The biggest impediment to Yahoo!'s success in the last 4 years has been Roy Bostock - not Jerry Yang. Hopefully, Roy will soon be gone as Chairman. Here's a summary of his ridiculous statements over the years.
Read the full post on Forbes
It's time for change at the top of Yahoo! On June 23rd, investors will get a chance to do just that.
Read the full post here at Forbes.
09/16/09 - 07:00 AM EDT
By Eric Jackson
In last week's Activist column, we shined a spotlight on the large amount of insider selling which has occurred at Yahoo! in the past two years (based on our study of the Securities and Exchange Commission filings leading to other media reports on this topic), including Bartz dumping $2 million in shares in March and June.
Since that column appeared, Bartz, Yahoo!'s PR SWAT team and Bartz' defenders have claimed that there was "no story here," as these were "routine" share sales made to pay taxes on generous Restricted Stock Unit (RSU) grants. Bartz went so far as to say "I didn't sell anything" on television and there have also been vague references to her shares being "reacquired" again. They have not - as the actual Form 4 SEC filings show. They state only "disposals" of $2 million in Yahoo! shares, which of course immediately lower the company's earnings per share.
Contrary to what any PR flak says, these kinds of tax-related share dumps when RSUs vest may be common at lower levels of the company, but they are not at the highest level, where executives have more than ample means to pay their taxes out of their own pockets. Bartz made $45 million in 2007 alone just from exercising her Autodesk(ADSK Quote) options, so she could have easily scratched together $2 million to pay the tax man if she'd wanted to hold on to her Yahoo! shares.
It turns out that, when you start to peel the onion around Bartz' CEO employment contract, there are many interesting details which Bartz would likely not want discussed. Prior to negotiating with Yahoo! for the top job, Bartz hired an unnamed financial advisory firm to help her. Later, when the deal was done, she got Yahoo!'s board to agree to Yahoo!'s shareholders paying "up to $150,000 for advisory fees" for her use of that savvy firm (which is outrageous and she should immediately reimburse Yahoo! shareholders for that with interest).
That negotiated agreement is a good one for Bartz, as this analysis shows. Making reasonably conservative assumptions, Bartz should get $187 million for her planned four years of work at Yahoo!
One small part of that agreement is something Yahoo! calls the "Make-Up Grant." Because of "forfeiture of the value of equity grants and post-employment medical coverage from" leaving her old executive chairman job at AutoDesk, which has one-fourth of the market cap of Yahoo!, Yahoo!'s board said she was due $10 million.
As part of that grant, she'll get $2.5 million in cash this year and 639,386 RSUs (or shares). The cash and shares vest at a rate of 25% quarterly in 2009. By the end of this year, those shares and cash will be worth about $12.5 million (not the $10 million grant date fair value; see this breakdown for more detail .
Yahoo! states later that they are providing "post-employment medical coverage for Bartz, her spouse and eligible dependents" on top of her grant, so that should not be linked to the value of the "Make-Up Grant." Therefore, the only thing to be made up for is the value of her unexercised AutoDesk equity options.
Yet when you go back and review the unexercised options she possessed in the 2008 AutoDesk proxy statement and the ones she subsequently exercised and sold in share sales through the rest of last year, I calculate Bartz' value of her unexercised equity grants at far less than $10 million.
On the date her Yahoo! employment agreement was announced (Jan. 15, 2009), AutoDesk was trading at $16.14. That means, her remaining 250,912 $11 strike price, her 36,420 $8 strike price, and her 993,056 $14.40 strike price unexercised options had a fair value on the date she took the Yahoo! top job of $3.3 million -- not $10mm.
This major "Make-Up Grant" discrepancy between what Yahoo! chose to award Bartz and what it appears -- according to her AutoDesk SEC filings -- she was in fact walking away from should be explained to shareholders immediately.
Setting this problem aside, Bartz -- like any other employee who gets RSUs -- has to pay tax on stock grants whenever she receives them. To pay the tax, Bartz must make a choice to write a check to the government from her personal account to cover this or sell part of these Yahoo! shares from the RSUs. In the first and second quarters, Bartz sold $2 million in Yahoo! stock to pay her taxes. It's very likely she'll do this again later this month and in December, when the rest of her "Make-Up Grant" shares vest.
Which brings us to the core problem: given her leadership role at Yahoo! and given her generous Yahoo! compensation and sizable wealth she's amassed from her time at AutoDesk, why would she dump Yahoo! shares instead of paying her tax bill herself? It sends the wrong message to employees and shareholders that she wouldn't be kicking and screaming to keep every last Yahoo! share in her possession.
I think there's a simple answer to this question: Carol Bartz is used to getting generous tax gross-ups from companies she works for and likely she (or her high-priced advisors) negotiated this in as part of the deal.
A tax gross-up is when an executive wants to receive a certain amount of compensation award or benefit but knows they'll have to pay taxes on it. Rather than pay that tax bill themselves, the executive asks the company to bump up the value of the award in the amount of any taxes they would otherwise have to pay. They end up getting the amount of money they want tax-free -- with taxes paid for by the company's shareholders rather than the executive.
For an example, let's go back to the 2008 AutoDesk proxy statement : "During fiscal 2007, Ms. Bartz's other compensation included post-employment health and dental benefits with an actuarially determined present value of $631,986 plus a $421,324 tax gross-up, and a Company gift for appreciation of years of service as CEO costing $67,500 plus an associated $33,889 tax gross-up." Have you ever heard of a gross-up on a gift for years of service?
Tax gross-ups are completely unacceptable and any well-governed company doesn't allow them. If you make money or a benefit of some kind, you should pay tax on that -- not the shareholders who gave you the benefit in the first place. To use one of Bartz' favorite words, tax gross-ups are stupid.
Bartz has clearly become used to tax gross-ups at AutoDesk and likely she or her high-priced advisors were thinking of this "Make-Up Grant" in the same way. They might have negotiated her $3.3mm fair value (as of mid-January 2009) unexercised AutoDesk options into a $10mm make-whole grant from Yahoo! That's a tax gross-up and then some.
Yahoo!'s compensation committee is to blame here. First, they pay Terry Semel over $570 million for his six years as CEO; then, they award Bartz a four-year $187 million pay package with up to $30 million in year one; then, they see their ineffective incentive plans lead to Yahoo! insiders selling $233 million in stock over the past two years versus insider purchases of only $103,000. Now, we learn of these discrepancies in the reasoning for different elements of Bartz' pay.
