Note: Harvard Business Online asked me to provide some reflections on the CEO succession developments at Yahoo this week. Below is an expanded version of what they just posted to their site.
When a board replaces a founder-CEO with a “professional CEO,” the founder-CEO is often “demoted to Chairman” as a way to keep the founder involved with the company. The company issues a press release stating that, “[The replaced CEO] will assume the position of non-executive Chairman and serve as an advisor and important resource for the company’s senior management team, while also working closely with the Board,” and quotes the replaced CEO as saying, “This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential — it is the right thing to do, and the right time is now.”
This week, Internet giant Yahoo went through the standard scenario, but in reverse: The board replaced the professional CEO with a founder. Specifically, founder Jerry Yang was promoted from “Chief Yahoo” to CEO. (Yang had been serving as interim chief technology officer ever since long-time CTO Farzad Nazem resigned recently.) He replaces Terry Semel, Yahoo’s CEO since 2001, supposedly because the company needs its CEO to have “different skills and strengths.” (The two long quotes in the first paragraph above are actual quotes from Yahoo’s press release about the change.)
My research and case writing on founders and CEO succession prompted two key questions about the move by Yahoo’s board to replace Semel with Yang. The first is about the board’s stated desire to find a new CEO whose skills are a better match for the needs of the company. Does Yang have the skills necessary to turn Yahoo around? The deck is certainly stacked against him, especially as a founder who did not serve as CEO of his company even during its early years, and especially in a 12,000 person company whose management team has big holes (e.g., CTO). With Semel handling the CEO duties, Yang’s major focus had been on external partnerships, culture building, and being “the public face of Yahoo.”
That’s why Yahoo’s promotion of Susan Decker, its former CFO and current executive vice president, to COO, is so critical — as she will fill some of the holes in Yang’s skill set. Yang and Decker have already had the chance to work together, build a relationship, and assess their compatibility. Without such a foundation, the duo would be facing even tougher challenges.
The second question: Is it a good idea to keep Semel around now? In contrast to the usual public-company succession, where the departing CEO does not stay in the company in any central capacity (see: Jack Welch after GE, Lou Gerstner after IBM), Yahoo is retaining Semel as chairman. Such a move can complicate things for the successor, especially when the former CEO still has loyalists within the company, or when the former CEO is a powerful founder (with Phil Knight at Nike being only one recent example). Interesting theories have been proposed for Yahoo’s unusual arrangement: for instance, that it was a compromise designed to win over board members who were allies of Semel, or that it enables Yahoo to replace its CEO while being able to avoid paying severance or fully vesting his equity (helping avoid further criticism over his compensation).
Whatever the case, Semel may also turn out to be a key piece of the puzzle regarding my first question. With Semel as chairman, Yang will be able to tap him for guidance as he heads into uncharted waters as CEO (on Monday, Yang publicly praised Semel for his “mentorship” and “guidance”) and the board’s press release praises Semel’s “willingness to stay on to assist Jerry, Sue, and the board as we drive Yahoo forward.” In addition, the board could be using Semel as an insurance policy — keeping around an experienced person who could step back into the CEO role if the young Yang-Decker team falters.
Yahoo’s move brings to mind a parallel case that might give greater confidence to those rooting for a Yahoo resurgence. At E Ink, when the board hired an experienced industry executive as CEO, co-founder Russ Wilcox used his time wisely, accumulating the experiences necessary to become CEO if the need arose. When the time came for the board to find a replacement for the CEO, it decided that Wilcox was a better candidate than any outsider and promoted him to the job. The company has shown recent signs of success under Wilcox’s leadership. If Yang has used his time to build skills wisely, as Wilcox seems to have done, Yang’s chances as CEO are much improved, though still very challenging in a company Yahoo’s size.
There are probably many more interesting developments to watch and questions to ask during the next stages of this unusual CEO-succession story!
It smells like an interim solution to me. It doesn’t sound like Yang was being groomed as an heir apparent and the fact that Semel was “partially fired” plus other executive shuffling seems to indicate that the board is buying time for Korn Ferry or whoever to finish up their work.
Yang went out of his way to deny it last week, but I agree that that’s a likely scenario, Furqan. At the same time, if Yang is an interim CEO, it’s also very possible that he’s not buying time for a “Korn Ferry” (i.e., outsider) solution, but to transition to Susan Decker.If Yang is indeed “interim,” it would be an interesting twist on Bridge CEOs (discussed < HREF="http://founderresearch.blogspot.com/2006/03/doomed-ceos-and-bridge-ceos.html" REL="nofollow">here <>and < HREF="http://founderresearch.blogspot.com/2006/07/bridge-ceos-revisited.html" REL="nofollow">here<>). The ones I’ve discussed so far — by far the most common — have been <>non-founders<> who follow on the heels of founders, brought in to do things that the replaced founder-CEOs couldn’t do. Here, once again, Yahoo would be flipping the usual scenario on its head, with a <>founder<> (i.e., Yang) stepping in as Bridge-CEO to do things the replaced non-founder (Semel) couldn’t do.
