Friday, March 30, 2007

WSJ: Take-Two Holders Succeed in Board Coup

From today's WSJ. A story about successful shareholder advocacy.

March 30, 2007; Page A3

The News: Take-Two Interactive Software shareholders removed the board of the embattled videogame maker and replaced it with six new directors. Strauss Zelnick, founder of ZelnickMedia, was nominated as the new chairman.

Background: The upheaval follows struggles by the maker of "Grand Theft Auto" videogames to rebound from a stock-options scandal and return to profitability. Earlier this year, Former Chairman and Chief Executive Ryan Brant pleaded guilty to charges in connection with an options-backdating scheme.

What's Next: The new board and acting CEO plan to spend the next several months understanding the company's financials.

A group of Take-Two Interactive Software Inc. shareholders owning 46.1% of the videogame maker's stock succeeded in removing the board and replacing it with six new directors.

The newly elected board already nominated as chairman Strauss Zelnick, founder of media management and investment firm ZelnickMedia. The board also named Benjamin Feder as acting chief executive, succeeding former CEO Paul Eibeler, and increased the number of board seats to seven from six in order to reappoint the just-ousted Grover Brown as the seventh director.

The board coup is the handiwork of four institutional shareholders, a class of investors not known for activist investing, or agitating for change at companies to boost the stock price. The group consists of mutual-fund firm OppenheimerFunds Inc., D.E. Shaw Valence Portfolios LLC, Tudor Investment Corp. and hedge fund S.A.C. Capital.

The upheaval comes as the maker of "Grand Theft Auto" videogames struggles to rebound from a stock-options scandal and return its operations to profitability. Earlier this year, former Chairman and Chief Executive Ryan Brant pleaded guilty to charges in connection with an options-backdating scheme.

Mr. Zelnick said in a news conference after the election results were announced that the new board and CEO plan to spend the next several months getting their arms around the financials of the company. It's important that the company have "pristine financial" conditions, he said.

The new team is also evaluating the chief financial officer position, but the current finance chief, Karl Winter, is still with the company. Mr. Zelnick said he believes that "the creative talent will remain in place."

Mr. Zelnick also dismissed suggestions that the new board might seek to sell the company. "There's not a vision for an exit," he said.

In an unusual move, the shareholders bypassed the proxy process in their takeover attempt, turning instead to a rarely used process by which shareholders attend an annual meeting and, once there, motion for actions that require votes, such as the election of new directors.

The meeting ended around 4:30 p.m. EDT, but the results weren't announced until almost 8 p.m. because the company needed time to tabulate the votes. To verify the legitimacy of hundreds of ballots cast at the actual meeting -- rather than through proxies mailed ahead of time -- the company required anyone seeking admittance to provide proof of stock ownership.

The shareholder group acted quickly to make its intentions known, with a representative of Oppenheimer moving to motion within the first ten minutes for the competing slate of directors, who were also present at the meeting. A representative at D.E. Shaw seconded the motion. The company approved it, and ballots were quickly handed out to people who wanted to vote for the dissidents' candidates.

To win, the shareholders only needed one vote more than management, an effort boosted by widespread recommendations to withhold votes for some of management's sitting directors, mainly over concerns of backdating.

Fewer than 100 shareholders were admitted to the meeting, which took place at New York's Hotel Gansevoort. The meeting was brief and orderly, lasting only a half hour. It was presided over by Take-Two general counsel Seth Krauss, who warned in his introductory remarks that "derogatory references" and "disruptive" behavior could result in removal from the meeting.

The new board consists of Michael Dornemann, John Levy, Jon Moses, Michael James Sheresky, and Messrs. Zelnick, Feder and Brown.

Mr. Zelnick and his partners at ZelnickMedia have led several operational turnarounds in the media business, including Columbia Music Entertainment of Japan and Time-Life, the company said in a news release. Prior to founding ZelnickMedia in 2001, Mr. Zelnick held a number of media industry positions, including president and chief executive of BMG Entertainment and president and chief operating officer of 20th Century Fox.

Write to Angela Pruitt at and Kaja Whitehouse at

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From Seeking Alpha: Yahoo - Expectations Too High For Panama?

Larry Dignan (ZDNet) via Seeking Alpha this morning has asked some important questions about the market's reaction to Yahoo!'s Panama system:

The early word on Yahoo's Panama ad system has been good. Perhaps too good, according to one analyst.

Todd Greenwald, an analyst at Nollenberger Capital, said in a research note this week that Yahoo's Panama system "is not an end-all, be-all savior." Greenwald, who started coverage of Yahoo with a neutral rating, says that early chatter about Panama's success has been "inconclusive for the most part."