Where is Carl Icahn in all this? It turns out he was right at the negotiating table when all this went down. His colleague, Frank Biondi, has served on Yahoo!'s compensation committee since joining the board in September 2008. He directly oversaw the design and approval of Bartz' pay plan, which, in my view, wasn't in the shareholders' interests.
Of course, Bartz is at fault here too. She's gotten too used to high pay and tax gross-ups over the past few years -- both for herself and for CEOs she has socializes with.
Examine this table below for a comparison between the average annual total compensation for several popular tech CEOs vs. ones in Bartz' social network. Bartz doesn't suffer fools -- or CEOs who don't bank a lot of coin.
| Popular Tech CEOs | |
| CEO | Most Recent Avg. Annual Total Compensation |
| Eric Schmidt, Google | $500,000 |
| Jeff Bezos, Amazon.com | $1.3mm |
| Steve Ballmer, Microsoft | $1.3mm |
| Steve Jobs, Apple | $1 |
| Carol Bartz' Network of CEOs by Employment or Directorship | |
| CEO | Most Recent Avg. Annual Total Compensation |
| John Chambers, Cisco | $11mm |
| Paul Otellini, Intel | $12mm |
| Dan Warmenhoven (Ex-CEO), NetApp | $5.7mm |
| Carl Bass, AutoDesk | $7mm |
| Carol Bartz (when Executive Chairman), AutoDesk | $4.5mm |
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.
Sphere: Related ContentAnalysis of total compensation Carol Bartz is eligible to make between 2009 - 2013, as CEO of Yahoo! All data taken from SEC filings made by the company in January and February 2009. This compensation plan was approved by Yahoo!'s compensation committee consisting of Chair Arthur Kern, Ron Burkle and Carl Icahn's representative Frank Biondi.
If reasonable and max targets are hit, she should receive total comp of $29mm for the year 2009 and $187mm for the years 2009 - 2013 inclusive.
Carol Bartz' Total Compensation Plan as Yahoo! CEO
The following spreadsheet -- with data gathered from SEC filings -- shows the insider stock purchases and stock sales (as well as exercised options) by Yahoo! officers and directors in the last 2 years. It shows for every dollar of stock purchases made by the insiders, they received $2,159 in compensation out of the company and its shareholders.
Yahoo! (YHOO) Executive & Director Insider Stock Purchases and Stock Sales in the Last 2 Years
08/05/09 - 09:51 AM EDT
YHOO , MSFT , GOOG
Eric Jackson
REDMOND, Wash. (TheStreet) -- Last week's news of a search partnership between Microsoft(MSFT Quote) and Yahoo!(YHOO Quote) means that Yahoo! is leaving the search business and handing the keys over to its rival and former suitor.
The market sent Microsoft's shares higher and dropped Yahoo!'s like a stone. Since the announcement, 15% of the Web portal's market capitalization had been shaved off. After a lot of tough talk from the new CEO in her first six months, Carol Bartz has laid her first egg with investors. She didn't manage expectations properly. But it's Yahoo!'s longtime directors who deserve the most blame for this most recent Yahoo! stumble. They should leave immediately.
After years of abuse, Yahoo! investors took heart when Bartz was named to replace Jerry Yang as CEO in January. From the moment she arrived, her cussing and put-downs of her predecessors earned her points on Wall Street and with journalists.
She described Yang's organizational chart of Yahoo! as something out of Dilbert; she agreed with the "Peanut Butter Manifesto" -- a 2006 internal document penned by a Yahoo! vice president that pointed out the internal problems with the company -- at a May conference with Terry Semel and Sue Decker (Yang's predecessors in the top two roles) in the audience; and at the same conference, about 60 days before last week's announcement, she told the audience she would do a deal with Microsoft for "boatloads of cash."
After a $47 billion buyout offer from Microsoft last year for all of Yahoo!, followed by a proposed search deal with a $5 billion upfront payment, Yahoo! investors believed that Bartz finally had Yahoo! on the right track. She let the expectations run. The stock climbed to more than $17 from $13 before the search deal was announced.
Yet, last week's announcement saw Yahoo! shareholders get no upfront money from Microsoft. Instead, they get 88% of the ongoing revenue, or traffic acquisition cost (TAC) rates, from Microsoft in the partnership for the next three years. Meanwhile, Yahoo!'s shutting down its search engineering unit, which employs about 1,000, and saving on that ongoing investment.
Microsoft is getting a zero money-down, lease-to-own deal that allows it to swallow the No. 2 competitor in the fast-growing search market and achieve a credible market share level against Google(GOOG Quote). Despite the high TAC rate, you haven't been able to find one Microsoft shareholder irate about this deal, including me.
Bartz tried to explain the deal to her investors on the initial call by saying that instead of receiving "boatloads of cash," they were getting "boatloads of value" from the deal. The Street thought otherwise and butchered Yahoo!'s stock price.
For the first time in her Yahoo! tenure, she's contrite: "I made a mistake. I was never interested in doing it for upfront money. That doesn't help me operate a business."
Bartz can't have it both ways. She can't portray herself as the "grown up" cleaning up the mess that the kids who used to run the place left her with and then make such a rookie mistake in managing investor expectations. Either she knew 60 days ago that she was getting no upfront payment and made a misguided "boatload" comment, or Microsoft really turned the screws on her in the last few weeks and stuffed lousy terms down her throat that she had to take.
Her other explanations for doing this deal sound hollow. She said, "We didn't want to get into an arms race with Google and Microsoft in search." Then why did your board authorize spending billions on search companies and hundreds of millions of dollars in internal development of the much hyped and never effective "Project Panama" over the last three years?
Bartz said, "We didn't want to pay a lot of taxes on an upfront payment." Wouldn't your shareholders like to see you paying a lot in taxes on a payment as a sign that you had received a lot of money from Microsoft?
She said the market had changed a lot since 2008, when the full buyout offer for Yahoo! was still on the table. Yet, since Microsoft dropped the bid for Yahoo! on May 4, 2008, the Nasdaq is down only 17%, while the value of the deal Microsoft is paying to Yahoo! has dropped 90% (from $47.5 billion to $4 billion to $5 billion, according to Bernstein's Jeff Lindsay), and Yahoo!'s stock price has dropped 47%.
