Yahoo! Inc. Chairman Roy Bostock, who ousted Chief Executive Officer Carol Bartz this week, now risks losing his own job.
Third Point LLC, a New York investment firm that has accumulated a 5.2 percent stake in Yahoo, urged Bostock and his fellow directors to resign yesterday, citing their responsibility for the company’s poor performance. The letter added to a drumbeat of investor criticism leveled at the board for spurning Microsoft Corp. (MSFT)’s takeover bid in 2008 and failing to pick leaders who could restore the fortunes of a company that helped pioneer the World Wide Web.
“Yahoo’s current board of directors has made a number of decisions that have directly harmed the company and resulted in a stock price far below the company’s intrinsic value,” Third Point said in a regulatory filing.
As board chairman since early 2008, Bostock has presided over major company decisions, including rebuffing the $47.5 billion offer by Microsoft three years ago and recruiting Bartz as CEO in early 2009. Once a company with a market value of more than $100 billion, Yahoo’s stock has declined 49 percent since Bostock, a former ad-industry executive, became chairman.
He fired Bartz on Sept. 6 by telephone, another decision that has stirred criticism among some executives. Bostock didn’t respond to a request for comment.
Divorce by E-Mail
“Firing someone on the phone is like telling your spouse you want a divorce in an e-mail,” said Carl Bass, CEO of Autodesk Inc., who succeeded Bartz in that position. Bass said he hasn’t spoken to Bartz since she was fired from Yahoo.
Bostock had scheduled a meeting with Bartz in a New York area airport to deliver the bad news, though stormy weather intervened, according to a person familiar with the day’s events, who wasn’t authorized to speak on the record.
Now Bostock must lead the search for a new CEO and also possibly consider a sale or breakup of the company. Yahoo has named Chief Financial Officer Tim Morse interim CEO and hasn’t yet said whether it has retained an executive search firm.
Bostock and other directors are as culpable for Yahoo’s troubles as Bartz, said Colin Gillis, an analyst at BCG Partners in New York, who has a “hold” rating on Yahoo shares and doesn’t own the stock.
“The board needs to look in the mirror and realize that the state Yahoo is in now is a product of their leadership and vision,” he said. “It’s difficult for me to see the board cutting Carol loose without any changes being done at the board.”
Yahoo shares have climbed almost 12 percent since Bartz’s ouster was announced. The stock rose 83 cents to $14.44 yesterday on the Nasdaq Stock Market.
In a statement responding to the Third Point filing, Yahoo’s board said it “recognizes the critical challenges facing the company and appreciates constructive input from all shareholders. Accordingly, the Yahoo board welcomes a dialogue about the concerns that have been raised by the Third Point filing. The board is committed to acting in the best interests of shareholders.”
Bostock became a Yahoo director in 2003, after a 38-year career in advertising. He sold BCom3 Group, the global ad agency where he was chairman, to Publicis Group in 2002 for $3 billion. Outside the corporate world, he’s chairman emeritus at the Partnership at Drugfree.org and has donated money to Duke University, his alma mater, where a library is named after him.
Critics say Bostock’s pick of Bartz showed a misunderstanding of Yahoo. She had previously led Autodesk, a software maker for architectural and engineering firms.
“Bartz more than proved herself at Autodesk, but running Yahoo wasn’t the right job for her,” said Jeffrey Sonnenfeld, associate dean of Yale School of Management. “Yahoo didn’t need an applied systems person -- it needed a consumer products executive.”
Bostock has been embattled from, literally, his first day as Yahoo chairman. On Feb. 1, 2008, Microsoft announced a $31 a share, or $44.6 billion, offer for the company. While Jerry Yang, a Yahoo co-founder and then CEO, handled much of the negotiations with Microsoft, it was Bostock who co-signed a June 12 letter announcing that takeover talks were over and saying Yahoo had better prospects going it alone. They termed Microsoft’s bid, though sweetened to $33 a share, or $47.5 billion, “not in the best interests of Yahoo stockholders.”
Investor Carl Icahn, who bought 59 million shares of Yahoo that May, said Yang and other directors were a “self-destructive doomsday machine” and vowed a proxy battle to change the board’s makeup.
Yahoo reached an accord with Icahn in July 2008, giving him three board seats and expanding the number of directors from eight to 11. Icahn sold the last of his Yahoo stake in the third quarter of 2010. He left the Yahoo board in 2009, and the other two Icahn representatives went off the board in 2010.
The total ranks of Yahoo’s independent board members underwent 60 percent turnover in the past three years, with six of the 10 outside directors in 2008 departing. Four of the current members -- David Kenny, president of Akamai Technologies Inc.; Brad Smith, CEO of Intuit Inc.; Patti Hart, CEO of International Game Technology; and Susan James, a retired Ernst & Young partner -- have joined the board in the past two years. The other current directors, in addition to Bostock, Bartz and Yang, are Vyomesh Joshi, a Hewlett-Packard Co. (HPQ) executive; Arthur Kern, a co-founder of American Media; and Gary Wilson, a former Walt Disney Company executive.
“The board has to make up for past mistakes, the most glaring one being the turndown of Microsoft’s offer in 2008,” said Ryan Jacob, chairman of Jacob Asset Management, whose fund has invested in the technology industry since 1999 and holds Yahoo stock.
While he drew flak at Yahoo, Bostock enjoyed success as chairman of Northwest Airlines, guiding it in 2008 through a $2.75 billion merger with Delta Air Lines Inc. (DAL), where he is now vice chairman.
Third Point faulted the board for taking so long to realize that Bartz was ill-suited to the job of CEO. “We fail to understand why this decision was so long in coming given her abysmal performance over the last two and a half years,” the firm said.
In a statement welcoming Bartz to Yahoo in January 2009, Bostock said she was “the exact combination of seasoned technology executive and savvy leader” the company needed.
He continued to support Bartz publicly, including at Yahoo’s annual meeting in June, when a shareholder frustrated with the company’s lack of growth called for her ouster. Bostock defended Bartz that day, praising the company’s “hard-won progress” on her watch.
“This board is very supportive of Carol and the management team,” he said.
Eleven weeks later, Bostock fired her.
“The board is definitely under some pressure to show that they’re actually acting in shareholder interest,” said Ken Sena, an analyst at New York-based Evercore Partners Inc.