I agree with Furqan that this falls far short of a real permanent solution. Why keep Semel around? If he had the answers, he’d still be king! If he doesn’t, then why keep him around to pollute Yang’s critically “fresh” ideas. Yahoo doesn’t need to be tethered to its past. As with most people issues, politics appears to be winning out against efficiency. This too shall pass.
Here are some additional elements to consider, especially for the second question Noam brought up about why Semel is still around.On why he may have had to go:1) Keep in mind that his annual pay, although set at 1$, was quoted by many sources to be something like 70M$ per year when including his options payments. Plus the 500M$ he had already pocketed (Source 1). Keeping Semel on board simply perhaps seemed like an expensive proposition. Especially if you have to continue to give options out to retain his services and interest. Considering the below-peer performance of Yahoo stock (Source 2), this pay arrangement was clearly clashing with performance, which is generally a bad message to send to shareholders and employees.2) There seemed to be some negative “reputation” discount because of Semel on Yahoo, with many people critiquing his management choices (Source 3). His notable incapacity or unwillingness to acquire Google, YouTube, MySpace and then Facebook (Source 3) seem to cement his profile as someone not willing to take big bets at key moments. His previous big bet was the acquisition of Overture in 2003 (Source 4). The reported MySpace-Yahoo deal talk (Source 5) in June 07 involving News Corp may have been a last minute effort to prove his capacity to make a “big deal”. This reputation discount for Semel may explain the 3% jump in the stock price the day Semel announced his resignation from his executive post. (On a market cap of roughly 35B, 3% is roughly a 1B$ of new market cap! - Source 6 - However, it should be noted that in the days immediately following this initial jump, the stock has since reverted to pre-Semel levels, cancelling out that effect). Several articles had also mentioned that Semel had been targeted by some shareholder proposals from activist investors calling for his head. The coalition of activists, according to the press reports (Source 7), only seemed to have represented 2M of the 1.3B (Sources 7 and 8) outstanding shares, so it is doubtful this had a large impact, unless this activism concealed more rampant shareholder discontent.On why he may still be around:1) At the time he resigned, there was still discussion about Yahoo either being acquired by Microsoft through some merger (although that talk has dissipated) (Source 9) or of Yahoo making other big acquisitions to compete head-on against Google and other players. Semel is widely respected for his dealmaking skills (Source 10) and many press reports suggested that keeping him around bolsters Yahoo’s dealmaking capabilities.2) Semel is also a entertainment industry veteran, who probably has deep ties to the media world. In the current landscape, where a lot of moves are still being made to integrate and monetize content through advertising partnerships (especially video), Semel’s experience and network of contacts probably still remains a very valuable asset for Yahoo. His sitting on the board could add great value, especially if combined with an operational leader like Decker which Wall Street seems to have confidence in (Source 11).Regarding Noam’s first question, about Yang’s ability to manage a large (and more mature) business of close to 12,000 employees, that remains to be seen. If you believe that Yahoo’s stagnation under Semel was due in part to the implementation of more rigid processes and management structures, then Yang might be what is needed to reenergize employees, create hugely needed synergies and reconnect the company with its change-the-world startup roots (Source 12).Some sources:(1) http://en.wikipedia.org/wiki/Terry_Semel(2) http://finance.yahoo.com/q/bc?t=1y&s=YHOO&l=on&z=m&q=l&c=goog(3) http://internet.seekingalpha.com/article/27938(4) http://www.ppcwire.com/news/pr-yahoo-buy-overture-july-03.php (5) http://www.businessweek.com/innovate/FineOnMedia/archives/2007/06/yahoo-myspace_g.html(6) http://finance.yahoo.com/q/bc?t=3m&s=YHOO&l=on&z=m&q=l&c=(7) http://www.cnbc.com/id/19176554/site/14081545/(8) http://finance.yahoo.com/q/ks?s=YHOO(9) money.cnn.com/2020/05/03/technology/microsoft_yahoo/index.htm(10) http://images.businessweek.com/ss/05/12/bestleaders/source/4.htm(11) http://www.redorbit.com/news/technology/781079/yahoos_decker_praised_for_candor_intellect/index.html?source=r_technology(12) http://yodel.yahoo.com/2020/06/18/my-new-job/
Many of my colleagues who are leading seo consultant, feel Yahoo no longer is a major search engine, and they have nothing to offer the end user anymore, what are your thoughts.