And, what's with the heavy "me" and "I" references in her explanations? I was under the impression that turning around a $20 billion company was a team sport.
These mistakes aside, the real blame here lies at the feet of the Yahoo! directors who have served on the board for the entire time that Yahoo! has failed miserably in search -- the most lucrative non-monopolistic business that modern business has ever known. Yahoo! has had plenty of chances to dominate this space for the last decade and has missed every one.
Yahoo! built its own search engine, which was the original mission of the company; the directors decided to outsource it to a then unknown company called Google, giving Google huge name recognition because of Yahoo!'s traffic; Yahoo! later determined search was a valuable business itself and paid $235 million for Inktomi in 2002, and $1.6 billion for Overture, which created paid search before Google created AdWords, in 2003; and the directors trusted Semel and Decker's promises that "Project Panama" would close the gap between Yahoo! and Google. Yahoo!'s search share is below 20% and the directors have now decided to shut down all internal search development and hand the keys over to Microsoft.
There are five Yahoo! directors who've sat in on all the deliberations about search in the last eight years: current Chairman Roy Bostock, Ron Burkle, Arthur Kern, Eric Hippeau, and Gary Wilson. Where is the accountability here? Why must Semel, Decker, and Yang face the music for strategic decisions that didn't pan out, while these five men avoid all scrutiny and criticism? It's an embarrassment for Yahoo! and each of these men's corporate reputations that they are still there.
We can't always be right, but each of these men has endorsed failure too many times to still retain a job as a fiduciary for Yahoo! shareholders.
-- Written by Eric Jackson in Naples, Fla.
At the time of publication, Jackson's fund had a long position in Microsoft.
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.
Following my post yesterday about why I was against CEOs serving on another company's board, I got a lot of supportive email.
One reader, Burt, said:
I agree with you completely. I would like to see a comparison of the incomes of the board of directors for the companies that the CEO's from other companies sit on. They take care of each other, and do not take care of their own companies, in my opinion. I believe that the pay for the top management should not be set by other CEO's and get away from the "good ole boys network" and bring their pay back to a scale which is indicative of their performance at their companies.
Let's take Yahoo!'s (YHOO) board again, which I still believe is highly dysfunctional, even though I like what Carol Bartz is doing. Recall that one of the things that got investors steamed at the company was how the stock vastly under-performed against Google (GOOG) and NASDAQ from 2004 - today, yet the company company continued to award lavish pay to former CEO Terry Semel.
All told, Semel took out over half a billion dollars in executive comp from YHOO's shareholders during his tenure, even as the company passed on the chance to buy GOOG and Facebook and saw its search market share drop precipitously. Who served on the YHOO comp committee during this time? Art Kern, a current CEO; Roy Bostock (now Chairman), a former CEO, and Ron Burkle, a private investor who has been known to pay his fellow partners well and who also serves on the boards of Occidental Petroleum (OXY) and KB Home (KBH) where exec compensation still is very high compared to the rest of the S&P.
I don't think any of these men set out to deliberately overpay Terry Semel, they simply decided to pay him the way they'd want to be paid if they were CEO. This type of back-scratching in our boards needs to stop.
Originally published in RealMoney.com on 4/21/2009 7:35 AM EDT
There's a great post from Kara Swisher this morning, which tips the cap to Sue Decker for stepping down from Yahoo! now and also calling for Roy Bostock to do the same. I want to second her sentiments.
Chairman Roy Bostock has repeatedly blown off criticisms of his botched handling of last year's Microsoft's negotiations by suggesting it was all because of Microsoft that a deal didn't get done.
He was dismissive of my suggestion at last August's annual meeting that he step down after 30+% of shareholders voted against his reelection in 2007. He said I was looking at it with a glass half-empty mentality. A few days later, we learned that well over 40% of shareholders voted against him at that August meeting. The figure would have been well over 50% had Carl Icahn's gold proxies from the previously called off proxy fight had been counted against Bostock.
If Carol Bartz wants to send the message that Yahoo! now has a performance culture, she should turn around and fire the guy who just hired her: Roy Bostock.
As Kara also says, she should then point her eyes on other directors. Gary Wilson and Ron Burkle -- like Bostock -- have received sizable protest votes from past annual meetings from investors. They came in weeks after Semel was hired (both are LA residents like Semel). Art Kern and Eric Hippeau have served on this board for over 12 years. That's not exactly a pair of fresh eyes they bring to the decision-making process. Finally, Kara suggests her sources said several directors wanted to be CEO. This is likely John Chapple and Maggie Wilderotter. They might also want to move on (even though they're relatively new to the group) to avoid any Bartz back-seat drivers.
Carol and Jerry need to hit "re-boot" to this board to really refresh this company.
The average compensation for each Yahoo outside director in 2007: $497,531.
Third, Bostock also claimed that this year’s vote would be a far better indication of shareholder support for Yahoo’s Compensation Committee than last year.With 39.6 percent of shareholders withholding support from Bostock and 37.9 percent withholding it from Burkle, isn’t it time for them to step aside?
Fool Me Once, Shame on You; Fool Me Twice, Shame on Me
Given all this, I am deeply concerned that my interests and those of all Yahoo shareholders are not being protected by the company’s board. We need to know why 200 million shares were missing from this year’s vote as compared to the last two years’. We need to know why so many proxies were mailed late to shareholders (on our dime). We need to know why so many shareholders are questioning whether their votes were counted. Yahoo will try to sweep all these concerns under the rug, but we shouldn’t allow it. The company should immediately appoint an independent third party to address these questions and assure shareholders that their votes were properly counted.
Immediate Changes to the Board
Also, Yahoo needs to immediately make some changes to the composition of its board. Roy Bostock and Ron Burkle should do the honorable thing and step down from this board.
In truth, this should have happened a year ago. One wonders what might have happened in the last 12 months with Microsoft negotiations had Yahoo acted swiftly, following the 2007 annual meeting, to remove them.
Eric Jackson is the Founder and Managing Member of Ironfire Capital LLC, an activist hedge fund. In 2007, he founded the "Yahoo! Plan B" group, a web-based group of 150 Yahoo shareholders who own more than 3.2 million shares in a campaign to change the company’s direction.