Greenwald's biggest concern: Expectations are too high for Panama. Given the reaction of Yahoo shares, up 40 percent from recent lows, it appears as if investors are assuming that Yahoo will close the price per click gap with Google quickly.

"Expectations for Panama among the media and investors appear very high, with many assuming that it will handily drive much higher click-through rates without any deterioration in price-per-click, closing the monetization gap with Google over the next few quarters."

Indeed, Greenwald adds that it has taken Google five years to refine its text ad algorithms. Meanwhile, Yahoo management has indicated that Panama will take time to "learn" and become more efficient at driving ad prices.

There's no doubt that Panama is critical to the Yahoo turnaround. But thus far there's no hard data on how Panama is performing. That'll change in a few weeks when Yahoo reports its first quarter earnings.

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Monday, March 19, 2007

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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How to Pledge Your Yahoo! Shares to "Plan B"

Our "Plan B" to force change at Yahoo! has resulted in almost 2 million shares pledged in support (or $58 million worth of Yahoo! stock) -- or about 0.15% of the Yahoo! shares outstanding.

We've also received "expressions of interest" from several large institutional shareholders and pension funds in the last few weeks, asking to learn more about "Plan B" and potentially interested in learning more.

We've requested time to present our case to ISS and Glass Lewis in the coming weeks, so that they are fully briefed on the content of "Plan B" and why we're recommending "withhold" votest for 7 of 10 Yahoo! directors, as well as why I've nominated myself to the board.

Many people have also asked me how they can get involved in "pledging" their shares to support our effort. Up until now, I've had to simply ask them to leave a comment on our blog or send me a private email. We are greatly simplifying the process of people pledging shares and tracking our numbers thanks to a new partner:

The team at YouChoose has helped build a special site for our campaign where you can quickly and easily leave your share information. We've also created forums for discussion of issues relevant to forcing positive change at Yahoo! All of this will help us continue to build our grassroots efforts, as you can easily refer others to this Campaign on YouChoose to pledge their support. We can all go there as well to post comments in the Yahoo” ‘Plan B’ Group Forum, view updated news related to this Campaign and track our results.

As part of establishing this Campaign on YouChoose, I encourage you to visit the Pledge Campaign site and record your pledge of shares formally. Then, please invite others to support us.

Thank you again for your support of a "Plan B" for Yahoo! Together, we can make a difference and help this great company.

Please let me know if you have any questions.



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Thursday, March 15, 2007

US News & World Report: On the Record with Sydney Finkelstein

Dartmouth Tuck School Professor Sydney Finkelstein was recently interviewed by US News and World Report. He was asked to discuss his new Business Bestseller "Breakout Strategy" and how organizations can achieve "breakout performance."

Find out what Sergey Brin and Bob Dylan have in common.

Information on the BPI tool is here. The BPI tool was created by Jackson Leadership and Sydney Finkelstein to help organizations pinpoint the leadership, strategy, and process leverage points and "red flags" to help achieve significantly higher growth and performance.

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Yahoo! "Plan B" Campaign Ad #1: YouTube Version

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Thursday, March 08, 2007

$26 Million*? Really?

Another letter from (what sounds like) a current Yahoo!.... I've commented elsewhere on this.

Plan B sounds great - some execs need to leave (primarily Semel). I disagree with letting go of talent. In the current job market in Silicon Valley, it would be hard to replace that talent if it were deemed necessary in the future. Slowing down hiring and being more selective (and then aggressive on those selected) would be a better plan there.

Outside the hiring issue, I'm all for it.

We have another issue. I question the board's competence. Execs should be paid for performance. The stock dropped over 30% in 2006 and Panama was delayed multiple times. I would say that is poor performance. Why, then, would the board grant 800,000 shares - immediately vested AND allow them to be exercised 3 years after he leaves the company? Pay for poor performance? Seems like a strange theory. How would we include revoking such offers in this bid? Compensation should be removed from the grasps of the board - which in reality, are a group of peers - and the "you scratch my back, I'll scratch yours" philosophy reigns supreme. Motley Fool has a rule to NOT invest in a company when the board/execs are more worried about lining their pockets than doing what is right for the company. I mean - come on - "saving the company money" by trading his $600K salary for 6M shares of options... again, fully vested and with the same post-employment 3 year window. Insanity!

In some ways, you can't blame Terry Semel for taking home $575MM since he arrived in 2001. The blame lies squarely at the feet of Yahoo!'s board.

