[Author was long YHOO and BABA at the time of writing]
It's now been 2.5 years since Mayer took over and the results so far - in my view - have been pretty underwhelming, although I still believe Yahoo can dramatically turn around its core business.
One of the points that Mayer has made in building her case that all of her efforts since she came on board have actually been working is to stress that Yahoo was really in bad shape before she arrived. She reminds investors that she always said that her turnaround would take years.
(It's odd that, while Mayer is quick to throw prior Yahoo management under the bus for mismanaging the company, she's essentially still running the media strategy playbook that Ross Levinsohn was pushing as interim CEO in the months before Mayer was hired.)
Any rational tech observer knows that it is true that Yahoo was in bad shape pre-Mayer. Yahoo had cycled through a number of CEOs since 2007 and had a sleepy and sometimes dysfunctional board of directors overseeing it. The core business had been neglected.
One anecdotal data point that Mayer and her supporters mention frequently as proof of how out of touch - and essentially dated in their thinking - Yahoo was before she was arrived was that there were only 60 mobile-focused engineers working at Yahoo on her first day on the job. (This is 60 people out of 13,000 full-time employees which is actually still the full-time employee headcount today, despite most rational observers' belief that Yahoo should employ roughly half that amount.)
Today, Yahoo has hundreds of mobile-focused engineers. Most Yahoo products have been translated from their old web formats to new mobile formats. Yahoo has also invested in the future through spending more than $2.5 billion on acquisitions like Tumblr, Flurry, BrightRoll, and dozens of nameless acqui-hires. They are in the midst of trying to make as much money selling ads on mobile as they've been accustomed to on the web for 2 decades.
When you transition a company from an old-way of thinking (the desktop banner ad world) to a new-way of thinking (the mobile native ad world), you need people working on that who understand that new world you're moving towards and have a relevant skill set in that area to help chart out the path.
Indeed, that's been at the heart of the rationale for spending hundreds of millions of dollars in shareholder money on the hodgepodge of acqui-hires over the past 2.5 years. Mayer has defended these cash transfers from Yahoo shareholders to VCs in exchange for a handful of people running companies that are on the verge of ceasing operations as a necessary cost in order to bring in high-quality talent who will help Yahoo make a big splash in the nascent, young and different world of mobile.
So, it's quizzical that while Mayer has been making sure that her employees are more youthful and mobile savvy, she's overseen a transformation of her board of directors -- the people who decide when a CEO should be hired and when she should be fired - to become older and decidedly non-mobile savvy.
At present, there are 9 directors on the Yahoo board. Nearly half of them are over the age of 66.
Is this odd in Silicon Valley to have older and non-mobile experienced directors? Well, at the time Marissa was hired as Yahoo CEO in 2012, only 1 out of 11 Yahoo directors was over 66 (Sue James). That's 9% vs. 44% today.
Google currently has 1 out of 10 directors over the age of 66 (Shirley Tilghman, the former president of Princeton).
Facebook has 2 out of 8 directors who are over the age of 66 (Don Graham and Erskine Bowles, both 69).
So, Yahoo's current board does seem like an outlier compared to how it used to be composed and how other big Internet company boards are composed today.
I don't think there's anything wrong with directors who are old per se. But having a large percentage of your board composed of older directors with little to no mobile or Internet experience is a problem in my view.
What does Chuck Schwab bring to the table as a Yahoo director? He's built a large and influential financial services firm bearing his name. This has allowed him to appear on television commercials. He's served on other boards. He lives in San Francisco. But does he know anything about tech? Mobile? Programmatic ad buying? Did he have a Tumblr account before Marissa came to the board telling them why they needed to approve spending $1.1 billion in cash for a company that - by several accounts - was a few weeks away from running out of money? Does he have a SnapChat account or did someone have to bring him up to speed on what SnapChat is at the same time the Yahoo board reportedly approved a $10 million investment into that company a few weeks ago? It would appear, based on his background, that his relevant work experience is not at all a fit for Yahoo's current position in need of open-heart mobile Internet surgery.
I'm not saying that Yahoo's board should only consist of 39 year olds with Internet and mobile experience like Max Levchin and Marissa Mayer both possess.
Successful boards of directors can have a variety of people with a variety of experiences. The best boards in my view have a diversity of opinion and experiences but the common bond is that they have relevant industry experience.
On a large Internet company board like Yahoo, where it has the potential to unlock a lot of value through spinning off its stakes in Alibaba and Yahoo Japan, it would be nice if someone like Greg Maffei or John Malone served on the board as they have tremendous experience executing just those types of complex transactions.
And sometimes the best qualities of a director can't be measured through his/her biography. Someone can have gone to an "elite" college, had stops in their careers at prominent companies, and be a wallflower as a director. How would you know that someone is - behind closed doors - a straight-shooter and not afraid to ask tough direct questions at a CEO, although always closes ranks after a decision and support the moves a board has made? You can't know that from a bio published in an SEC proxy statement.
Sue James appears to be a good example of that at Yahoo. In the 2012 public proxy fight between Dan Loeb and Yahoo (who, recall, employed Scott Thompson as CEO at the time), Loeb took a shot at James in one of his letters. He focused on that she served on the board of directors for a non-profit called the Tri-Valley Animal Rescue, presumably suggesting that was not the sort of experience needed to be on the Yahoo board. Yet, after the reference, Loeb never took any additional shots at James (although he kept up the merciless attacks on people like Roy Bostock and Patti Hart). He presumably met her and saw that she did bring something to the job as Yahoo director. James continued to serve on the board with Loeb and now post-Loeb. It shows that Mayer continues to hold James in high regard, as usually new CEOs like to stack their boards with their people (to assure the people who can fire them all feel beholden to the CEO and therefore won't).
