Voices » Sue Decker

After Vote-Gate, Heads Must Roll on Yahoo's Board

Eric Jackson — Thu, 07 Aug 2008 00:00:50 +0000

By Eric Jackson, Managing Member, Ironfire Capital LLC

To anyone who says that it’s inconsequential that Yahoo understated the level of shareholder dissatisfaction by more than half thanks to a “tabulation error” by its proxy counter, Broadridge Financial Solutions, I say: You couldn’t be more wrong.

This incident will have ramifications in the coming weeks for the composition of Yahoo’s board. But here’s the shocking thing: This latest batch of numbers might still underrepresent the level of disdain shareholders have for this board.

Any corporate election that doesn’t receive 95 to 98 percent support from shareholders for the incumbent management and board is an anomaly. Yahoo’s first press release from last Friday suggested that, despite all the hubbub of the failed merger talks with Microsoft and public criticism from Carl Icahn and others, Yahoo (YHOO) shareholders had let the incumbents off the hook.

Chairman Roy Bostock and CEO Jerry Yang were re-elected with 79.5 percent and 84 percent support respectively. These relatively benign results (compared to last year’s), combined with the fact that there were not more pointed questions at the meeting last week, led some observers to conclude that this board had “faced down” its critics.

Not quite. Gordon Crawford of Capital Research Global Investors did all Yahoo shareholders a favor by demanding a recount. Yahoo and Broadridge complied.

And results of that recount were alarmingly different from the first set of numbers. We’ve all heard of +/- 4 percent in polling, but when was the last time you heard of +/- 50 percent?

The recount might set a modern-day record among S&P 500 companies for the most “withhold” votes for a board in a corporate election. Only Vyomesh Joshi, head of Hewlett-Packard’s (HPQ) printer group, got off without a serious warning from shareholders (a 7.1 percent “withhold” vote).

The “withhold” vote for Bostock was 39.6 percent, not 20.5 percent as originally reported. And 33.7 percent of Yahoo shareholders withheld their support from Yang, not 14.6 percent.

Other Yahoo directors who fared poorly in the election were Gary Wilson (27.7 percent of votes withheld) and Compensation committee members Ronald Burkle (37.9 percent withheld) and Arthur Kern (31.7 percent withheld).

What would we all be doing today if Crawford had never called for a recount? If a “tabulation error” happens and no one is there to hear it, did it happen at all? We will never know.

And there will likely be more shoes to drop in this tragedy of errors. This “tabulation error” was only one of two major question marks surrounding last Friday’s initial voting results. Yahoo easily made Broadridge the fall guy for this first error.

The second error–how few eligible shares were counted in the final tally–isn’t so easily eluded. And for that, Yahoo will be the fall guy.

Only 75.8 percent of the eligible shares as of the June 3 record date were voted in this election. After such intense media scrutiny in the past few months, it seems odd that so few investors participated.

Last weekend, I dove into the numbers in detail and reviewed them against numbers from the last two Yahoo elections. On Sunday night I wrote about the most recent Yahoo shareholder vote and verified that there were 200 million fewer votes cast this year compared to the average over the last two years. I called on Yahoo to appoint an independent third party to review and certify the voting process.

Yesterday, as news of the voting irregularities circulated, I received a number of complaints from frustrated shareholders.

Some claimed they had received multiple proxies from Yahoo over the last month, with several arriving Aug. 4–the Monday after the election. Some said they had had trouble voting by phone. Others, who had initially voted for Icahn’s slate, said when they tried to re-vote against the Yahoo board, they weren’t able to do so.

How many other shareholders encountered similar difficulties? Without a full inquiry, we’ll never know.

These missing votes could have had an even more significant impact on the overall results. For example, Bostock received “for” votes from fewer than half of the total shares eligible to vote (only 45.8 percent of the 1.4 billion shares eligible to vote). He truly lacks the approval of the majority of the shareholders he is supposed to represent. With a 47 percent vote, Burkle also lacks majority support. And while Yang won majority support, he did so by the skin of his teeth, with just a 50.2 percent vote.

Governance Matters

At Friday’s meeting, I asked Yang, Yahoo President Sue Decker and Bostock about three issues that suggest to me that Yahoo’s governance oversight has been lax.

(1)

(2) Decker serves on three Fortune 500 boards: Intel (INTC), Costco (COST), and Berkshire Hathaway (BRK). Her duties to those companies required her to attend at least 22 meetings last year, according to proxy filings. And each meeting required significant preparation. As a Yahoo shareholder, I fail to see how outside commitments like these benefit Yahoo. Are they really necessary? Shouldn’t Decker drop a few of them until Yahoo finds solid footing again?

