The chants for the head of Yahoo’s board (Roy Boystock) have been growing louder over the last week since CEO Carol Bartz’ firing.  It’s understandable, as investors and tech constituents alike look for more heads to roll to either: see someone put in place to finally turn Yahoo around, or see the equity maximized as the company is sold.  This post is hard for me, as I haven’t been happy with the board either.  As an investor, I have been burned many times by Yahoo: lack luster “Panama” integration, lack of promised realization form the APT platform, the lack of buying Facebook for $1b, the infamous rejection of Microsoft’s takeover offer, lack of Asian asset optimization, and the more recent lack of true turnaround progress under Carol Bartz. I was never Carol’s biggest fan (as she facetiously threatened to choke me for asking a tough question in an investor meeting).  Let me clarify this though, as this is NOT a post meant to bash Carol Bartz.  I actually have a lot of respect for her and think she can be a good CEO, but it would have to be in the right situation.  When she was announced as the new CEO of Yahoo, I groaned.  Not because I didn’t like her past achievements or respect her, but because I just didn’t think she was the right future leader for Yahoo.  Yahoo needed someone who understood media, advertising needs, general technology trends, global partners, and more specifically the emerging trends in Internet: local, mobile, social, video (or the “4 O’s” as she later coined them).  She did eventually learn these trends, but it was too late and not strong enough.

So I presume some would deduce that the board should be to blame (and Roy Boystock more specifically, as he was the one purported to woo Ms Bartz).  While I agree that the board should share some of the blame, they are merely a proxy for the owners of Yahoo: the shareholders.   The shareholders own the company; they ratify the big decisions or the can fire the board members if they aren’t happy with the decisions being made.  Yet large share holders didn’t challenge the Bartz hiring; moreover, in the last shareholder vote, they APPROVED all board members (including Mr Boystock!!).  Some will argue that while Mr Boystock was approved, it was at a lower margin.  HOWEVER, of the ~930m votes actively cast, 753m voted to reinstate Roy Boystock (and Carol Bartz actually had 10m more “yes” votes than Mr Bostock).  So, the board & Carol Bartz were reappointed – ie the owners of the company decided that the people they were paying to oversee management (along wit the CEO) were doing a good job.  The board, and Mr Boystock, must have therefore walked away thinking that while they had their issues, the owners of the company generally approved of the work they had done.  If shareholders were so unhappy, how could this be?

Many will say that shareholders get lazy or that they get too close to management to truly make active (vs passive) decisions.  Many funds also avoid being active because they don’t want to be in the press.  That’s why the stock market needs “activists” like Dan Loeb’s Third Point, which has accumulated a recent ~5% of the company.  He has voiced disappointment and given suggestions for a new board.  Maybe he will be successful in raising further support by other large share holders – maybe he wont (ie Carl Icahn wasn’t successful).

However, if shareholders were historically disappointed by Yahoo’s results and management of the company, they really can only place the blame in one place – on themselves.  It’s time for the owners of the company to share the blame on the sputtering of Yahoo.  Hopefully they an be instrumental in reinvigorating the future of the company.

Posted by Robert Peck CFA at 9/13/2011 3:28 PM