So, I think it's a mistake for any company to say someone shouldn't serve on a board because they turn 66. Age is just a number. It's really a question of what do each of the directors bring to their jobs individually and how will they work as a team.
But one thing all successful boards of directors have is relevant work experience that fits that company's industry and its current market position. If you don't understand what credit default swaps are because you've spent your life being a college president, you probably shouldn't be serving on the boards of AIG or Goldman Sachs going into the financial crisis of 2008. And if you don't have any relevant mobile/Internet experience, you probably shouldn't be serving on the board of Yahoo, even if you've made a lot of money in your life and live in San Francisco.
When you look at the turnaround Yahoo is trying to perform at the moment, I find it strange that nearly half the board is over 66 and 2 of the 9 are well into their 70s -- all with debatable tech bona fides.
I would say Chuck Schwab and Lee Scott in particular have questionable tech/mobile experience. Jane Shaw's only tech/mobile experience was serving on the Intel board from 1993 t0 2012. Her primary career experience is in the pharmaceutical industry. Do you learn a lot about tech serving on the Intel board for 10 years? Unquestionably. But is that Intel director experience going to help Yahoo recast itself as a mobile company? I think that's highly unlikely and is mostly irrelevant.
When I tweeted about this yesterday, Nicholas Carlson of Business Insider responded by saying that Yahoo engaged a director placement firm to fill the last two board seats of Schwab and Shaw. The search reportedly took so long and Yahoo was so unhappy with the candidates, they fired the firm and Mayer ended up suggesting these two directors because she personally knew them from San Francisco social circles. And she obviously knew Scott and probably was thankful to him for bringing her onto the Wal-Mart board several years ago. (It's a side note, but it was always strange to me that Mayer still serves on the Wal-mart board and was willing to allow her biggest single hire (and failed hire) during her Yahoo tenure - Henrique De Castro - serve on the board of its sworn enemy Target.)
The simple conclusion of this post is that Yahoo can do a much better job in appointing directors who really understand the mobile and Internet landscape and aren't afraid to ask Mayer tough questions behind closed doors than their current board.
Questions I would like to ask would be:
- Why is our headcount so bloated in the core business 2.5 years later? Marc Andreessen said we should have fired 10,000 people right off the bat in July 2012. Why didn't we? Why was he wrong?
- What exactly are the breakthrough products you've launched from conceptualization to launch which are hits with our audience?
- Did we really have to abandon display ads in order to put an emphasis on native ads? Couldn't we have walked and chewed gum at the same time?
- What is the ROI of any of your acquisitions done to date? Why are we a better position today $2.5 billion later than we would have been without them? Instagram was bought for $100 million less than Tumblr but is now worth $35 billion according to Citi. What is Tumblr worth today? What did we lose in opportunity cost buying Tumblr vs. another property?
- Why have you not yet spun off the stakes in Alibaba and Yahoo Japan in order to increase the stock price by $20 and benefit all our shareholders including yourself? Is it true you've resisted this simply because you want to be the CEO of a $40 billion company and not a $5 billion company? Why should your personal preference trump what's best for our shareholders to which we all have a fiduciary duty?
- It's great that you were able to retain a bigger portion of Alibaba shares than what the 2012 agreement struck by our then board of directors stipulated we needed to sell back to Jack Ma, but what did we give to Alibaba in order to get that benefit? To my knowledge, Alibaba is not a non-profit known for just giving something to others in exchange for nothing.
- If video ads are the future of Yahoo today, why wasn't our Corp Dev team on the ball 6 months ago buying the better company LiveRail for $400 million instead of the inferior BrightRoll for almost $800 million if performance targets get hit? Are we doing our shareholders a disservice rushing around after the fact buying inferior tech at double the price?
- Our users are Middle America. These are people who watch the Today Show and Good Morning America. Do they really care about "glossy" digital magazines with Joe Zee and Bobbi Brown as global ambassadors of whatever? What does the traffic to those magazines specifically show over the last 12 months?
- Our biggest money-makers are Finance and Sports. What specifically have we done to improve those products in the last 2.5 years?
- Why did we pay Broadway Video a lot of money a year ago to run old SNL clips and now we can't run any ads next to them? What exactly did we pay for in that deal?
- Why did we approve a plan to allow you to sell basically $1 million worth of stock options every other week since February?
- What would the core business be valued at today if it traded separate from our Alibaba and Yahoo Japan stakes? Why does the market think so poorly of the job we're doing turning around the core?
It's clear that the Yahoo board needs to be revamped. Starboard Value LP is just the Yahoo shareholder to force a needed change.
On January 7th, Starboard - or any Yahoo shareholder - can submit a formal shareholder proposal to be voted on at next June's Yahoo shareholder meeting as part of the proxy that Yahoo will send out.
In my view, Starboard should nominate a short slate of 3 director nominees to be voted on next June to replace Chuck Schwab, Lee Scott, and Jane Shaw on the current board. Starboard should seek out nominees who are already Yahoo shareholders and therefore care about the company, with relevant mobile/tech experience, who will also not shy away from asking Mayer tough but fair questions on behalf of all Yahoo shareholders who haven't been invited in these closed door board meetings.
Jeff Smith of Starboard will obviously be one of the nominees. It should be relatively easy to find two others to stand with him for election who would do a much better job for Yahoo shareholders than Schwab, Scott, and Shaw.
I believe that if Starboard does nominate a short slate like this, ISS and other major proxy advisory firms will support the new nominees. After all, what's the harm in nominating 3 out of 9 directors to be representative of the true will of Yahoo shareholders rather than being Mayer's own appointees? They're not seeking to take over control of Yahoo, just simply express some relevant and valid questions.
If that happened, it would decidedly be more beneficial for Yahoo's future stock price than the current sleepy and deferential board of directors.
