Florida Trend: Webcam Warrior Tackles Yahoo

Eric Jackson takes up the role of small-investor activist.

Published 8/1/2008 in Florida Trend
by Mike Vogel

The emergence of a phenom is usually associated with an individual moment. In the case of Eric Jackson, online shareholder activist, his moment came with Yahoo on a Sunday morning a few days after New Year’s Day 2007 in the guest bedroom of a condo he rents overlooking the Gulf north of Naples.

Staring into a $30 webcam he bought at Office Depot, Jackson videoed his case against Yahoo’s management in a seven-minute and 33-second speech that was as crisp as the part in his hair. He rose early on that Sunday so that he could make the video while his wife was still asleep; he was self-conscious about doing it in front of her.

Jackson, who owned all of 45 Yahoo shares, certainly picked the right moment — and not just to avoid his wife’s eye. His viral campaign against Yahoo, launched when he posted his video on YouTube, fed into the online and business news zeitgeist and transformed him from an unread blogger to a minor media figure with his own investment fund.

Jackson, 36, a Toronto native, got his start out of college at his father’s business, Jackson Leadership, a Toronto-based consulting firm that advises companies on succession planning, building management teams and so on. Going on to Columbia University for a doctorate in business, he and professor Donald Hambrick wrote one of the first studies of whether corporate “good governance” ideas correlated with better performance. (They found that only one mattered: Whether board members made significant purchases of their own company’s stock.) Along the way, Jackson took an interest in activist investment firms and the Carl Icahns of the world.

Jackson is “very sharp, intellectually vibrant” and interested in application more than theory, says Hambrick. In 2000, Jackson went on to become an executive with a Toronto tech startup, VoiceGenie, then rejoined his father in 2004. Two years later, Jackson, now president of the firm, moved his family to Naples.

To help his consulting business, he started a blog, breakoutperformance.blogspot.com. It drew only a couple of readers a day, but Jackson knew he was on to something in 2006 when that number jumped to 1,000 after he offered an opinion on Yahoo. He studied the company and decided it was ripe for improvement through activism. But he lacked Icahn’s money and name recognition, along with the institutional investors who can assemble the 1% to 10% of a company’s shares it typically takes to get leverage on a target. Armed with his idea of online, mass activism, he bought his webcam and 45 shares and hit the internet.

Jackson mounted his campaign as Yahoo ran up a series of poor quarterly results and missed opportunities while Google was making gains. It also came just over a year before Microsoft made public its bid for the company and almost a year and a half before word got out that Carl Icahn was buying up shares and proposing his own board slate.

Unlike disgruntled shareholders who grouse on message boards, Jackson offered a vision he named “Plan B” and allowed shareholders to pledge their support. He utilized YouTube, his blog, Wikia and YouChoose.net, a Thornton, Pa., startup that contacted him and suggested he use its site to gather results. His campaign, with 148 people pledging, would make it the fourth-most popular, as measured by number of signers, in YouChoose’s business category. (The overall winner, with more than 23,000 signers, is a campaign to get the TV show “Supernatural” renewed for a fourth season.)

A symbiotic relationship with the media followed. He appeared on CNBC with Maria Bartiromo, Fox’s Neil Cavuto and on the “CBS Evening News” and attracted coverage in the Wall Street Journal, the New York Times and elsewhere. In Jackson, the talking heads found an articulate shareholder, speaking earnestly about being constructive but with the wit to describe a particular board decision as “Ya-hubris.” Jackson was quite willing to accommodate their needs, even driving to Fort Lauderdale for a studio link to New York.

Jackson also telephoned large institutional shareholders for support. At least one, though not for public attribution, says Jackson is a “real advocate for shareholders.” The proxy voting advice service ISS/RiskMetrics included coverage of Jackson’s plan in its briefing report for Yahoo stockholders. By the time he flew to San Francisco for Yahoo’s 2007 annual meeting, he could claim 2.1 million in pledged shares behind him — two-tenths of 1% of Yahoo’s shares.

In the Q&A session with investors, Jackson had a public dustup with Yahoo CEO Terry Semel. Six days later, Semel was out. His compensation had been criticized, and board members up for re-election had gotten relatively little support in the proxy voting. Jackson sees cause and effect: “I was the outspoken shareholder.”

