Posted by: Rob Hof on August 1, 2008
Yahoo’s long-awaited (or long-dreaded) annual shareholders meeting is about to begin, and wireless gods willing, I’ll be liveblogging the proceedings—even if they aren’t expected to be very exciting. You can also watch the Webcast here. Among others, Kara Swisher at Boomtown and Steve Shankland at News.com are liveblogging as well. And here’s my story with more analysis and a look ahead at how Icahn’s addition to the board will play out.
There are about 600 chairs in this cavernous ballroom at the San Jose Fairmont. It doesn’t look like they’re going to come even close to getting filled. No doubt Yahoo was thinking a few weeks ago that there might be more drama here.
And we’re underway, with Chairman Roy Bostock at the podium. He introducing other board members who are here: Eric Hippeau, Vyomesh Yoshi, Arthur Kern, Maggie Wilderotter, and of course cofounder and CEO Jerry Yang.
Much more after the jump…
UPDATE after the meeting: The results of the shareholder vote are in. Perhaps surprisingly, the number of votes withholding support for various Yahoo board members are actually noticeably less than a year ago. Some 22% withheld support from Arthur Kern, 20.5% from Bostock, 19% from Ron Burkle, 18% from Gary Wilson, 14.6% from Yang, and much less for the rest. The lower number may be because ISS, the proxy service of RiskMetrics, this year did not recommend withholding support for any board members, in contrast to last year, when they recommended against Bostock, Burkle, and Kern. However, given that 90% approval votes are common in board elections, it’s clear there’s still a strong strain of dissatisfaction among shareholders. More details on the vote below.
First up, official business will be conducted, led by Yahoo corporate counsel Mike Callahan. Top on the agenda is the election of Yahoo's board. No results announced yet.
Now, presentations by stockholders proposals, all of them filed months ago, so no surprises. First, here's Dave Collins of United Brotherhood of Carpenters Pension Fund, with a proposal on pay-for-performance. (Proxy materials are here, if you want to look at the details.) He's talking about "serious deficiencies" in Yahoo's performance plan.
Second proposal is from the City of New York Office of the Comptroller, on doing censorship in China. Patrick Dougherty from the office criticizes Yahoo's compliance with censorship on the Web in China. He's calling for a formal code of conduct that would prohibit Yahoo from engaging in censorship there and resist government demands for it.
John Harrington, an investment manager, talks about his proposal for a company committee on human rights to fix what he sees as Yahoo's excessive complicity with the Chinese government. It's his second try. "You lack true morality," he says.
Board opposes each, no surprise. They open the floor to discussion of the proposals. One small shareholder on the pay-for-performance proposal claims the carpenters union is corrupt. Another small shareholder says he proposed his own human rights proposal that the Yahoo board rejected, and says Yahoo needs a clear China policy. One more comment from a shareholder backing accountability for compensation--in particular, time cards on what work directors do. This gets more than a few cheers, though it has no chance of happening, of course. (Wait, Bostock comes on and says he'd be glad to submit a time card for the 26 hours a day he has spent on Yahoo in the last six months. A grizzled shareholder sitting nearby vocalizes his skepticism.)
OK, business portion is done and the business update begins:
Bostock takes us back to the days of mid-2007, which almost looks like the good old days now despite a "management transition" in June 2007--that is, when then-CEO Terry Semel was transitioned out the door.
Uh-oh, he promises to walk through the details of Microsoft's unsolicited bid. We could be here awhile. He says during 30 board meetings in the last six months, the board was fully engaged in assessing the bid. He says the only written proposal from Microsoft was its original $31 a share bid on Jan. 31.
He claims Microsoft never "significantly" engaged on the non-price aspects of the deal. Meantime, the decline of Microsoft's stock price meant the value of the deal declined. Thus Yahoo rejected the initial proposal. He reiterates that the board always was serious about considering Microsoft's deals. By contrast, he says Microsoft declined to engage and instead lowered the offer verbally but later offered "a few dollars" more, but not on paper.
When Yahoo approached Microsoft on its verbal $33 a share proposal, the software giant withdrew it, he says. That's when Yahoo did a search deal with Google instead. "It is a good deal for Yahoo without question," he says.
Then Microsoft came back with two proposals to acquire Yahoo's search operations--"to rip out of the company" the search assets and sell them to Microsoft. Yet he says Yahoo considered them, and found them "clearly not compelling." "There was never a compelling offer put on the table."
