Issues such as poor growth of Yahoo Inc. compared to its archrival Google and towering salary of Yahoo’s chairman Terry Semel are likely to be hotly debated subjects in Tuesday’s annual shareholders meet. Semel, who once famously claimed that Yahoo would remain Internet’s biggest star, is likely to be confronted by investors on this matter and more.
He had made the dubious call nearly three years ago, when Google was getting ready with its IPO. Since then, the picture has changed, and how.
1. Google has become the largest dot com company and has a market capitalization of $140 billion. That is nearly four times Yahoo’s current market value, which stands at $37 billion. Compare this with pre IPO capitalizations, which stood at $23 billion and $39 billion, for Google and Yahoo respectively.
2. During the three years since August 2004 - when Google completed its IPO - its stock price has multiplied six times over while that of Yahoo has fallen by over 4 per cent.
3. Google has upped the ante in every aspect of growth, regularly outbidding Yahoo for acquiring new and growing smaller companies. Last year it beat Yahoo to acquire online video innovator YouTube Inc. and as recently as in April, Google acquired online ad company DoubleClick Inc.
4. Finally, to put matters in perspective, Google now makes more money in a single quarter than Yahoo does in an entire fiscal.
And you tell me all is well with Yahoo’s competitive strategy.
All this has happened under Semel’s leadership and despite this; he continues to rake in over $71.7 a year as compensation (Mercury News’ estimates for 2006.) Even by most conservative of estimates (new Securities and Exchange Commission rules), Semel took home $39.8 million in 2006.
Enough is enough is the feeling that has finally permeated through various ranks of Yahoo’s stakeholders and tomorrow’s meet might just be the avenue to voice their frustration with such an uninspiring leadership. Semel is in line for some serious confrontation.
Eric Jackson plans to confront Semel during the meeting on behalf of 80 shareholders, who together hold nearly 2 million of Yahoo’s shares, although representing a meager 0.2 per cent of Yahoo’s outstanding stock. He said:
The company is drifting. And its problems ultimately lie at Terry’s feet.
Semel can seek solace in the fact that he isn’t the only one who is in the firing line. At least six of Yahoo’s 10-member board are on the hit list of Jackson’s group. These top-six members (pun not intended) include Roy Bostock, Ron Burkle, Eric Hippeau, Arthur Kern, Robert Kotick, Edward Kozel and Gary Wilson.
Despite the group’s low voting power, it won’t be a surprise that others join in, given the exasperation that shareholders have with current management attitude.
The procedure to remove Yahoo’s management is not very easy, but a recent policy shift makes it theoretically achievable. The new rules require each director’s appointment to be approved by a majority vote. Earlier, all that was required was a single supporting vote, regardless of the number of against votes.
However, despite the voting process improving, it is still a matter left within the purview of the board members. Board can still refuse to accept the resignation of directors, making the voting process a mere symbolic gesture.
Yahoo, meanwhile, is sticking to its old stalwart and a statement by Yahoo spokeswoman Helena Maus asserted:
Under Terry’s leadership, the company has a clear strategy to create stockholder value, and the company is well-positioned to capitalize on the substantial growth opportunities ahead for the Internet.
That is more or less along the expected lines by a company that has gone on to reward Semel with vulgar salaries and even more vulgar stock options, without considering company’s actual performance.
Even if tomorrow’s meeting fails to confront Semel and his lackluster management policies, another quarter of poor results will surely seal his fate. If however, Jackson and his group vote against him tomorrow, there would at least be a major loss of face. And sometimes that is all you need to bring home the message.
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