Yahoo was under stress from many directions. Still, Jackson “was a significant part of the pressure,” says Charles Elson, a University of Delaware professor and authority on corporate governance who has known Jackson since Jackson’s Columbia days.

Eager to show that his Yahoo gambit wasn’t a fluke, Jackson bought 130 Motorola shares and launched a second, less successful campaign. Among the user comments on wsj.com’s coverage is this exchange: “He’s simply a self-promoting wind bag. 130 shares? When he gets to 13,000 maybe he earns the right to feign interest in turning Motorola around,” wrote a user named Cato. Responded a user named Steve: “Self-promoting? Yes, but nonetheless, 1 share gives you a voice, and if his motives are genuine, then it is a good thing.”

Jackson decided to start his own investment fund using a model he developed for identifying overlooked, undervalued small companies. He raised “under $10 million” from family and friends and in February founded Ironfire Capital out of his Naples condo. In an interview on the veranda of the condo beach club, Jackson comes across as far from egomaniacal. Tall, he’s more animated and funnier than the reserved talking head of his YouTube postings.

Jackson says he’ll use activism to push his picks along. “At the end of the day, I’m still a guy who’s going to use the web,” he says. He’s made only two of his first 14 picks public: Barnwell Industries, a Honolulu hodgepodge of businesses that gets most of its revenue from a Canadian oil and gas operation, and GeoEye, a Dulles, Va., space satellite company. Executives at both companies, and Yahoo and Motorola, didn’t respond to requests for comment or declined to comment.

Neither small company is likely to generate the media interest to which he’s become accustomed. “If no one pays attention from CNBC, that’s fine,” Jackson says. “I’m not doing Ironfire to be in the press. I’m doing it to make money for the people who invest.”

Jackson reckons his whole Yahoo campaign — the webcam, plane tickets and hotel for the annual meeting — came to just $2,000. Given the low cost, the ease of online tools and virtual organization, Jackson likely is a pioneer in a field experts expect to grow. Says Jackson’s academic mentor Hambrick, now at Penn State University, “The whole issue of viral and grass-roots influence in all facets of social and economic life is going to mount, and woe be unto the big guys who don’t understand that.”

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Naples Daily News: Naples Small Investor Led Shareholder Revolt Against Yahoo!

From the Sunday Naples Daily News:

By Laura Layden

Saturday, June 30, 2007

You might call it a Webolution.

It all started back in October when Naples resident and management consultant Eric Jackson wrote about Yahoo! on his personal blog. He questioned the company’s management and the leadership of then-CEO Terry Semel.

He wrote that the rise in the company’s stock price in the first few years after Semel joined Yahoo! in 2001 had more to do with the increased popularity of Internet advertising than with the executive himself -- and that anyone could have done the same job in the same situation.

Little did he know the reaction he would get. E-mails and phone calls poured in from disgruntled investors.

“At the time, there was this huge amount of traffic that came on my blog. I didn’t get that many visitors to my blog and suddenly there was all this interest. People were making comments.
Ninety-five percent were agreeing and frustrated with Semel’s leadership,” Jackson said.
The outpouring of support led him to become a shareholder in Yahoo! and an activist pushing for change.

Observers have credited Jackson for taking down Semel, who stepped aside as Yahoo!’s boss earlier this month. On June 18, Yahoo! announced Semel was out as CEO and that co-founder Jerry Yang would replace him.

The change in leadership came after Jackson, who bought 96 shares of Yahoo! stock in January, led a high-profile campaign to oust Semel and to replace six others on the company’s board of directors as part of what he calls “Plan B.”

“I think a lot of people were dissatisfied, and he just brought a voice that had a lot of weight because he represented the small guy,” said David Neubert, a Yahoo! investor and former Wall Street trader in New York that got behind his campaign. “Representing the small investors gave him more weight than if he was a single investor representing more shares.”

The campaign attracted national attention. The Wall Street Journal, New York Times, Business Week, USA TODAY and the Los Angeles Times picked up on the story. Jackson appeared on CNBC and Bloomberg Television.

“For Bloomberg they sent a truck to where I live in North Naples,” he said. “For CNBC, I had to drive to Fort Lauderdale because there wasn’t a studio in Naples that had a satellite dish to do the uplink.”

He used his blog and YouTube to organize investors to support him.