On to Carl Icahn and his since-cancelled proxy fight: "Carl's a smart guy... a good guy despite some of the things written about him." He hopes for a productive relationship. You'd think he would get dizzy from all this spin, but honestly, you wouldn't expect anything else in this kind of forum. (Grizzled guy next to me snorts skeptically again.)
Now a very dapper Jerry Yang is up, using Powerpoint slides, which he supposedly hates because Powerpoint is a Microsoft program. "This a company that we're very determined and excited to transform," he says. He notes that the Internet is still in a high-growth mode, thanks to mobile, broadband, and video. Also, the Internet is showing the only real growth in advertising among all media.
Yahoo's value proposition: Great brand. Leading positions in search (hmm, hardly leading) and display ads. "There's no other company on the Internet that has this set of assets. ... That's the power we're unlocking with Yahoo."
Strategy is simple (and repeated here for the gazillionth time, so I won't go into detail): First, to have a leading position in the key starting points on the Net. Second, to be a must-buy for advertisers, by being a platform for making buying ads on the Internet easy. (There's a third, but the message gets a little muddy to my ears at this point.) "We are on the verge of seeing some of those results." Now he introduces President Sue Decker to talk about them.
Basically, she's saying marketers want to use both search and display ads in much the same way--Yahoo's well-trod pitch for its unique position to offer both kinds of ads in the same system for advertisers. She says search is now pretty easy for advertisers to buy, but display ads are very fragmented (this is quite true). Also, it's very labor-intensive for advertisers to reach everyone across many publishers. Yahoo's system for making this easier, now in test mode, will launch more broadly this fall.
On the audience side, Yahoo is "rewiring" itself to try to make its properties more open and more social. (Mobile's a big part of that, and she says Yahoo leads there; more on that later.) She talks up Yahoo's Buzz and its search innovations, such as SearchAssist (a way for users to find what they want more easily, launched last fall), and Search Monkey (a way for Web site developers to customize Yahoo search results).
Now she's describing Yahoo's mobile efforts, where it has actually carved out some leadership. "Ultimately we think mobile will be THE leading starting point on the Web" globally, she says.
Maybe it's early, but so far today, investors aren't impressed. Yahoo's stock is down a little under 1% today, to $19.75--perilously close to the $19.18 a share where it bottomed just before Microsoft's initial bid.
Now Chief Financial Officer Blake Jorgensen is up. In pointing to a slide of three straight years of flat cash flow, he notes big investments, such as the Panama search ad project. He also notes Yahoo's position in Asian markets, and implies that its stakes in these properties may not be reflected in Yahoo's stock price.
Now the earnings outlook, which was already outlined in the earnings call last week. No change from then. He repeats the mantra that just about everyone at Yahoo has uttered several times today: "maximizing shareholder value."
Yang's back on, summing up: "We have a very good operating model for this business ... This is a scale business. We have that scale and we will take advantage of that scale. ... We're focused on execution. We have to continue improving our execution. Execution will continue to be a primary focus of the management team." And, of course... more words on how they're trying to do their best for shareholders.
Now, to the Q&A. Only 15 minutes, though! Wow, not much time for what's arguably the main event here.
First up is Eric Jackson of the investment firm Ironfire Capital, who is a prominent small shareholder who at the annual meeting last year called for CEO Terry Semel to resign (which he did six days later). He has a question about governance. To Yang, he asks about his role in a deal involving the sale of Overture Japan and why Yahoo didn't take more cash out of those transactions. Second question for Decker and Bostock: With a long windup, he asks how much time her other board memberships take and would she consider stepping down from at least two of them. To Bostock, he asks about last year's withhold votes--why is he continuing to serve? (People are shifting in their seats as Jackson goes on and on.) He asks Bostock to step down if there's a high withhold vote because he and other directors are overpaid.
"Not half enough the last six months, I'll tell you that," Bostock shoots back. Some applause at Jackson's suggestion that Bostock and two other directors step down.
Yang takes the mike, addressing Jackson. "If you want to step down, please do so," he says, adding, "It's good to see you again." Yang clearly has a wickedly dry sense of humor.
Yang explains Yahoo's reasoning for the Yahoo Japan deal. On Decker's other board memberships, he says he thinks this perspective is a good thing. Decker says Costco is a great executor and Yahoo has learned a lot, and from Berkshire Hathaway and Intel as well.
