After months of criticism, Terry Semel is gone from the corner office at Yahoo, and Jerry Yang is finally back to running the company he co-founded.
But in the aftermath of the executive shake-up at the internet's number-two search site, a big question remains: will the board of directors that recently gave Semel a $71m (£35m) yearly compensation package answer for its mistakes as well?
It could happen, despite the outcome of last week's annual Yahoo shareholders' meeting: as unhappy as investors may have been with Semel's compensation, which the Associated Press said was the largest deal received by a chief executive among the 386 publicly traded companies it tracks, the board survived the meeting last week intact.
Many believe the meeting ultimately led to Semel stepping down. Still, the lowest voting percentage any of the 10 board members received was 66 percent, according to Yahoo. The company did not say who got the low vote or break out percentages for each board member. Also, Semel will still be the non-executive chairman of the company.
But that meeting could be just the first act in a long-running boardroom drama at Yahoo. A number of influential organisations, such as the advisers at Institutional Shareholders Services (ISS), think a shake-up isn't such a bad idea. ISS has taken Yahoo's board of directors to task for the last two years for Semel's compensation package, asking that it be tied more closely to the company's performance. But the board argued that the package (Semel has reportedly earned $450m (£225m) in six years at Yahoo) was justified in order to retain his talent.
"They just furnished a massive compensation package to Terry and then turned around and terminated his tenure. It begs the question about whether there's some intelligent design behind the program," said Patrick McGurn, executive vice president at ISS.
"Problems on the compensation front can be a window into the boardroom," McGurn added. "A second part of the process could be in looking at succession among the directors."
So how exactly would that happen, and when? Like other public companies, Yahoo is mindful of ISS's recommendations. ISS clients, such as pension funds, mutual funds and other institutional investors, will often vote their shares in lockstep with recommendations received from ISS. As a result, what the advisers say can greatly sway shareholder votes, especially for companies with a large base of institutional investors rather than "mum-and-dad" investors.
ISS advised its clients to vote against the re-election of Yahoo's compensation committee: Ron Burkle, managing partner of private investment firm the Yucaipa Companies and friend of former president Bill Clinton; Arthur Kern, co-founder of radio group American Media; and Roy Bostock, former chairman of ad agency BCom3 Group. Burkle and Bostock joined the Yahoo board after Semel in 2001 and 2003, respectively. Kern has been with Yahoo's board since the company was founded in 1995.
Yahoo shareholder Eric Jackson, president of the consultancy Jackson Leadership Systems, believes seven out of the 10 directors should go, and he wrote as much in a proposal earlier this year. The three members Jackson's group wanted to see remain were Yang, Skyrider chief executive Ed Kozel and Vyomesh Joshi, an executive vice president in imaging and printing for HP.
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Calls to Yahoo board members were not returned, but Helena Maus, Yahoo's senior director of corporate communications, sent a statement. The "Yahoo [board] is wholly committed to increasing shareholder value and will be working closely with Jerry Yang and [new president] Sue Decker to help accelerate execution and further strengthen Yahoo's leadership in order to capitalise on the enormous growth opportunities ahead".
But given the negative sentiment on display at this year's shareholders' meeting, the board could remake itself before next year's meeting. One or more of the members could decide to step down, or Yang could nominate new members before 2008.
Majority rules
Yahoo's directors are subject to re-election each year and, under changes to the company's bylaws which the board enacted in January, the stage is set to allow shareholders to vote a director out of office, even if no opposition candidates are running for that seat.
Under the "majority vote" system, which a number of corporations are increasingly embracing, Yahoo directors are required to draft a resignation letter and have it waiting in the wings. If directors have more "against" and "withhold" votes than "for" votes, they are required to tender their resignation to the board, following the annual meeting.
Although the board's nominating and governance committee, comprised of independent directors, can make a recommendation to reinstate the ousted director, the board would be required to make its final decision public.
"The majority vote is one way companies can show they are listening to shareholders," said Jerry Mucha, proxy manager with proxy solicitation firm Morrow & Co in Connecticut. "If you have a lot of withholds, or did not act on a shareholder vote that passed, this is one way to show you are listening to shareholders."
Mucha, as well as other proxy solicitors, notes that a 33 percent withhold or against vote may be considered high if shareholders are weighing their decision solely on the financial performance of the company. But, if a company has a large percentage of institutional investors who rely on recommendations from proxy advisory firms, then a figure of a 30 percent withhold vote is not uncommon.
Board members who aren't facing any withhold vote recommendations by a proxy advisory firm are typically re-elected with a 90 percent approval margin, said Mucha. Jackson, however, believes the figure is around 98 percent.
Changes to the board can come via a director's resignation and a replacement nominated by the board of directors, or the board can change its bylaws to expand its size. Shareholders can also wage a proxy fight and nominate their own slate of opposition candidates for election at the next shareholders' meeting.
Jackson said he had wanted to run for the board earlier this year but wasn't a registered stockholder at the time he filed papers. Whether it's him or not, Jackson wants some fresh perspective.
"The whole board has been guilty of being a little bit complacent," he said. "The board could benefit from some more youth and varied perspective and people who will ask tough questions of Jerry and [new Yahoo president Sue Decker]."