“I didn’t have any money to do a marketing campaign,” he said.

After reading Jackson’s blog, Neubert pledged his 4,500 shares (worth about $120,000 at the time).

Jackson impressed him.

“You see Carl Icahn do this stuff,” Neubert said. “But you don’t see a little guy like this doing it, and he wasn’t even from the financial world.”

“My hope is that it becomes the wave of the future, and that a lot more individual investors do this,” he said.

The group’s nine-point plan suggested how Yahoo! could turn itself around.

“The company hasn’t been doing particularly well in the last three years, especially in comparison to Google,” Jackson said. “Google’s stock has gone up by about 300 percent, and Yahoo!’s stock has gone down 8 percent, as of a few weeks ago. It has been an underperforming company. It has been a frustrating company to watch as a shareholder.”

Within the first few weeks of posting his interest in driving change at Yahoo!, investors pledged 500,000 shares to his campaign.

“I was surprised at how many current and former Yahoo! employees had contacted me and started expressing interest,” he said.

Today, his group represents 100 individual investors, owning 2.1 million shares (worth about $60 million).

Jackson sent Plan B to the company in February, but the board gave it little notice, he said.
In April, he met with Yahoo! executives in California. But nothing changed, he said.

Now, Yahoo! seems to be paying attention.

At the company’s annual meeting on June 12, more than a third of the stockholders opposed the re-election of at least one Yahoo! director. That rarely happens. It sent a clear message that shareholders weren’t happy and wanted change at the Internet giant.

“I think everyone was very surprised that the vote was as high as it was,” Jackson said.
He attended the annual meeting at the Santa Clara Convention Center in California and asked tough questions of Semel, who at the time appeared to have no immediate plans of leaving Yahoo!.

Jackson demanded to know whether Semel still had the “fire in his belly” to continue on as Yahoo!’s boss.

Semel answered “absolutely.”

Jackson also asked how Yahoo! planned to better compete with Google and grow its display advertising business.

In his speech to shareholders that day, Semel didn’t apologize for the company’s poor performance and Jackson told him he should have.

Semel responded the best was yet to come.

Less than a week after the annual meeting, Semel resigned.

“This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential — it is the right thing to do, and the right time is now,” he wrote in a letter to Yahoo!’s board of directors.

He said there’s “no doubt that, with its new leadership team, Yahoo! will realize its enormous potential.”

Yahoo! seems to be acting on other points in Plan B. The company has stepped up its buy-back program for stock and is looking to reduce overlapping divisions, two suggestions in the plan, he said.

“I don’t expect them to do everything in the plan, but it seems they are following up on several of the points, which makes us happy,” he said. “I think they are on the right track again.”
Jackson, 35, has a master’s and Ph.D. in strategy and corporate governance from Columbia University’s Graduate School of Business in New York.

He owns his own management consulting firm, Jackson Leadership Systems Inc., which his father founded in 1989. Though it’s based in Naples, the company has clients around the country, including cement supplier Lafarge, chemical company BASF and the NBA’s Toronto Raptors.

Previously, Jackson was a vice president of strategy and business development at Web telephone service provider VoiceGenie, now a part of Alcatel. Jackson moved here last fall from Toronto.

This is the first time he’s been involved in an activist campaign. He’s watched others build up their stake in companies to force change. By others he means the likes of billionaire investor and takeover king Carl Icahn, who has made a bid for Bonita Springs-based home builder WCI Communities Inc. and wants to replace the current board of directors with his own slate of officers.

Jackson also has taken cues from Naples’ own Bruce Sherman, an investment consultant who instigated the sale of newspaper giant Knight-Ridder.

The difference is that Jackson is a small investor who used the Internet to organize his campaign.

He even attempted to get elected to Yahoo!’s board of directors, but a technical hang-up kept that from happening.

He’s not stopping at Yahoo! He plans to launch more activist campaigns against other companies.

But he’s not revealing any names yet.

“I’m still researching,” he said. “So we haven’t actually bought the stakes yet.”

With all the publicity from his Yahoo! campaign, he’s been asked if he’s going to create his own hedge fund.

“That might be a spin-off business for Jackson Leadership,” he said. “Hopefully, sooner rather than later. Maybe Naples will become the activist investing capital of the world.”

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