Posted Aug 01, 2008 12:44pm EDT by Aaron Task in Investing, Internet, Media
Related: yhoo, msft
It's the calm before the storm. I'm sitting outside the Imperial Ballroom at the Fairmont Hotel in San Jose where reporters and shareholders await the start of Yahoo's annual meeting at 10 a.m. PT.
Ahead of the meeting, the big buzz is about an LA Times story reporting that former AOL chief Jon Miller will not be joining the newly configured Yahoo board, as was widely expected. Sources here are dismissing the story, which wasn't well sourced. But this is obviously a big development and I'll update the situation if/as developments warrant.
A short time ago, I caught up with Eric Jackson, founder of activist hedge fund Ironfire Capital, whose effort to oust the entire Yahoo board has garnered pledges totaling some 3.2 million shares.
Unlike many others, Jackson's main gripe with Bostock, Yang & Co. is not that Yahoo failed to get a deal with Microsoft. Rather, it's the struggles in the company's core business, which he notes has deteriorated in the year since Yahoo's last annual meeting.
Jackson is expecting an even higher level of outrage this year vs. 2007, when three directors received more than 30% "against" votes, precipitating the end of Terry Semel's reign as CEO.
Here is the final vote count released by Yahoo! yesterday afternoon of the votes for the directors. Kudos to Yahoo! for releasing these numbers the day of the meeting. Last year, Yahoo! waited 7 weeks before releasing the numbers in the very back of their 10-Q.
As expected, the members of the Compensation Committee (Roy Bostock, Ron Burkle, and Art Kern) received a high number of "against" or "withhold" votes. Unexpected: the large number of votes cast against Gary Wilson.
It's also worth noting that only 75% of eligible votes were cast. This is an unusually low number. I would guess that several shareholders who voted for Icahn's gold proxy did not re-vote and that those votes were thrown out (as per Mike Callahan's comments at the meeting). Therefore, the "against" votes below are actually higher in terms of the percentage of votes cast.
I will comment more on the meeting in the coming days. For now, here are the numbers....
Director Shares For % For Shares Withheld % Withheld
Roy J. Bostock 832,023,657 79.5% 214,071,927 20.5%
Ronald W. Burkle 849,373,291 81.2% 196,722,293 18.8%
Eric Hippeau 948,862,579 90.7% 97,233,005 9.3%
Vyomesh Joshi 971,594,650 92.9% 74,500,934 7.1%
Arthur H. Kern 814,871,925 77.9% 231,223,659 22.1%
Robert A. Kotick 967,044,818 92.4% 79,050,766 7.6%
Mary Agnes Wilderotter 964,939,727 92.2% 81,155,857 7.8%
Gary L. Wilson 856,006,576 81.8% 190,089,008 18.2%
Jerry Yang 893,055,602 85.4% 153,039,982 14.6%
At the meeting, stockholders also ratified the appointment of the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, with 1,021,286,375 shares voting for, 9,952,603 shares voting against and 14,856,606 shares abstaining. Stockholders also voted to reject a pay-for-superior-performance proposal, with 339,808,082 shares voting for, 681,650,539 shares voting against and 24,636,963 shares abstaining. Stockholders also voted against a proposal relating to Internet censorship, with 54,531,125 shares voting for, 889,546,203 shares voting against and 102,018,256 shares abstaining. A proposal offered to amend Yahoo!'s Bylaws to establish a Board committee on human rights failed, with 41,874,370 shares voting for, 932,055,232 shares voting against and 72,165,982 shares abstaining.
Total shares represented at the meeting were 1,046,095,584, representing 75.8% of the 1,381,008,701 shares outstanding as of the record date, June 3, 2008.
By MICHAEL LIEDTKE – 4 hours ago
SAN FRANCISCO (AP) — Yahoo Inc.'s recent truce with investor Carl Icahn didn't pacify many shareholders who remain on the war path heading into the Internet company's annual meeting Friday.
The slings and arrows are expected to include a significant number of votes opposing the re-election of the company's current board of directors and a fusillade of criticism.
Yahoo Chief Executive Jerry Yang, in particular, will probably get an earful after spurning a $47.5 billion takeover bid from Microsoft Corp. in early May.
Since Microsoft withdrew that offer, Yahoo's stock price has plunged 30 percent to leave the company's market value nearly $20 billion below what shareholders would have been paid if Yang and the rest of the board had accepted the bid.
"The Microsoft negotiations were just the latest example of the negligence by this board," said Eric Jackson, a Yahoo shareholder who plans to confront Yang during Friday's meeting. "There is still a lot of anger and frustration among shareholders right now."
Jackson, who represents a group of stockholders with about 3.2 million shares, made an impression at Yahoo's meeting last year when he ripped the performance of then-CEO Terry Semel. Just six days after that skewering, Semel stepped down as CEO and surrendered the reins to Yang, Yahoo's co-founder.
Yahoo shareholders were agitated even before the breakdown in Microsoft talks because the company's profits and stock have been sinking for several years, despite an Internet advertising boom.
Since 2005, Yahoo has lost nearly half its market value. Meanwhile, the stock of rival Google Inc. has climbed 15 percent to create an additional $20 billion in shareholder wealth.
Yahoo shares fell 14 cents Thursday to $19.89, slightly above their price when Microsoft made its initial takeover bid six months ago.
Despite its struggles, Yahoo still has the support of many shareholders, including one of its largest, Legg Mason Capital Management Inc. The Baltimore-based investment firm, which owns a 4.4 percent stake in Yahoo, pledged its support for the current directors two weeks ago.
"We believe the board is independent and focused on value creation for long-term shareholders," Legg Mason Chairman Bill Miller said at the time.
If there's enough opposition Friday, Yahoo shareholder Mark Nelson thinks Yang may end his attempt to turn around the company that he and David Filo began 14 years ago.
"I haven't spoken to anyone who thinks, 'Hey, this is the right team to lead Yahoo,'" said Nelson, a partner at Mithras Capital, which owns 1.7 million Yahoo shares. "I hope there will be enough shareholder pressure at this meeting for the board to realize they need to bring in someone else to run the company."