Bostock chimes in. "I can't imagine, frankly, three more prestigious boards to serve on," and that experience is extremely valuable. He also says no one is smarter and harder-working than Decker. He says she "has not missed a step" on Yahoo's execution. As to whether he thinks he should step down, one word: "No." He defends the compensation of directors, which he says has been reduced.
On Jackson's question of misplaying the Microsoft deal, he says basically the Jackson's characterization is wrong.
Another questioner, finally: He asks about the revenue per search, which he says is awful. He also criticizes revenue per employee, which is half Google's. So to Yang: Has Yahoo been building systems to even come close to Google?
Yang: "We are closing our RPS (revenue per search) gap with Google. It has been an important investment." He mentions the deal with Google will help by back-filling unsold ad inventory. Lastly, he says Yahoo is now building serious infrastructure to compete with Google over time to improve productivity, which he says Yahoo isn't satisfied with. "We are in the middle of that transformation."
A third questioner defends Yang on Yahoo's policies in China, specifically that he wasn't "malicious" in handling the situation that led to a Chinese blogger getting arrested. He goes on about some other things, but I'm glazing over. Finally, he goes out on a "sour note," criticizing Yahoo's explanation of the failed deals with Microsoft. "Walk away," and don't keep talking about the breakup. He's not done yet, comparing the Yahoo situation to Iraq, somehow. Yang's laughing throughout, as is the audience. "Where do they come up with these guys?" one attendee wonders aloud.
Yang defends Yahoo's human-rights record, in particular new measures to avoid such problems in the future, but says ultimately it's up to the State Dept. "We believe that Yahoo has done a lot since our last shareholder meeting."
New question: Tony Cruz with Amnesty International asking more about Yahoo's human-rights activities. "We do not believe Yahoo is even close" to addressing human-rights issues with its policies, he says. He says the Chinese dissident and his family continue to suffer in detention. Why has Yahoo failed to publicly call for the dissident's release? he asks. What is Yahoo actively doing to avoid repressive governments asking for censorship?
Callahan: Says Yang's letter to Condoleezza Rice did ask for his release. And he says Yahoo's policies do address Amnesty International's issues. And so on.
(News flash: Microsoft just sent out a statement that reads, in total: "Yahoo! is attempting to rewrite history yet again with statements that are not supported by the facts." OK, so now you know.)
Another questioner criticizes the short period provided for shareholder comments here, but doesn't get a response to that.
Another shareholder says Microsoft was the wrong company to buy Yahoo, calling it a "green-tentacled octopus." So there, Steve Ballmer.
A shareholder who says she's active in the search industry praises the strategy and recent acquisitions and says she's happy Microsoft didn't succeed. Her question: How will Yahoo's new ad system, called AMP initially but likely to change name, compete with Google's DoubleClick? Decker says the key is providing a system for handling both search and display. She says DoubleClick has "very old technology" and Yahoo decided to create an entirely new system.
Last question, from a retired lawyer from Baltimore: He says he's disappointed a third of the directors didn't show up, and is disappointed some directors don't own any stock. Bostock defends board attendance at meetings generally. He says Gary Wilson had to deal with a serious medical emergency and his doctors said he couldn't come. Bobby Kotick is leaving the board. Ron Burkle couldn't change a European trip.
Bostock tries to end the meeting, but the questioner drones on.
Now, a woman in the audience complains that a man was waiting for a long time to ask a question. Bostock grants him a hearing. He haltingly asks a couple of questions, but I'm afraid I'm not following them and I'm not sure Bostock did either.
And that's it for the questions, and the meeting.
What we didn't hear: What was the shareholder vote on directors? Supposedly, they're still counting. We'll find out later today and I'll update.
Update: OK, here's the vote count:
Director Shares For % For Shares Withheld % Withheld
Roy J. Bostock 832,023,657 79.5% 214,071,927 20.5%
Ronald W. Burkle 849,373,291 81.2% 196,722,293 18.8%
Eric Hippeau 948,862,579 90.7% 97,233,005 9.3%
Vyomesh Joshi 971,594,650 92.9% 74,500,934 7.1%
Arthur H. Kern 814,871,925 77.9% 231,223,659 22.1%
Robert A. Kotick 967,044,818 92.4% 79,050,766 7.6%
Mary Agnes Wilderotter 964,939,727 92.2% 81,155,857 7.8%
Gary L. Wilson 856,006,576 81.8% 190,089,008 18.2%
Jerry Yang 893,055,602 85.4% 153,039,982 14.6%