A CEO checklist for Yahoo

What the Internet company should consider while hiring Thompson's replacement.

By InvestorPlace May 15, 2012 10:23AM

By Jonathan Berr

 

Hey, Daniel Loeb: You just won your proxy battle against Yahoo (YHOO) without firing a shot and ousted CEO Scott Thompson in the process. What are you going to do now?

 

In Sunday's press release announcing the shakeup at the Internet company, Loeb spoke about how Third Point was "committed to working with new leadership to unlock Yahoo!'s significant potential and value" -- without explaining what that means. That's not surprising given that Yahoo management has been saying more or less the same thing for nearly a decade and has failed to back up its words with deeds.

 

Yahoo has been adrift since at least 2008 when it foolishly turned down Microsoft's (MSFT) buyout offer. (Microsoft owns and publishes Top Stocks, an MSN Money site.) Getting Yahoo back on track might take years -- time the company probably doesn't have to win back investors, considering shares have cratered 50% from five years ago and have been mostly rangebound since 2009.

 

Loeb, who owns more than 70 million shares of the Sunnyvale, Calif., company, probably has shifted picking Yahoo's next corporate leader to the top of his agenda. To help Loeb out, I've put together a little checklist for the things he should consider:

 

Starting off on the right foot ___


Yahoo's interim CEO choice of Ross Levinsohn is not inspiring. While at News Corp. (NWS), Levinsohn was part of the team that paid $580 million in 2005 for MySpace -- a property that the media conglomerate unloaded last year for $35 million. Levinsohn is at least a step in the right direction, however, since neither Carol Bartz, who came from software maker Autodesk (ADSK), nor Thompson, who came from eBay's (EBAY) PayPal business, had any idea about what it takes to attract and retain Internet users.

 

People skills ___


The next Yahoo leader will have to get people to believe that the company's best days are yet to come. Not only will the argument itself be difficult to make, but finding someone who can sell that won't be an easy task. Being inspiring is a quality that someone either has or doesn't have. It can't be taught. Ergo, management can't hire someone it thinks can be inspiring; it has to hire someone that already is inspiring. The same holds true to a lesser extent for communication skills.

 

Two media executives that have these talents are Susan Lyne, the former CEO of Martha Stewart Living Omnimedia (MSO), and ex-NBC Universal head Jeff Zucker, whose name was withdrawn by Third Point from its board.

 

Making deals and developing a strategy ___


Investors have clamored for years for the company to monetize its investments in Alibaba and Yahoo Japan. It hasn't happened yet for many reasons. Yahoo's next CEO will have to figure out how to lead these talks to a successful conclusion. Yahoo could earn billions from Alibaba and Yahoo Japan, and the company will have to figure out what to do with windfall. Does it pay a special dividend? Make acquisitions? Invest in its own business? Some or all of the above? The company will have to do something, as shareholders won't allow it to build an Apple-esque (AAPL) cash mountain.

 

Carol Bartz and Thompson fired thousands of employees, but any new CEO would have to axe even more given that Yahoo earns $353,489 per employee -- dramatically below the industry average of $11.54 million. At the same time, investors know that no CEO can solely cut his way to prosperity, which underscores the need at Yahoo for a coherent growth strategy.

 

Content creation ___


For years, Yahoo had argued that it was the friend of traditional media, but as it continues to develop its own quality news sites -- such as Yahoo Finance and Yahoo Sports -- publishers have become increasingly leery of the company.

 

Much of the Yahoo network, however, has content repurposed from other sites. Original content fetches better ad rates than "curated" articles, but it is more expensive to produce.

 

Yahoo's next corporate leader will need to decide whether Yahoo should create more of its own content or seek out more partnerships, such as its recent deal with ABC News.

 

Accurate resume ___


Let's not forget the most recent slip-up that got the snowball rolling in the first place. Lying on one's resume is just inviting disaster, and Yahoo certainly doesn't need another potential landmine on the path to recovery.

 

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Follow him on Twitter at @jdberr.

 

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