Icahn, a blunt billionaire who will join Yahoo's board next week as part of his compromise with the company, already has said Yang, 39, should be cast aside for a more seasoned CEO. That idea may get more support when two Icahn allies join the Yahoo board by Aug. 15. (Shareholders won't be able to vote on the merits of Icahn and his allies until next year's meeting. Friday's vote will be confined to Yahoo's incumbent board.)
Before he decided to work with Yahoo, Icahn had been campaigning to replace all nine of the company's directors with a slate of his own candidates. But he changed his mind in July after concluding he didn't have enough shareholder support to prevail.
Icahn remains highly motivated to boost Yahoo's stock price because he paid about $25 per share to acquire a 5 percent stake in the company. But he doesn't plan to show up at the annual meeting. And now he seems willing to give Yang more time to prove he has the chops to be CEO — although his peace pact with the company now prevents him from publicly disparaging Yang or other Yahoo directors.
"While we still disagree on many points, I have great hope 'this will be the beginning of a beautiful friendship,'" Icahn wrote on his blog Thursday.
To round out its board, Yahoo must choose two Icahn-endorsed candidates from a list of nine. Two of the choices have been mentioned as possible successors to Yang — former AOL CEO Jonathan Miller and former Viacom Inc. CEO Frank Biondi Jr.
But Yang still seems to believe he is the best man for the job.
"I am as excited as I have ever been to lead this company," Yang told The Associated Press on July 22. "We have a sense of urgency to create value." In his defense Friday, Yang is expected to highlight an advertising partnership with Google that is supposed to boost Yahoo's annual revenue by $800 million. That alliance still could be blocked by antitrust regulators.
Yang also thinks Yahoo can get better at selling ads on its own.
Add it all up, and Yang believes Yahoo's net revenue will climb from a projected $5.6 billion this year to more than $9 billion in 2010. Industry analysts are highly skeptical: They predict Yahoo's 2010 revenue will be just slightly above $7 billion.
Yang won't be alone on the firing line Friday.
Roy Bostock, who became Yahoo's chairman on the same day Microsoft made its initial bid, oversaw the failed negotiations that followed. Bostock also sits on a compensation committee that approved an employee severance plan that threatens to substantially increase the costs of a takeover.
Two shareholder advisory firms — Glass, Lewis & Co. and Proxy Governance — have recommended voting against Bostock as well as the two other directors on the compensation committee, Ron Burkle and Arthur Kern. However, RiskMetrics ISS, the most influential shareholder advisory firm, supports re-electing the entire board.
Under Yahoo's bylaws, a director opposed by a majority of shareholders is required to submit a letter to resignation. But that rule won't apply in this year's election because the incumbents are technically still running against Icahn's slate. That means the current directors just need to win a plurality of the votes.
In an attempt to placate investors, Yahoo might announce a special dividend or some other extraordinary measure, such as a spinoff of its Asian assets. Microsoft proposed both ideas in July when the software maker teamed with Icahn in an attempt to buy Yahoo's search engine and break up the rest of the business.
July 31, 2008 4:00 AM PDT
Posted by Dawn Kawamoto
Believe in deja vu? Yahoo shareholders may when they file into the company's annual shareholders meeting on Friday.
Last year, an angry mob of investors took Yahoo's CEO to task at the company's annual shareholders meeting, citing the company's lackluster performance and the lucrative compensation awards. A week later, Yahoo CEO Terry Semel resigned from his executive post, passing the baton to company co-founder Jerry Yang.
Fast forward a year later and the situation is expected to markedly similar. When Yang takes the stage at the annual shareholders meeting, he'll likely face not only a sea of angry investors but one that will include some shareholders who are making a repeat appearance at the microphone to voice dismay.
But the tenor of this upcoming meeting is expected to be even more pitched, given that Yang and Yahoo's board rejected a $33 a share buyout bid from Microsoft in May and the stock has now roughly come full circle to where it was trading before Microsoft's initial bid of $31 a share in February.
Yahoo closed at $20.03 a share on Wednesday.
But beside the anticipated fury that is expected to unfurl at the meeting, what else may investors, employees, and Yahoo customers expect at this significant event for the Internet's search pioneer.
For starters, Yang will not be alone to fend off a potentially hostile crowd. Some, but not all, of Yahoo's current board members are expected to be in attendance, such as longtime director Eric Hippeau and newcomer Maggie Wilderotter.
Carl Icahn, the activist investor who launched a proxy fight to push Yahoo and Microsoft back to the table, nor his advisers, are likely to make an appearance at the meeting, after having reached a settlement with Yahoo last week.
Under that arrangement, Yahoo's current board of nine directors will be up for re-election to another one-year term. Based on the settlement agreement, it is anticipated that sometime between the shareholders meeting on Friday and the end of business Monday, Yahoo's director Robert Kotick will resign from the board and Icahn will be appointed to his seat. The board will also vote to expand its size to 11 members from nine.
While the settlement agreement also calls for the Yahoo board, which would then include Icahn, to fill the two newly added seats with two folks from Icahn's pool of candidates, don't expect those two new faces to be named at the shareholders meeting, said a source familiar with the company. Yahoo has until August 15 to fill those two positions.
During the meeting, Yang & Co. are expected to provide a presentation on the state of the company, in which a question-and-answer session will follow from the floor.
Investor activist Eric Jackson said he plans to make a return visit to the meeting and will once again make a case for his recommendation that investors withhold votes to re-elect certain Yahoo directors. Jackson is asking investors this year to withhold votes for compensation committee members Roy Bostock, Yahoo chairman, Arthur Kern and Ron Burkle, as well as
Hippeau, because of the length of time he has served on the board.
And while Jackson, along with advisory service to institutional investors Glass Lewis & Co. and Proxy Governance, have come out with recommendations to withhold votes or vote against several Yahoo directors, the effect will basically serve as a symbolic gesture to Yahoo's board on the level of investor dissatisfaction.
That's because the top vote-getters are the ones who will be elected to the available board seats, which means everyone will be re-elected in an uncontested race.
Nonetheless, the higher the percentage of votes cast that are marked with either "against" or "withhold," serves as barometer of investor discontent. Last year, Yahoo's board was re-elected with only 66 percent approval, whereas boards typically receive 80 percent to 90 percent of the votes cast.
And should any one director receive less than a simple majority of the votes cast, under Yahoo's bylaws they are required to automatically tender their resignation. But that too will unlikely lead to any director's ouster, given the board can vote to reject the resignation.
