21 times more efficiently than Yahoo! over this time period, when the Internet ad market has been booming. We don’t believe that any CEO should keep his/her job when your #1 competitor is 21 times as successful as you over an extended period of time.

Conclusion: Yahoo!’s board needs to immediately remove Mr. Semel – who is 64 – and begin a search process to find a new Chairman and CEO. This Chairman and CEO search should examine all qualified internal and external candidates.

2. Terry Semel, Robert Kotick, Roy Bostock, Ron Burkle, Eric Hippeau, Arthur Kern, and Gary Wilson should be Immediately Replaced on Yahoo!’s Board of Directors.

Terry Semel ultimately reports to Yahoo!’s board of directors. The board must be held accountable for the numerous missteps outlined above. Of the 10 directors, we believe 7 should resign or Yahoo! shareholders should withhold votes for them at Yahoo!’s 2007 annual meeting of shareholders.

We are in favor of only Jerry Yang (a Yahoo! co-founder), Ed Kozel, and Vyomesh Joshi returning. The latter two recently purchased shares directly in Yahoo!, while the other Yahoo! directors have only exercised stock options of late.

3. Shutter the Yahoo! Media Group and campus in Los Angeles.

The Yahoo! Media Group has been a failure. There are no meaningful outputs from the group to speak of which have had any positive shareholder value-creating impact. Yahoo! shareholders should not incur additional investments in this group and repatriate key employees back to Sunnyvale, while eliminating other positions.

4. Make additional R&D investments in the Technology Group.

"Plan B" is about accountability to Yahoo! shareholders. The last two years have not delivered the appropriate value to shareholders compared to Yahoo!'s competitors. Partly, this is due slowness to respond in the technical area of the business. While we continue to think that the company has some of the most talented engineers in the tech world, we believe that improvements need to be made within the Technology Group. Cost savings from shuttering Yahoo! Media Group and other internal efficiencies (see next point below) should be plowed back into R&D investment in the underlying Yahoo! Technology Group.

5. Reduce Overlapping Internal Divisions within the Company.

The Peanut Butter Manifesto[13] was one of the first internal recognitions that more efficiencies could be created within Yahoo! from streamlining the various groups. The del.icio.us group (coming from an external acquisition) is still a distinct group from the home-grown MyWeb. Flickr (another external acquisition) is still a distinct group from the original Yahoo! MyPhotos group. No justification can be made from keeping them as separate internal groups. This must be corrected immediately to improve the profitability of the organization. It would also help to clarify who, within Yahoo!, has distinct ownership and accountability for key deliverables – most notably as head of the Audience Group.

6. Institute a ‘Pay-for-Performance’ Plan for all Yahoo! Management.

At the same time as the new CEO is hired, the Yahoo! board should introduce a ‘pay-for-performance’ plan for all Yahoo! management. Bonuses should be tied to preset goals for increases in revenues, cash flow, and EPS.

7. Step up the Pace of the $3B Stock Repurchase Plan Announced in October 2006.
In October 2006, in conjunction with its disappointing Q3 earnings, Yahoo! announced that its board had authorized a $3B stock repurchase over the next 5 years.[14] Yahoo!'s stock price bottomed out this same day at just under $23. The stock is up over 14% since we first announced our "Plan B" for shareholder value creation on January 7, 2007. We believe that there is considerable upside in the company's valuation – especially if the points in this plan are enacted. Therefore, we strongly wish to see evidence that the board of directors is accelerating the share repurchase now, rather than when the stock increases in value substantially further months down the road.

8. Begin a Modest Cash Dividend Immediately.

Fast-growing companies like Yahoo! typically pay no dividend, in favor of spending all cash on internal growth purposes (e.g., R&D). However, examples of tech companies growing and paying a dividend include National Semi, TI, and HP. Yahoo! needs to use its $3B cash position wisely to effectively compete and succeed for the long-term. Yahoo! should introduce an immediate annual dividend of 5 cents a share, which would only amount to $40MM a year (therfore, not inhibiting the company's ability to compete effectively). More important than the cash to shareholders (which does increase value in and of itself), the dividend would be an additional discipline to Yahoo! management to spend its cash wisely. It would also symbolize management's confidence in the business, moving forward, that it will plan for and can sustain this dividend to shareholders.

9. Remove Anti-Takeover Provisions which are not Shareholder-Friendly.

In the most recent Yahoo! 10-Q filing with the SEC[15], the final Risk Factor facing the company cited is: “Anti-takeover provisions could make it more difficult for a third party to acquire us.” The filing goes on to detail how the board of directors can thwart a takeover of the company by diluting shareholders, if necessary. These anti-takeover provisions are not shareholder-friendly. They do not serve shareholders' interests, but management's. They should be swept aside immediately.

[1] http://www.newyorker.com/videos/060511onvi_video_semel
[2] According to Pitz: “In December 2006, worldwide search query share for Google was 65.4% (+51 bps M/M, +294 bps Q/Q, +647 bps Y/Y), compared to Yahoo!’s search share of 19.5% (+24 bps M/M, -140 bps Q/Q, -167 bps Y/Y) and Microsoft’s share of 7.9% (-29 bps M/M, -71 bps Q/Q, -155 bps Y/Y).”
[3] http://yhoo.client.shareholder.com/press/ReleaseDetail.cfm?ReleaseID=147133
[4] http://news.com.com/Yahoo+heads+for+Hollywood/2100-1027_3-5550361.html
[5] http://www.wired.com/news/wiredmag/0,72497-3.html?tw=wn_story_page_next3
[6] http://gigaom.com/2006/12/11/report-myspace-passes-yahoo-in-page-views/
[7] http://www.forbes.com/lists/2006/12/XC25.html
[8] http://news.zdnet.com/2100-9588_22-6079650.html
[9] http://www.sec.gov/Archives/edgar/data/1011006/000104746906005177/a2169174zdef14a.htm
[10] http://www.metricsmarket.com/metrics/searchengines.html
[11] http://www.businessweek.com/magazine/content/03_12/b3825085_mz063.htm
[12] http://www.wired.com/news/wiredmag/0,72497-0.html
[13] http://online.wsj.com/public/article/SB116379821933826657-0mbjXoHnQwDMFH_PVeb_jqe3Chk_20061125.html
[14] http://online.wsj.com/article/SB116109591333995174.html?mod=yahoo_hs&ru=yahoo
[15] http://www.sec.gov/Archives/edgar/data/1011006/000110465906071213/a06-21898_110q.htm#Item1a_RiskFactors_030032

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What A Difference A Month Makes

A month ago, I sat down to record a message to Yahoo! shareholders. In it, I asked for your support to revise a "Plan B" to propose to Yahoo!'s Board and Management that would increase shareholder value for all.

Current and ex-Yahoo! employees, casual investors, widows, a few orphans, and several sophisticated institutional investors have responded. The pent-up frustration that Yahoo! underperforming the market for 2 years was not acceptable was finally uncorked.

We now collectively own $5MM worth of Yahoo! stock and we still believe -- as passionately as ever -- that better days lie ahead for one of the greatest companies in the world.

We're also all happy that, since our activism began one month ago, Yahoo!'s stock price is up 5.8% compared to the NASDAQ being up only 1.53% and Google being down 3.22%.

Congrats to the men and women of Yahoo! who have worked tirelessly to bring Panama onstream. You guys are the stars. However, I want to thank the "Plan B" community and say that our grassroots/netroots efforts have shone a light on problems at Yahoo! which still need to be addressed. 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.

Keep up the fight for "Plan B." Our work is just starting. Keep signing up.

It's satisfying to know that the results so far are worth the effort.

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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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