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
Roy Bostock has been skating away assuming no responsibility for the mess that Yahoo! currently finds itself in. That's got to change.
Read the full post at 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.
If I told you that Yahoo! had made a charitable contribution to an American University in the last year, which one would you guess? Stanford University, where Jerry and David dreamed up the company in the computer labs more than a decade ago? Cal? San Jose State? Try Duke.
You probably weren't familiar with a long fabled relationship between the Silicon Valley-based Internet company and the fine academic institution on the other side of the country on Tobacco Road. Let me connect the dots for you. Yahoo!'s Chairman, Roy Bostock, and fellow director, Gary Wilson (both appointed by former CEO Terry Semel), serve on the board of the Fuqua School of Business at Duke.
Unfortunately, we don't know exactly how much Yahoo! gave to Duke. I don't see why shareholders shouldn't know the amount. The fact that it's the only university named in Yahoo!'s most recent proxy filing as having received such a contribution from Yahoo! last year, when there is this obvious relationship with two directors, calls for more disclosure -- not less.
It's also strange that the only other non-profit institution receiving a charitable contribution last year was The Partnership for a Drug-Free America, for which Mr. Bostock is also a director.
These donations are fully disclosed in the proxy under "Related Party Transactions" but are they right and proper? I don't think so. In my view, Mr. Bostock shouldn't be able to leverage his job as Chairman (which paid him $568,449 last year in total comp) to access the company's Treasury (the shareholders' money -- not his) for his pet causes.
Full disclosure: I don't think Mr. Bostock is fit to serve as the Chair of this dysfunctional board. He led the charge in the famously disastrous Microsoft merger negotiations last year. Then, he spoke at length at the 2008 shareholders' meeting, about just how hard Yahoo!'s board had worked to secure a deal. His words to the audience dripped with condescension.
I attended the meeting and asked him if he thought he deserved to make $500,000 for his Yahoo! job. He told me he didn't make that much money in the prior year and I had my facts wrong (they were the facts). I followed up by asking him to resign off the board based on how nearly half of shareholders had voted against his re-election at the prior year's shareholder vote. He told me I was a guy who looked at the glass half-empty and he saw the glass half-full with the number of "for" votes he did receive.
Given Mr. Bostock's rose-colored glasses, I have no doubt he saw no problem in seeking out a charitable contribution for his two affiliated non-profit organizations. How much were the contributions, Roy?
Perhaps more troubling for Yahoo! shareholders is that, in that same section of the proxy filing, there was the following disclosure:
| - Transactions in the ordinary course of business between the Company and entities for which the following directors served as an executive officer, employee or substantial owner, or an immediate family member of an executive officer of such entity: Mr. Icahn, Mr. Joshi, Mr. Kotick, and Mrs. Wilderotter. |
VJ Joshi runs the printer division at HP, so I can imagine that Yahoo! bought some ink cartridges from them last year. Bobby Kotick runs Activision, so maybe the company bought some recreational copies of "Guitar Hero" for the senior officer and director lounge. Maggie Wilderotter runs Frontier Communications which sells cheap phone and DSL service in upstate New York and the surrounding area. So, I have a harder time understanding Yahoo!'s need to do business with them -- although maybe there are some remote workers in Rochester who can't get AT&T access (with whom Yahoo! has a large strategic partnership).
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.
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.
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.