Yahoo, at the shareholders meeting, is expected to provide a 10,000-foot view on whether the directors received enough votes to be re-elected as a group, with the per director vote results to be released later, said one person familiar with the plans.
While the shareholders meeting is expected to bring a lot of one-day drama, keep an eye out for the ensuing two weeks as Yahoo's board undergoes a likely change in voice as Icahn and two members picked from his pool of candidates are added to Yahoo's board.
Verne Kopytoff, Chronicle Staff Writer
Thursday, July 31, 2008
(07-30) 20:31 PDT -- Yahoo Inc.'s annual shareholder meeting was on course to be a dramatic showdown with investor activist Carl Icahn until the two sides declared a last-minute truce in their battle for control of the Internet giant.
But the detente hardly means that the event, scheduled for Friday in San Jose, will be a lovefest.
Angry investors are eager to pummel Yahoo's leadership over the company's financial slump and its failure to accept a $47.5 billion takeover bid by Microsoft Corp, among other offers. Count on Yahoo CEO Jerry Yang and his fellow board members fielding some uncomfortable questions.
"You can still expect a heated debate," said Warren Chen, managing director of research for mergers and acquisitions at Glass Lewis & Co., a proxy advisory service in San Francisco.
For much of this year, Yahoo's board has faced withering criticism for its handling of the Microsoft courtship. Many investors considered a deal an antidote to the company's otherwise depressed share price.
Icahn, who has made a career of pressuring troubled businesses to do what he wants, eventually bought 5 percent of Yahoo's shares and launched an effort to replace its board with his own slate in what is known as a proxy contest. After a nasty campaign, during which he repeatedly accused management of bungling the Microsoft negotiations, Icahn settled the matter last week instead of taking it to a shareholder vote at Friday's meeting.
As part of the agreement, Icahn will join Yahoo's board. He also gets control of two other seats, which will be filled from a list of candidates he provided, by Aug. 15.
Eric Jackson, a longtime Yahoo critic who leads a group of investors who collectively own 3.2 million shares, said the settlement with Icahn doesn't get Yahoo's management off the hook.
"With Icahn and the noise of the proxy contest gone away, you could confuse that with it being all fine," he said. "People still place enormous blame on Yahoo for the breakdown of the talks with Microsoft."
Jackson, who runs the investment fund Ironfire Capital, said he plans to withhold his votes from four Yahoo board members to express his unhappiness with the company. Board members who don't get at least 50 percent of the vote for re-election must offer their resignations, although Yahoo doesn't have to accept them.
Brad Williams, a Yahoo spokesman, said about the prospect of pointed questions at Friday's meeting, "We are looking forward to having an open constructive dialogue with our shareholders."
Analysts expect Icahn to continue to pressure Yahoo's board to sell, although his three seats fall well short of a majority on the newly expanded 11-seat body. Whether Microsoft is still interested is unclear.
Icahn will have no official role at Friday's meeting, which will be held at the Fairmont San Jose hotel. There was no word on whether he will attend as a shareholder.
Although still profitable, Yahoo is struggling amid slowing growth and stiff competition with rival Google Inc. Yang has repeatedly tried to reassure investors by touting a three-year revival plan, which includes making Yahoo a must-buy for advertisers, although many analysts call the financial projections overly optimistic.
Signaling his willingness to make hard decisions, Yang agreed to outsource some of Yahoo's search engine advertising to Google. The deal, which is awaiting regulatory approval, is expected to bring in $800 million in extra annual revenue to Yahoo.
Yang, who co-founded Yahoo as a Stanford graduate student with David Filo in 1994, started his tenure as CEO last year following the departure of Hollywood veteran Terry Semel. Given the turmoil under his watch, Yang may be under pressure to resign within a year, according to some analysts and investors.
His challenge is to boost Yahoo's share price, which closed Wednesday at $20.03, to at least $33, the amount of Microsoft's last takeover offer.
David Larcker, accounting professor at the Stanford University Graduate School of Business and co-director of the Rock Center for Corporate Governance, said that even if Yahoo's leadership gets through the shareholder meeting unscathed, investors will turn up the pressure within the next year, absent any progress at the company.
"Investors were saying we'll go along with this for now, but if nothing positive happens in the next year or so, then sure, there will be tremendous pressure," he said.
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.
This article appeared on page C - 1 of the San Francisco Chronicle
Proxy Governance has announced this morning that it is advising institutional and pension fund clients to vote "against" the re-election of Roy Bostock, Ron Burkle, and Art Kern at this Friday's Yahoo! annual meeting.
I have previously spoken out against their re-election. I also have argued that Eric Hippeau should not be re-elected, based on the fact that he and Art Kern have served on this board for 12 years. In my opinion, they have ceased to be "independent" due to such length of tenure.
Here's an excerpt from the report:
We have concerns regarding the company's executive compensation, which is high compared to peers and given the company's financial performance relative to peers. Historically the company has relied heavily on equity incentive awards combined with relatively modest cash compensation. In 2006 equity grants played an even larger part than usual in senior executives' compensation packages. The board justified these grants by noting that the company began developing a new strategic plan and launched its new advertising system, Project Panama. Consequently, the Compensation Committee argued, it was imperative to ensure that current management remain with the company throughout the reorganization. It therefore approved performance and retention agreements with former Chairman/CEO T. Semel, former COO D. Rosenweig, CFO and Head of Advertiser and Publisher Group S. Decker and former CTO and Head of Technology F. Nazem. Under these arrangements, in 2006 each executive received a large grant of options, which would vest over periods ranging from two to four years.
The actual effectiveness of the grants is somewhat in doubt: Rosenweig resigned from the company in March 2007 and both Semel and Nazem resigned in June 2007. Under the terms of Rosenweig's separation agreement, the company accelerated the vesting of 600,000 options to the date of his separation, and will allow him to exercise those and certain other options (currently underwater) for an extended period of up to three years. Nazem's separation agreement provided similar accelerated vesting of all his option grants.
In 2007 option awards were more modest, ranging from $4.5 million to $1.3 million. Incoming CFO B. Jorgensen received 425,000 options valued at $4.1 million as part of his recruitment package, and S. Decker received 300,000 options valued at $3.1 million when she was promoted from CFO to president.
