Friday, June 25, 2010

Yahoo Annual Shareholder Meeting (2010)

I attended Yahoo's Annual Shareholder meeting on June 24, 2010 at the Doubletree Hotel in San Jose, California. About 35 non-employee shareholders and 50 Yahoo employees attended. What a change! No media circus, no hoopla about Icahn's or Microsoft's intentions, and no ill-advised grandstanding by Bostock--just a normal, professional annual meeting. In short, Carol Bartz is simply amazing. She has taken Yahoo from seemingly endless PR disasters to instant credibility. Even Bostock--whose dithering I despise--seems tolerable next to Bartz. In fact, "to dither"--which means, "to be nervously irresolute in acting or doing"--seemed to be Yahoo's motif before Bartz.

Bostock (pronounced, "Bah-stock") opened the meeting by introducing Yahoo's Board of Directors and Executive team. (I was happy to see Brad Smith, Intuit's CEO and Yahoo Board member, at the meeting. Intuit's consistent ability to deliver strong products makes it an excellent partner to have.) Bostock said that Bartz had acted "decisively" and the Yahoo team had "made enormous progress." He turned the podium over to Yahoo's general counsel, who handled the formal portion of the meeting.

Yahoo's general counsel did a fantastic job. After hearing Responsible Wealth's representative Lincoln Pain introduce a shareholder proposal ("Say on Pay"), Yahoo opened the floor for comments on the proposal, limiting statements to two minutes. Yahoo's approach to shareholder proposal comments creates a good balance between too much information and too little information. Too many companies won't allow shareholders to comment on proposals or go the other direction and allow shareholders unlimited time.

One shareholder did have a comment on the "Say on Pay" proposal. He said similar proposals had been used as a club/baton to harangue the Board and CEOs. He criticized RiskMetrics, Responsible Wealth (the organization sponsoring the proposal), and ended by saying, "If you own a house in the Bay Area, you're [considered] rich," and "Responsible Wealth is ACORN for rich people." This proposal was defeated.

After the general counsel concluded the business portion of the meeting, the meeting was adjourned, and Carol Bartz shooed the general counsel off the stage and began her presentation.

Bartz detailed Yahoo's partnership with Microsoft. She said that by working together, Yahoo and Microsoft could attract 30% of the marketplace for search (with Google attracting the other 65 to 70%). Bartz indicated that Yahoo was focusing on several main areas: local, social, video, and mobile. She praised Yahoo's longevity, reminding us that while most tech companies founded fifteen years ago are now gone, Yahoo is still here. After a simple, crisp presentation, she opened the floor for Q&A.

Shareholder Anthony Mezzapelle mentioned that Yahoo's operating profit margin in the past three to five years seemed too low and wondered why Yahoo wasn't using its ample cash to improve its margins. Ms. Bartz answered that Yahoo had about $4 billion in cash, and agreed that Yahoo's 6% operating margin was "shockingly low." She said that Yahoo has spent money trying to improve margins, but revenue did not follow. Bartz seemed confident that Yahoo's margins would improve in the future. Ads are supposed to be fun, Bartz said, and Yahoo has better ads than competitors; moreover, Yahoo's partnership with Microsoft was generating more eyeballs and traffic for Yahoo's advertisers. Thus, while the advertising marketplace was fragmented, that fragmentation represents opportunity for Yahoo, according to Bartz.

Victor Anthony Cruz, representing Amnesty International, reminded Yahoo about Shi Tao, who is serving a ten-year sentence in China for voicing dissent in cyberspace. (See here for more on Shi Tao.) Cruz indicated that Yahoo's discomfort over the China issue pales in comparison to the prisoners' feelings, and Yahoo should be more active in calling for their release. Bartz responded by saying that Yahoo had "actively" called for Shi Tao's release and worked with the State Department to try to help Shi Tao. She reminded Cruz that Yahoo "can't do a jailbreak." She also said that Yahoo has not directly operated in China for years and would not be happy until Shi Tao was released.

Another shareholder discussed Yahoo's poorly timed share buybacks. He noted that Yahoo's average share buyback price was $26.35/share, and Yahoo bought much of its shares in 2007. Bartz said that buybacks should be analyzed over a period of 20 years. "Hindsight is perfect," she said, but Yahoo made the best decision at the time based on the information it had. Also, Yahoo was reviewing its buyback formula.

Other shareholders asked about Yahoo's foreign stakes. One shareholder asked if Yahoo would be returning some of's value to shareholders. (Yahoo owns a stake in and has a joint venture with Yahoo Japan.) Bartz responded that Yahoo had no plans to sell its Japan stake and would figure out how to monetize it over time. Bartz also told another shareholder that Yahoo had no operational control over but was aware of the issues relating to Chinese monitoring relating to the website.

I made several comments, and opened by praising Ms. Bartz tenure at Yahoo. I said I was generally against high executive compensation, but in this case, she deserved every penny she got. She laughed, and responded that her compensation wasn't $47 million--the number most people throw out when discussing her package--and the share price would have to "triple" before she actually received that much money.

I then offered some suggestions. I told Yahoo that its online calendaring system had numerous glitches. Several months ago, Yahoo changed its calendaring system, creating several problems. For example, times set to repeat had suddenly changed, and some days at the bottom of the calendar could not be opened. I suggested whoever was in charge of the calendaring "needed a talking to," and the inability to handle a calendaring system affected Yahoo's credibility.

I then expressed an ongoing concern about Yahoo's choice of homepage content. I am sick of hearing about Hollywood "stars" and their personal lives. It bothers me that I actually know Kim Kardashian has a new boyfriend (thanks, Yahoo). It bothered me when Yahoo kept displaying stories about OctoMom, Paris Hilton, etc. (at this point, Bartz chimed in, mentioning Britney Spears and Kate and 8). I said I despised such stories so much that I had changed my homepage to something non-Yahoo. This comment set up an awkward exchange, where Bartz asked me what homepage I was using now. After some hesitation (hey, she asked), I answered, "Google"--causing several disgusted reactions in the room.

I also mentioned concerns with Yahoo's automatic updating and user sharing process. Right now, unless you opt out, whenever you make a comment on a Yahoo news story, your comment is displayed to your friends/contacts. In fact, I had no idea that some of my posts were being shared with my friends/contacts until someone mentioned a comment I'd made on a story weeks ago. Also, I had no idea that my actions on Yahoo would be shared without my consent. I immediately deleted my Contacts list and did the best I could to prevent my information from being shared. Nevertheless, Yahoo lost credibility by failing to have an opt-in social media system rather than an opt-out social media system.

Moreover, it was surprising to see Yahoo so behind the curve when it comes to privacy. When I post something on Facebook, I know I am sharing my comment with my Facebook friends. In contrast, just because I use Yahoo doesn't mean I expect my comments and user activity to be shared with my entire Contacts list, which could include people who've emailed me only a few times or many years ago. Although I criticize Yahoo for failing to foresee these privacy problems, I am still a Yahoo user. Overall, Yahoo gives me much more than it takes.

Finally, I jokingly asked Bartz when she was planning on going into politics (Meg Whitman and Carly Fiorina seem to be setting a trend for Silicon Valley female CEOs). Bartz immediately responded, "Never."

Congrats to Bartz for bringing some much-needed gusto to Yahoo.

Disclosure: I own an insignificant number of Yahoo (YHOO) shares.

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