(3) About a third–31 to 36 percent–of Yahoo shareholders voted against the re-election of Roy Bostock and fellow Compensation Committee members Burkle and Kern last year. Yet all three continue to sit on this committee (or the board). Why? And why did they agree to pay outside directors average total compensation of $500,000 last year? Google’s (GOOG) outside directors were paid $250,000, on average, for their services last year. Decker received $2,700 for sitting on the Berkshire Hathaway board (and $110,000 per year for serving on the Intel and Costco boards). Why is Yahoo paying its directors so much?

I found the trio’s answers to these questions unconvincing. Particularly surprising were Bostock’s comments on Compensation Committee member tenure and compensation.

In the first place, Bostock said while 32 percent of shareholders voted against his reelection last year, 68 percent voted for him. And that’s not bad, he said. This glass-half-full logic explains why he has never bothered to explain to shareholders why he, Burkle and Kern have remained on the Compensation Committee and the Yahoo board.

Second, Bostock disputed my assertion that Yahoo’s outside directors were paid an average of $500,000 last year. When I asked him if he was definitively stating that he did not receive compensation of about $500,000 last year, he said “yes.” Yet, according to Yahoo’s own proxy statement, Bostock earned total compensation of $499,264 last year. 2007 compensation for Yahoo’s other board members was as follows:

Ronald Burkle: $482,046
Eric Hippeau: $496,674
Vyomesh Joshi: $519,520
Arthur Kern: $496,990
Robert Kotick: $492,774
Edward Kozel: $516,202
Mary Agnes Wilderotter: $205,832 (for five months of service; annualized $493,997)
Gary Wilson: $482,046

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. Bostock and 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.

Idiot's Guide to Fixing Yahoo

R. Scott Raynovich — Thu, 12 Jun 2008 07:00:10 +0000

By R. Scott Raynovich, Publisher, Contentinople

The great CEOs are always focused on products and product marketing. Three that come to mind: Steve Jobs, Bill Gates and Eric Schmidt. The products are: Mac & iPod, Windows and Google Search. What’s Yahoo’s great product? What’s its marketing focus? … If I were one of the shareholders voting on the proxy, here’s a question I would ask: If Yahoo is going to remain independent, what kind of company is it going to be?

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Liveblogging: Yahoo's Decker and Yang

John Battelle — Thu, 29 May 2008 16:30:37 +0000

By John Battelle, Founder and CEO, Federated Media

After a funny film featuring nearly every luminary under the sun giving Yang and Decker advice (Buffet, Stringer, Zuckerberg, etc.), Yang and Decker took the stage and Walt immediately asked them about the MSFT deal. Yang agreed that they could not get to a price, but that there were other issues as well. Regulatory is one that came up, but I can imagine others (i.e., approach to open source, total installs of Outlook at Yahoo, etc.!).

What is the concept around the Google deal? Yang: We feel strongly about how we monetize search, but there is clearly a value gap between us and (Google), we want to make it clear to our shareholders that there are other untapped sources of value that should we want to tap that…could be significant…” We’ve conducted tests with them and we have some understandings…as to the level of discussion…we are uniquely positioned ….should anything be done (between Google and Yahoo) it’d be unique… Yahoo has the ability to remain very competitive in the advertising space…the level and flexibility of how we might partner has not been well understood…(he doesn’t want to talk about it)…

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Steve Ballmer's To-Do List for the "Day After"

Charles Cooper — Wed, 30 Apr 2008 07:00:04 +0000

By Charles Cooper, Executive Editor of Commentary, CNET News.com

One more Microhoo observation before:
A) They announce the tech deal of the century.
B) They go to the mattresses.
C) They continue to screw around just to keep us sleep-deprived.

So let’s assume that Microsoft CEO Steve Ballmer wakes up tomorrow and Yahoo’s a done deal. First order of business is to find the right person for the job. But that’s where Ballmer’s going to have to summon the wisdom of Solomon.

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A New Day for Yahoo

Eric Jackson — Wed, 20 Jun 2007 16:38:23 +0000

By Eric Jackson, Managing Member, Ironfire Capital LLC

I hadn’t expected Terry Semel to step down on Monday. Less than a week before, after Yahoo’s annual meeting in Santa Clara, Calif., he approached me. He was quite affable, considering that we had had a pointed exchange during the earlier Q&A session and that I led a group of 100 shareholders owning 2 million shares who had submitted a nine-point “Plan B” to the company for creating additional value, where point No. 1 was to remove him as CEO. Despite that, he said he was interested in holding a “constructive dialogue” with our group of shareholders. He gave every indication that day that he intended to fight on (with, yes, “fire in the belly”).