We note, however, that little of the reduction in executive pay is attributable to the Compensation Committee, which has announced no changes in its compensation philosophy such as performance-vesting criteria for equity awards and no plans to restructure
compensation in line with peers and company performance. CEO compensation dropped only because founder Yang, stepping in to replace Semel as CEO, accepted a purely nominal compensation of $1 per year. Among the other named executives, compensation
dropped largely because three of the four most highly-compensated executives left the company (in some cases taking portions of their retention grants with them); the fourth, Decker, again received a large equity grant on top of the previous year’s retention grants.
Given the company’s historically high executive compensation, the fact that high executive attrition rather than Compensation Committee restraint drove 2007 compensation lower, and the lack of changes in the company’s compensation strategy or practices which would keep compensation more in line with peers and performance, we recommend shareholders withhold votes from the three members of the Compensation Committee, R. Bostock, R. Burkle, and A. Kern, to signal their concern over the company’s compensation practices.
Friday's Yahoo! annual meeting for its shareholders will be an opportunity for us to speak up and make our voices heard.
If you're in the Bay Area, I encourage you to come out to the meeting at the Fairmont San Jose on Friday at 10am local time. (I will be traveling from the east coast to attend the meeting and know that several others are coming from long distances as well. Hopefully, we'll have a lively set of questions posed to the Yahoo! board in a true direct fashion since the titanic negotiations with Microsoft and also since Jerry Yang took over after last year's annual meeting.)
As I have said previously, I am "withholding" my votes for Roy Bostock, Ron Burkle, Art Kern, and Eric Hippeau. If more than 50% of my fellow shareholders do the same, those 4 men will have to submit their resignations (although Yahoo! could technically decline to accept them -- which would be highly unlikely because of the optics). I expect a Yahoo! board to be a better one without them than with them (although Yahoo! would be granted the right to select their successors -- hopefully only after much discussion with existing shareholders).
This morning, there was a story that at least one large YHOO shareholder was going to also vote "against" Jerry Yang. I can understand this sentiment. On a day when Yahoo! closed just shy of the ignominious price of $19, shareholders are understandably upset that CEO Yang couldn't close a deal to get 62% more than that a few weeks ago. In my opinion, Yang deserves a high "against" vote, but I hope he doesn't achieve the 50% mark because -- despite his failings this past year as CEO -- the company is better off with him on the board than without (in my opinion).
What about the Icahn nominees to the board?
We still don't know who 2 of these 3 people will be. The Yahoo! shareholders should have had the opportunity to vote on these nominees at this year's meeting. Instead, we'll have to wait a full year to vote.
However, this injustice is actually an opportunity. I hope that Yahoo! shareholders (large and small) will speak up in these last few days before Friday's meeting (and at Friday's meeting during the Q&A session) about their preferences for who should fill those slots.
Before the Yang-Icahn detente was struck, I had advocated a compromise solution in which I threw my support behind the election of John Chapple, Edward Meyer, Adam Dell, and Lucian Bebchuk. As part of the Icahn agreement, Carl himself will fill one of the 3 slots. Two are left open.
Jonathan Miller is rumored to be under consideration for one of those slots. He is an excellent choice and I would support him. Yet, he's still not thrown his hat in the ring.
If he passes on the chance to try and sort out this dysfunctional board from the inside, I would hope to see Chapple and Bebchuk elected.
Chapple (as Kara Swisher has said) has big business experience and wireless experience -- maybe he can sort out Yahoo! GO and help the company be successful in the perpetually burgeoning mobile wireless space. He also certainly knows how to sell out at the top. We'll see if he can help Yahoo! sell out when it's been round-tripped back to $19.
I also like Bebchuk and said so very early on. He's one of the best regarded academics on the issue of misaligned executive compensation and corporate performance. If you're going to try and cure Yahoo! of this affliction, why not send in the corporate equivalent of Doctors Without Borders?
We shouldn't be sitting back as shareholders waiting for Yahoo! to tell us who they -- in their infinite $19/share wisdom -- have deigned to select. Let's speak up and state who should be governing our company.
Today's news that Yahoo! and Carl Icahn have reached a truce is good news for Mr. Icahn (who was facing long odds after he wasn't able to convince enough large shareholders that he had an operational plan for the company). It's also good news for Yahoo!'s incumbent Board which has been under fire from its own shareholders since Microsoft walked away from its generous buyout offer on May 3rd.
But is this truce good news for Yahoo! shareholders? No. It simply doesn't go far enough.
Yahoo!'s board has been dysfunctional for too long. More changes are needed, which is why I will vote "against" the re-election of Roy Bostock, Ron Burkle, Art Kern, and Eric Hippeau at next week's annual meeting.
Carl Icahn speaks for his 4% of Yahoo! he owns. He might speak for other shareholders like Boone Pickens, John Paulson, and Dan Loeb. But all Yahoo! shareholders -- large and small -- will get their chance to express their views next week.
Why I'm Voting "Against" Bostock, Burkle, Kern, and Hippeau:
Yahoo! shareholders deserve better than the track record of this board in the last 4 years. Putting 3 new faces on this board is an improvement to the status quo, but we have to power as shareholders to remake this board so that it never again repeats these many mistakes.
I plan to vote "against" Bostock, Burkle, Kern, and Hippeau. By doing so, I believe I will be voting "for" a better Yahoo! board which will lead to better shareholder returns.
Sphere: Related ContentFrom TheStreet.com
By Eric Jackson
06/16/08 - 08:06 AM EDT
The timing was impeccable when I opened my mail Friday and found Yahoo!'s(YHOO - Cramer's Take - Stockpickr) proxy statement with a cover note that started: "The vote you will cast for directors at Yahoo!'s August 1, 2008 annual meeting is the most important for stockholders in our history." I couldn't agree more.
Carl Icahn is seeking to oust the entire Yahoo! board at that meeting. There's been a barrage of letters and counter-letters between Icahn and Yahoo! Chair Roy Bostock in the last few weeks, and Yahoo! shareholders have been faced with a binary choice for their vote at the upcoming election. I want to outline and advocate for a Third Option.