That's why, in "Plan B," we're advocating all shareholders vote "withhold" for 7 of the 10 current directors. We're only recommending "for" votes for Yang, Kozel, and Joshi. I've also nominated myself for the board.

The only way to change this -- to use a word -- 'insanity,' is to change the monitors. It's probably unlikely that we'll be able to change any retroactive pay. However, we can certainly correct over-payment for under-performance going forward.

Keep those letters coming.

PS Yahoo! PR notes that Mr. Semel's options are still under water --- which is correct. Their final value is unknown today, although you could use Black-Scholes to estimate their future value. They are worth nothing today; as they are under-water. He has 7 years to exercise them. This means that, if Yahoo!'s share price rises substantially in the coming years, they could be worth far more than $26 million.

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Monday, March 05, 2007

Yahoo! "Plan B" Campaign Ad #1

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Financial Times: SEC Policy Vacuum Enlivens Proxy Season

SEC policy vacuum enlivens proxy season

By Jeremy Grant in Washinton

Published: March 4 2007 22:41 Last updated: March 4 2007 22:41

Armed with little more than a blog and a posting on YouTube, Yahoo shareholder Eric Jackson has launched a quixotic campaign for the forthcoming proxy season.

The 34-year-old hopes his web-based effort will force change at the internet group, including the departure of chief executive Terry Semel over “outsized compensation for small shareholder return”.

It highlights what promises to be an unusually lively proxy season in coming weeks, thanks to a policy vacuum at the Securities and Exchange Commission, the US markets regulator.

At issue is access to the company proxy for the purpose of nominating directors to the board, a vital corporate governance battleground this proxy season.

While state law governs what shareholders are allowed to vote on, federal law – and thus the SEC – governs the crucial communication and disclosure process in proxies.

An SEC rule long blocked such access until last year, when a US appeals court supported a challenge to the rule from the American Federation of State, County & Municipal Employees (AFSCME) in a case involving insurer AIG.

Christopher Cox, SEC chairman, has in recent months twice delayed deliberations on whether to amend the SEC’s rules in light of the ruling, a move that would mark one of the most significant concessions to investors in decades.

He and his fellow four commissioners are divided on the issue, and Mr Cox has been trying to build a consensus to avoid a divisive 3-2 vote.

In the absence of a clear SEC policy, investors have been bringing their own proxy proposals at Hewlett-Packard and UnitedHealth Group, a healthcare insurer, for consideration at shareholder meetings starting later this month.

The groups appealed to Mr Cox to have these proposals removed from their proxies. But Mr

Cox declined to take a position pending resolution of the SEC’s policy on its proxy rule.

Last week, the California Public Pension Employees Retirement System (Calpers) took advantage of the vacuum by throwing its weight behind an AFSCME proposal that would change HP’s by-laws to allow shareholder access to the proxy.

Opponents of access fear that this could open the way for a flood of similar initiatives, causing havoc at annual meetings. So far there are about 70 shareholder resolutions planned calling for a say on executive pay, albeit non-binding.

Far from seeking confrontation, shareholder activists are gambling that a relatively smooth season of shareholder meetings involving carefully chosen issues could persuade the SEC to come down on their side in the end.

Nell Minnow, editor of The Corporate Library, a corporate governance research group, said: “Time is on our side. If we show there are substantial investor votes for these proposals, it makes it much harder for the SEC to come back and exclude them.”

A reason for the shift in shareholder activist attitudes can be found outside the US. Institutional investors have been growing frustrated at the lack of basic shareholder rights in the US that are enjoyed in Europe, such as allowing advisory or non-binding shareholder votes on executive pay.

Norway’s Norges Bank Investment Management and Hermes, the UK pension manager, recently appealed directly to Mr Cox on the issue.

Rich Ferlauto, AFSCME’s pensions director, said that increasing foreign ownership of US companies meant such shareholders felt they had a stake in pushing improvements in US corporate governance for the first time.

He said: “This is about international competitiveness and how US companies attract capital.
“What we get from our conversations with European shareholders is that they are looking at enhanced shareholder rights and advisory votes on pay as fundamental reforms that they believe are necessary to protect their increasing investments.”

He is open to giving Mr Cox time to build consensus at the SEC. Mr Cox’s appearance next week at a US Chamber of Commerce conference on US competitiveness is a sign that his interests appear to be similar.

Opponents of proxy access, uneasy at the SEC’s policy vacuum, are on the move.
John Berlau is director of the centre for entrepreneurship at the Competitive Enterprise Institute, which last month wrote to Mr Cox along with more than 25 other pro-business groups arguing against proxy access.

