There is a “Chance” card in the Silicon Valley version of Monopoly that reads, “Things are going south, get a new CEO.” Yahoo’s board has now drawn this card for the fifth time since 2011. Was the hiring of Marissa Mayer a bold strategic move or a Hail Mary pass?
Directors should note and long remember that activists do their homework. When Daniel Loeb, CEO of Third Point LLC, pointed out to Yahoo’s board that an SEC filing listed CEO Scott Thompson with a “bachelor’s degree in accounting and computer science,” whereas filings from Thompson’s previous employer, PayPal, claimed only accounting, Loeb was laying down a convenient moat crossing.
Lost in the kerfuffle was the impressive fact that Loeb’s team read every line of every Yahoo and PayPal SEC filing to come up with this arcane if portentous blooper. So it’s safe to say they just as carefully considered the CEO succession plan.
Thompson was never the real problem. The goal from the beginning was a hostile takeover of the board itself. Loeb was looking for a seat and when he was snubbed, he wanted leverage for his claim that the board was tolerating underperformance.
Incrementalism is found at the scene of most boardroom disasters. It is the fantasy that, after several turns at the wheel without success, the board just needs a little more time. When a company like Yahoo goes from iconic to ironic in two years and implements a CEO succession plan that amounts to hiring four CEOs in succession, it is going to be a widowmaker for the tenured directors, unfair as that may seem.
It’s the Engineers, Stupid
When you say mobile apps or cloud computing, does Yahoo come to mind? Well, that’s what this new board wants. So they hired a CEO who is cut from a mold that doesn’t yet exist—a brilliant Stanford computer scientist (only this time with the M.S.) but lacking any C-suite experience, who happens to be expecting her first child in October. The logic was compelling if not obvious. The board chose Mayer ostensibly to improve performance or earnings, and she will most certainly work to do that. But the real motive was merely and consequentially to send a signal: Yahoo will be a technology innovator once again.
The Four Horsemen of Silicon Valley
Technology is a simple business, legendarily hard to execute. You have to get four things right—brilliant engineers, killer apps, market dominance and high valuation—and in that order, for the cool factor to return. So naming Mayer CEO was principally about getting the first of these horsemen in the saddle—brilliant engineers like herself—and then the rest can follow. That was the Apple board’s motivation in 1996 in bringing back Steve Jobs, who singularly revived the cool factor and precipitated the creation of the most valuable company in history.
Mayer’s pros and cons have been gnawed like an old dog bone. At Google, Mayer reportedly had been passed over by Larry Page for promotion to the inner circle. But she was a certified wunderkind product geek. Mayer has never played a leading role in the C-suite (however, she does serve on the board of Wal-Mart), yet her move to Yahoo was accompanied by an eye-popping, bulge-bracket CEO compensation package that The Wall Street Journal reported as worth up to $100 million. That sent an unmistakable signal. This board considers her a supernova, who will change the trajectory of the company and attract the top percentile of engineering talent. Mayer’s job description: Make Yahoo cool again.
That’s the new board’s strategy.
Jeff Cunningham writes about leadership and business, boards and corporate governance. He is the founder of Directorship magazine and currently serves as senior advisor to NACD. Previously, he was managing director of the U.K. private equity firm Schroders; president of the Internet venture capital firm CMGI and CEO of MyWay.com and Zip2; and publisher of Forbes Magazine. He has served as an independent board chair or director of 10 public companies. The views expressed are his own.