To this point, Icahn has made the case that the current board bungled the negotiations with Microsoft(MSFT - Cramer's Take - Stockpickr), leaving a breath-taking amount of shareholder value on the table. They also approved an employment retention and severance package in February that was effectively a poison-pill, as it could tack on $2.6 billion to the price any acquirer would pay to buy company. Icahn argues this package was put in place to deter Microsoft and keep Yahoo! independent. Two reasons why Yahoo! might want to do this is (1) an emotional attachment the co-founders have for their company, and (2) the lavish senior executive and director compensation that has been paid out over the past few years. (The non-executive Yahoo! directors, on average, pay themselves twice as much as the non-executive Google directors -- $500,000 a year vs. $250,000, according to the most recent proxies from both companies.)
I am a Yahoo! shareholder and have pulled together a group of other Yahoo! shareholders with 3.2 million shares owned collectively (worth $74 million at today's prices). I happen to agree with Icahn's arguments and support his slate; so do most retail investors and smaller institutional and hedge fund investors, according to unscientific conversations I've had over the last 6 weeks.
Yahoo!'s argument for why the current directors should keep their jobs is that Icahn's team has no plan to operate the company if he wins. It also appears he has little leverage to bring Microsoft back to the negotiating table. They point to Icahn's existing suggestions to simply offer to sell the company to Microsoft for $34.375, fire Jerry Yang as CEO, and hire someone like Eric Schmidt as CEO. They and others have also criticized Icahn's slate as not having enough "Internet experience." They warn that Yahoo!'s newly approved "retention package" will kick in if Icahn wins 5 or more board seats in this proxy contest. Such an outcome would be classified as a change in control, meaning Icahn's new group couldn't change any employee's job description or location without potentially incurring up to a $2.6 billion fee (paid for by Yahoo! shareholders). Reading between the lines, Yahoo!'s board is saying: we know our four-year track record is poor and we understand the shareholder anger over us not consummating a deal with Microsoft, but you should still vote for us because we can operate this company better than Icahn and at less cost to you shareholders.
Let me be clear that I reject this argument. I have been seeking major changes to Yahoo!'s board since January 2007. Many other shareholders have wanted changes to Yahoo!'s board for some time. At last year's annual meeting, 36% of Yahoo! shareholders voted against the re-election of the three directors on the Compensation Committee, as well as high protest votes against every other director, in part due to mass frustration with the under-performance of this company.
However, I recognize that there are some large institutional shareholders who will be persuaded by Yahoo!'s argument over Icahn's argument.
More importantly, I fear that a majority will side with Yahoo!, just as a majority of large holders sided with Motorola(MOT - Cramer's Take - Stockpickr) management in May 2007 instead of Icahn, before the gravity of the company's problems fully showed themselves.
Therefore, this article is directed to those large holders in Yahoo! like Capital World Investors, Capital Research, Legg Mason(LM - Cramer's Take - Stockpickr), Vanguard, State Street(STT - Cramer's Take - Stockpickr), Citi Investment Research, Fidelity, BNY Mellon, and T. Rowe Price(TROW - Cramer's Take - Stockpickr). It is also directed to the large proxy advisory firms RiskMetrics, Glass Lewis, and ProxyGovernance.
A "Third Option"Here is a "Third Option" for how institutions can vote at Yahoo!'s annual meeting, if you cannot fully support the Icahn slate: vote in a minority of Icahn's representatives to Yahoo!'s board.
There are 9 spots up for election on this year's Yahoo! board. My "Third Option" would be to vote in 5 from the existing board and 4 nominees from Icahn's slate. Whichever 9 individuals gets the most number of votes will serve on the new board.
In doing so, you will ensure the following:
Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo! We must accept that reality and select a board to do the best job in the current situation (even as distasteful as the situation is). This "Third Option" will clearly assure the best possible future outcome for shareholders vs. supporting only the incumbent Yahoo! board.
Which Yahoo! Directors Should Be Re-elected?
I endorse these five Yahoo! directors to remain on the board under this "Third Option" scenario, for reasons explained below:
In my opinion, the current members of Yahoo!'s Compensation Committee (Chairman Bostock, Ron Burkle and Art Kern) should not be re-elected as they were each the subject of the highest "against" votes at last year's annual meeting. They are also responsible for ladling out excessive stock options to their fellow directors and senior executives over the last four years. I also believe that Eric Hippeau should not be re-elected because he, like Art Kern, has been on the board for over 12 years. That's simply too long, given the relatively poor performance of the company in these past four years. It is time for new blood.
Although I have been disappointed with the results of Jerry Yang's tenure as CEO and hold him accountable for the poor outcome with Microsoft, I believe that -- as a co-founder -- he should remain on this board. Whether or not he remains as CEO is something for the new board to determine. I frankly hold Mr. Bostock more responsible for the break-down in talks with Microsoft. He supposedly has much more experience in such deal-making matters than Yang, and I find it puzzling that he would choose not to attend that fateful May 3 meeting in Seattle, which led to Microsoft finally pulling the plug on their offer.
Which Icahn Nominees Should be Elected?
From Icahn's slate, there are many worthy candidates. However, I believe the best four candidates to serve on the new Yahoo! board are:
Why shouldn't Icahn or his deputy Keith Meister be elected? I want Icahn to win outright, but I am putting forward this "Third Option" because I fear several large shareholders will worry about the operational abilities of Icahn and his team. As I said earlier, I support them and believe they are more than fit to serve on this board. Icahn has done a great service to Yahoo! shareholders by running this proxy contest. If he wasn't, we would only be able to vote for the existing board members.
But the "Third Option" is about electing a "short slate" of directors with highly relevant professional, industry, and research experience to make Yahoo!'s board better. These four nominees meet that criteria and will be, I believe, appealing to a majority of investors.
To move forward as Yahoo! shareholders, we need to turn the page with this "Third Option" and not remain stuck in the past with the existing failed board.
Most Yahoo! shareholders I've communicated with since the break-down in discussions between Microsoft and Yahoo! last week are still numb and angry.
From Feb. 1 to May 3, Yahoo! shares were valued at $31 (and briefly verbally valued at $33), before the bottom fell out of the talks.
Today, those shares are at $23, with no prospect of increased value in the foreseeable future. Yahoo! appears comfortable with its new deal to partially use the market monopolistic leader for paid search ads. Microsoft, and its 61% premium offer, appears to be gone, for now. Hence the need for this "Third Option."
At the time of publication, Jackson was long YHOO.