Several commentators didn’t think that Yahoo would change all that much following the shareholder vote, partially because Jerry Yang (and also co-founder David Filo) is “not a boat rocker.” (Kara Swisher did acknowledge that she was wrong in this post.) Something obviously had changed between last week’s annual meeting and Monday’s closing-bell announcement. Yang is the new CEO, with Sue Decker as the company’s president.

In the wake of this news, analysts, commentators and pundits started reading the tea leaves about what the changes signified. Some saw Yang as purely an “interim” CEO who didn’t really want the job. Some said that he was too close to Semel and wouldn’t deviate from the prior strategy. Others inferred that Yahoo was more likely to put itself up for sale (including–surprise–a few investment bankers). One big complaint leveled against Yang was that he’d never run a 12,000-person company before. No, he just helped create and build a 12,000-person company.

As a shareholder, I couldn’t be happier with the leadership moves announced Monday. Yang will be extremely successful in his new role. He wants this now–not for himself, but for the users, employees and shareholders of the company. What’s more, he can and will be successful.

Here’s why: In the weeks leading up to the shareholder vote in Santa Clara, I was contacted by email or phone by almost a dozen current or recently departed Yahoo employees. What’s clear is that Yang and Filo are universally beloved. “David Filo would send out IMs to others on the product/engineering side when some bug turned up at 2 a.m.,” boasted one very impressed ex-Yahoo. Several people asked me: Can we “draft” them to play even bigger roles at the company? They’re getting their wish.

So, let’s go over the case for Yang as CEO:

Nobody knows the business as well as he and Filo do. These two guys are the corporate DNA. When you walk into the lobby at Yahoo, you are inundated with an internally focused marketing/morale-boosting campaign called “We Were; We Are,” complete with black-and-white shots of the early days at the Stanford computer lab, contrasted with colorful modern images of Yang and Filo. They have continued to be intimately involved in the business and know where it needs to go.
He’s already off to a fast start. For a guy who some say was reluctant to take the job, he appeared remarkably energetic in Monday’s analyst call announcing the changes. His instincts and alacrity will serve him well.
He knows how to do deals. Yang architected the very significant partnership with SBC (now AT&T) in early 2001. More recently, in 2005, he did the deal with Alibaba.com. Critics have pointed to Broadcast.com and GeoCities as examples of expensive acquisitions he was involved in that didn’t pan out. This was a different time, however, when Yahoo had a different market cap itself. His instincts were correct (on video and social networking, way before they were seen as “growth” areas). He won’t be shy to do deals in the months ahead, which the company will benefit from.
He’s got the mental strength. It would not have been easy for Yang to go through the last few days leading up to Monday’s announcement. Semel is a friend. Yang wanted it to work. But he was obviously ready to take on this responsibility.
It’s his time. None of us has experience until we get experience. Yang hasn’t run a 12,000-person company, but he’s worked there every day of his professional life. He’s 38, not 25. And he–like Filo–loves this company more than anyone else. More important, though, the two co-founders feel a responsibility for the company. It’s a critical time and Yang’s ready. Back in business school, I took a class in which we read and discussed key passages from Shakespearean plays and the business lessons they taught. Yang reminds me of Prince Hal, the 20-something, fun-loving prince from “Henry IV.” Hal’s father and courtiers worry that he won’t be ready later to ascend to the throne. Yet, when fate calls, Hal closes one chapter of his life and becomes King Henry V–one of the most revered in the monarchy’s history. My sense from watching Yang at the meeting and since then (and the same goes for Filo) is that the flip has switched. These guys are all-in, in a way they haven’t been before.
Sue Decker’s there to help. As a leader, you rely on those around you to help you in areas where you are weaker. Yang’s lucky to have someone as capable as Decker working closely with him.

So, what does this mean for Yahoo’s shareholders? Unlike some, I strongly believe that Yahoo will remain independent. Yang and Filo built this company. They aren’t there to flip it. Yahoo will be much more aggressive in acquiring other companies. And they will look to win on new battlegrounds with Google. It was encouraging to read that they will release the next version of Yahoo! Go (their mobile product) on Friday.

The two most important competitive advantages any company has are its culture and its people. Yahoo’s been blessed with great people through the years, but morale has taken a hit of late. With Yang ensconced as CEO, and with Decker’s and Filo’s support, people are excited again in Sunnyvale. It’s about We Were, We Are, but also what We Will Be.