Indirection, flux pose challenges for Yahoo leaders

SAN FRANCISCO — Yahoo cast aside CEO Scott Thompson because his official biography included a college degree that he never received.

The troubled Internet company’s next challenge will be convincing its restless shareholders and demoralized employees that the turnaround work started during Thompson’s tumultuous four-month stint as CEO won’t be wasted.

“Yahoo has been floundering for years and it looks like there is going to be at least several more months of indirection now that another CEO is coming in,” said Adam Hanft, who runs a consulting firm that specializes in brand reputation and crisis management.

Yahoo Inc. has now gone through four full-time CEOs in a five-year stretch marked by broken promises of better times ahead. Instead, Yahoo’s revenue and stock price have sagged during a time when rivals such as Google Inc. and Facebook Inc. are growing as advertisers spend more money online.

Yahoo’s hopes are now resting on Ross Levinsohn as its interim CEO. Levinsohn had a successful stint running Internet services within Rupert Murdoch’s media empire at News Corp. before one of Yahoo’s former CEOs, Carol Bartz, hired him in November 2010 to help her in her mostly fruitless attempt to fix the company.

Thompson, who was hired as Yahoo’s CEO in January to fill a void created by Bartz’s firing, had promoted Levinsohn last month to oversee the company’s media and advertising services throughout the world.

“This may seem like a great deal of news to digest, but as you are all keenly aware, Yahoo is a dynamic, global company in a dynamic, global industry, so change — sometimes unexpected and sometimes at lightning speed — is something we will continue to live with and something we should embrace,” Levinsohn, 48, wrote in a Sunday memo to employees.

“The bottom line is that the situation at Yahoo is a mess,” Macquarie Securities analyst Ben Schachter wrote in a Monday research note. “It remains unclear how the new management will turn things around at Yahoo.com and how quickly yet another new strategy can be formulated.”

Yahoo tried to make Levinsohn’s job slightly easier by reaching a truce with dissident shareholder Daniel Loeb, a hedge fund manager who exposed the inaccurate information on Thompson’s bio and had made it clear he would continue to publicly skewer the company unless he was given a chance to help develop a turnaround strategy.

To placate Loeb, Yahoo is shaking up its board of directors, which has been in a state of flux for several months.

Yahoo Chairman Roy Bostock and four other directors who had already announced plans to step down at the company’s annual meeting later this year are leaving the board immediately. All five of those directors signed off on the hiring of Thompson, a move that made them all look bad by the recent revelation that they didn’t catch an inaccuracy circulating for years about his education.

Three of Yahoo’s vacated board seats will be filled by Loeb, and two of his allies, former MTV Networks executive Michael Wolf and turnaround specialist Harry Wilson.

Alfred Amoroso, a veteran technology executive who joined Yahoo’s board just three months ago, replaces Bostock as chairman.

The reshuffled board will now try to complete a long-delayed deal to sell part of Yahoo’s roughly 40 percent stake in China’s Alibaba Group, an investment that investors view as the company’s most valuable asset. If a deal can be completed, it could generate billions of dollars that could be returned to Yahoo shareholders.

Loeb, who controls a 5.8 percent stake in Yahoo though his Third Point hedge fund, had been waging a campaign to gain four seats on the company’s board. Loeb settled for a compromise and Thompson’s departure. The two had a falling out in late March when Thompson told Loeb he wasn’t qualified to be on Yahoo’s board.

Although Yahoo gave no official explanation for Thompson’s exit, it appeared to be tied to inaccuracies that appeared on his biography on the company’s website.

and in a recent filing with the Securities and Exchange Commission.

The bio listed two degrees — in accounting and computer science — from Stonehill College, a small school near Boston. After discovering Thompson never received a computer science degree, Loeb exposed the fabrication in a May 3 letter to Yahoo’s board. The revelation raised questions about why the accomplishment had periodically appeared on his bio in the years while he was running PayPal, an online payment service owned by eBay Inc.

Yahoo initially stood behind Thompson, brushing off the inclusion of the bogus degree as an “inadvertent error,” but harsh criticism from employees, shareholders and corporate governance experts prompted the board to appoint a special committee to investigate how the fabrication occurred.

Thompson, 54, spent much of the past week scrambling to save his job. He sent a memo to employees, apologizing for distractions caused by news of the illusory degree and then sought to assure other Yahoo executives that he wasn’t the source of the inaccuracy. He blamed a Chicago headhunting firm, Heidrick & Struggles.

In an internal memo last week, Heidrick & Struggles denied Thompson’s accusation. “This allegation is verifiably not true and we have notified Yahoo! to that effect,” CEO Kevin Kelly wrote to employees. On Sunday, a spokesman for the firm declined to comment.

In a twist, The Wall Street Journal reported Monday that Thompson had told the board last week that he has thyroid cancer. The diagnosis contributed to his decision to step down, according to the newspaper’s unidentified sources.