He said the danger was not access to the proxy, but “backroom deals” management might have to negotiate with activist shareholders to avoid uncomfortable proxy campaigns.

Peter Montagnon, head of investment affairs at the Association of British Insurers, warned that the proxy season could end up with too much compromise, such as management conceding to advisory votes and falling short of endorsing proxy access.

“We have to be a bit wary that this isn’t used by companies to have an advisory vote on executive remuneration as a way of heading off more radical reform of access to the proxy.”

Copyright The Financial Times Limited 2007

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Saturday, March 03, 2007

$26 Million to Semel in Year when Yahoo! loses 34%

Yesterday, Yahoo! disclosed in a filing with the SEC that it paid Terry Semel, its Chair and CEO, $25.7 million for his efforts in 2006.

The good news for Yahoo! shareholders? Yahoo!'s Compensation Committee showed more discretion this year, as this was a 52% reduction in his annual compensation compared to 2005 (a year in which the stock rose just under 4%).

The bad news for Yahoo! shareholders? This $26 million is substantially more than the earlier reports that he would receive an annual salary of $1 (with, of course, some fine print connected to that number). It's also on top of his total Yahoo! tenure compensation of $550 million (as detailed in our recent "Plan B" submission to Yahoo!'s Corporate Secretary).

Few would argue that Mr. Semel is in the twilight of his career. What's ominous to Yahoo!'s shareholders, though, is what might be in store for his severance/retirement package. Bob Nardelli received a $220 million package after 5 years, but far less compensation than Mr. Semel beforehand. What will Mr. Semel get?

What's also troubling in this disclosure by Yahoo! is how this amount of compensation was determined. If driving your stock's price down by 34% in 2006 is worth $26 million and having it rise less than 4% in 2005 is worth $49 million, does that mean that, if Yahoo!'s stock remains up 19% for 2007, shareholders will have to pay Mr. Semel $100 million for this year?

Yahoo!'s Compensation Committee -- Arthur Kern, Roy Bostock, and Ron Burkle -- should provide some answers to these questions. Was there a risk -- as apparently there was in 2004 -- that Disney or another competitor might again swoop in and hire away Mr. Semel, requiring "aggressive action"?

What's a Yahoo! shareholder to do? There is a better way for all Yahoo! users, employees, and shareholders. Read up and support "Plan B" for Yahoo! at this spring's annual meeting of shareholders.

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Friday, March 02, 2007

It Takes a Village... to Force Change at Yahoo!

My fellow Yahoo! shareholders:

Last week, we launched our formal "Plan B" campaign to improve Yahoo!'s long-term competitive advantage which will benefit all Yahoo! users, employees, and shareholders.

We submitted the plan to Yahoo!'s corporate secretary as business to be brought forward at the May 24 annual meeting of shareholders. We also filed the necessary papers for me to stand for election to the Yahoo! board of directors.

The campaign for "Plan B" is on. It's going to be an exciting next 12 weeks.

What are we campaigning specifically for? Three things.

1. Adoption by Yahoo! of the nine points laid out in "Plan B," which also includes;

2. All Yahoo! shareholders to vote "withhold" for the following directors: Semel, Kotick, Bostock, Burkle, Hippeau, Kern, and Wilson;

3. All Yahoo! shareholders to vote "for" for the following directors and proposed directors: Yang, Kozel, Joshi, and Jackson.

However, no campaign would get very far without the blood, sweat, and tears of ardent supporters and volunteers. "Plan B" needs your help.

We need your creative movies, political advertisements, photos, other ideas, and general support to make the "Plan B" a success. And we only have 12 weeks. And, sorry, we can't pay you anything.

However, you will be supporting a great cause (the long-term betterment of Yahoo!) and there's a chance, if your work is good, that it will be picked up by the mainstream media.

So far, before our campaign even began, we received prominent coverage in AP,, Dow Jones/Wall Street Journal Online, The New York Times, Red Herring, Seeking Alpha,, TechCrunch, and Time. Just think where we can get coverage if YOU get involved.

Please comment below or email me if you want to join this movement.

You can make a difference.

We can make Yahoo a better company for all its users, employees, and shareholders.



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Thursday, March 01, 2007

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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Guardian Unlimited: Plan B for Yahoo!

It's always amusing when shareholders want the boss's head on a spike, and Yahoo Finance has published Yahoo!: Time for Plan B, where Eric Jackson calls for (among other things) the replacement of Yahoo!'s chairman and CEO, Terry Semel.
Jackson owns 45 shares in Yahoo, and has put himself up for a directorship.
According to the AP story:
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.
For all the stories and more, much more, see Jackson's blog.

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