No Fireworks at Yahoo Meeting

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During prepared remarks, Bostock defended Yahoo's decision to reject Microsoft's offers. He said Microsoft never followed up its original bid with a written offer and declined to discuss seriously such nonprice considerations as the risk of regulatory interference or a decline in Microsoft's stock price. "There was never a compelling offer put on the table," he said, leading Yahoo to ink a search deal with Google instead. Even before the meeting was over, Microsoft issued a statement accusing Yahoo of "attempting to rewrite history yet again."

For his part, Yang talked up Yahoo's huge presence and potential online. "There's no other company on the Internet that has this set of assets," he said, adding that Yahoo is trying to become a more central starting place for consumers and a must-buy for advertisers. "We are on the verge of seeing some of those results," Yang added. But in an acknowledgment that Yahoo's delivery on that strategy has been wanting, he told shareholders, "We have to continue improving our execution. Execution will continue to be a primary focus of the management team."

Icahn Is Conciliatory

Despite the vocal complaints of some shareholders, Yahoo's situation is likely to remain calm for the time being. Icahn, who did not attend the meeting, sounded a conciliatory note on his blog on July 31. "A few days ago, I met with Jerry Yang and (Yahoo Chairman) Roy Bostock and I believe both gentlemen genuinely wish that we will be able to work together to enhance value," he wrote. "While we disagree on many points, I have great hope 'this will be the beginning of a beautiful friendship.'"

Analysts and corporate governance experts expect Icahn to settle in to learn from the inside before agitating for a deal or other action to boost Yahoo's stock price. The two people that Yahoo chooses from his proposed slate of directors will be appointed later this month. One candidate both sides had proposed, however—Jonathan Miller, former CEO of Time Warner's AOL unit—was notified on Aug. 1 that Time Warner (TWX) will enforce a noncompete agreement, which will bar him from joining Yahoo's board until next March.

In any case, Icahn for at least a while will have to alter his famously bare-knuckle tactics, which had led him only two weeks ago to excoriate Yahoo management. "Icahn will have to work to build consensus," says Claudia Allen, chair of law firm Neal Gerber & Eisenberg's Corporate Governance Practice Group. "But there's an opportunity for some fresh perspectives on the board."

Microsoft Could Come Back

Icahn himself may need to consider a new perspective. He launched his proxy fight with the sole goal of forcing Yahoo to do a deal with Microsoft. Microsoft CEO Steve Ballmer insisted recently that his company's pursuit of Yahoo is "done," although he hasn't completely closed the door. "You have so few buyers out there in the marketplace that [Icahn] will have to look at alternatives beyond the sale of the company," says Barry Genkin, chair of law firm Blank & Rome's shareholder activist practice.

Even so, many observers believe Microsoft could return. "Microsoft needs Yahoo for both offensive and defensive reasons," Sandeep Aggarwal, an analyst with financial services firm Collins Stewart (CLST.L), wrote in a July 28 report. "We do not see any shifts in search market share for Microsoft without a combination with Yahoo."

Marketers also crave an alternative to an increasingly powerful Google. "There's got to be a counterweight to Google," says Mark Hoffman, CEO of Enquisite, a search analytics company in San Francisco. "And it's got to be a fairly big one."

Calm Before the Storm?

That's why many observers think that despite the relative calm of the annual meeting, more fireworks are inevitable, either from Icahn or from Microsoft some weeks or months down the road. "It's not the end of the story," says corporate governance expert James Post, a professor at the Boston University School of Management. "The board will be living with a gun to their heads for quite a while."

Hof is BusinessWeek's Silicon Valley bureau chief.