A Critical Review of Yahoo! Corporate Governance Essays

A Critical Review of Yahoo! Corporate Governance Essays A Critical Review of Yahoo! Corporate Governance Paper A Critical Review of Yahoo! Corporate Governance Paper A recommendation is then given followed by a conclusion to the analysis. L. Introduction Corporate governance has come along way since the 1 9th century. What was once an elite fraternity based on little more than cronyism and family connections has now taken on a new shape, resulting from greed and deceitful corporate breakdowns of iconic companies in the first part of the 21 SST century. If the 19th century was the century of the entrepreneur; and the 20th century was the century of management; then the 21 SST century is the century of corporate governance. This paper seeks to review the governance in a publicly listed company whose equines performance has been criticized publicly and to report about its governance protocols and practices. A brief description of the company in question followed by the criteria for the review of governance will be presented. Then, a critical review of their existing practices will be forwarded. Finally a list or recommendations will conclude the review. The goal is to shed light on boardroom practices and to better understand past events so to prevent them from reoccurring. 2. Background Yahoo! S a SIS based multinational Internet company headquartered in Californians silicon valley. It is widely known for its Web portal, search engine, Yahoo! Mail, advertising, online mapping, social media and a myriad of other services, including popular acquisitions such as Alabama, flicker and Tumble. Yahoo! Was founded in 1 994 and was once one of the most popular sites in the US. However, in recent years, its been plagued by poor governance. Between 2009- 2012, the board had dismissed 5 Chief Executive Officers, indicating a history of CEO problems with dire need of stability at the top. The current CEQ Marimbas Mayer has been in place since 201 2 and has also been heavily criticized; however, her leadership has changed the dynamic and ultra of the company, resulting in a tripling of the stock price and acquisitions worth over $1 billion. (Geol. 2014) The next section will explore the criteria for the review of governance. 3. Criteria for review In light of on-going setbacks at Yahoo! , the following criteria have been identified, including a discussion on their importance and why it is appropriate to use them. Yahoo! As a section addressing my criteria in their Corporate Governance Guidelines and nothing appears out of place, in other words, the guidelines are concise and appropriate, according to the textbook. (Trickier 2012) 3. Board membership criteria Although this may seem basic at first glance, it is not. Boards operate differently company to company. In theory, an active board oversees the formation of strategy in shareholder favor, they develop incentives fo r the CEO and other managers to tackle whilst also working toward the agreed upon strategic objectives. The board also critiques the performance of management against such objectives throughout the year and also formally once annually. It is important for boards to run smoothly, as outlined above so to monitor the business, stay abreast with changes in the marketplace so to be in a session to act quickly when required. There is always work to be done by board and committee members, (independent or external) law also requires regular reporting and shareholders require updates. This is an appropriate way to operate because if a board becomes passive, the effects will trickle down and a change in company culture will ensue. To avoid this, and to follow best practice, boards and committees are voted in by shareholders and reviewed annually by the chairman. 3. 2 Selection of the Chief Executive Officer Selection of the Chief Executive of the company is reserved for an active road committee (often independent) who is nominated to do the legwork in the nomination process. The idea is that the nomination committee, headed by its own chairman accept suitable referrals and vet said referrals (and leads) based on the board requirements. Best practice suggests that by the time a nomination is put forth to the chairman, the audit committee has already approved the candidates background and confirmed that no known conflict of interest exists. Not only is it important that each board member be given a specific task or project, its also important to have clear guidelines in place to undertake one f the most important board obligations. Chief Executives are typically not identified easily or hired quickly and the search itself is often expensive. For this reason, shortcuts cannot be made or left up to assumption. It is appropriate for a board to have nomination guidelines in place for top-level positions before exploring the market even begins and well before candidate engagement. By having such guidelines approved and published, it lessens the possibility of oversight by committee members who may feel pressured to tick all the boxes before a formal nomination can be presented, with a genuine seal of approval. . 3 Independence of the Board As a result of the breakdown in governance of iconic companies such as Enron and Arthur Anderson, governments from each country have been forced to take action to preserve the rights of shareholders and employees. An example of this can be found in the US, UK and Australia who operate as a unitary board, unlike Europe, which operate on a two tier board consisting of the executive board and the supervisory board. By law, the unitary board must include independent directors (INDEED) and committees. The paradox of the unitary board is the greater a directors independence, the less he/she is keel to know about the company. The more the INDEED knows about the company, the greater his/her potential contribution, the less his/her perceived independence. According to the textbook, an independent board is one that is capable of performing under the direction and leadership of a non-executive chairman or lead director so no to fall prey on initiatives from management or internal directors. (Trickier 201 2) Independent directors have periodic meetings of independent directors to evaluate management against the strategic goals. They follow strict rules to keep a fair, unbiased balance between the board ND management. This is important because it demonstrates greater transparency to the shareholders and to the SEC, SOX and other government regulators. A lack of transparency was a pattern followed by every board of companies that have since been found guilty in criminal court. It is appropriate to adopt an INDEED board not only to satisfy laws but also to demonstrate that action has been taken to ensure that the board as a whole is fair, that board members come from diverse backgrounds with unique areas of expertise, including industries. Independent Directors are equally accountable to the chairman of the board, hat they are offering is another a new way to view challenges faced by the company and offering the best solutions. . Critical review of Yahoo! Governance Yahoo! Has experienced tumultuous board movement over years, considering that the company is only 20 years old. Many past board members have held their seats for only one year. As of this day, there have been thirteen past board directors which suggests a critical lack of congruence within the business. There are currently ten board directors, including Mayer, CEO. Each director boasts a diverse set of skills and experience from companies that align with Yahoo! , which is ideal and half appear to be independent, also a good thing. It has been acknowledged however, that half the board were replaced following Mayors induction in what is reported to be a buyout. Its been reported that those she bought out would have become made her new post difficult as they likely would have clashed at some point and that it would likely be due to character first and strategy direction, second. (Yarrow 2013) According to Yahoo! Corporate governance guidelines, The Nominating and Corporate Governance Committee shall be responsible for assessing the appropriate balance of criteria required of Board members. It is true that a board will often nominate new members with the induction of a new CEO; however, it is reported that Mayer handpicked this board to support her. (Swisher 2014) If this is the case, then it brings up many concerns and questions. The textbook identifies nine concepts and principles for corporate governance. (Trickier 2012) In the case of board selection, believe the following principles sing out: judgment, and accountability. The execution Of best judgment is expected in any nomination. The boards decisions should e made for the greater good of the company, rather than to promote personal agendas. Records show that although Mayer may have nominated half her board, the shareholders and existing board directors have approved it. In other words, they appear to have gone through due process as stated in the company guidelines. One would hope that the current board will prove not to be yes-men and that they will be supportive yet unbiased and even critical as required as cronyism has lead many a company down slippery slopes. The concept of accountability suggests that directors are answerable for their actions and decisions. Mayer must have already known that as one of the first changes she initiated at Yahoo! Was a weekly meeting that everyone was invited to attend to have their questions answered based on recent decisions, changes in the business and write ups in the press. Employees submitted questions online and the first 5 questions with 50 votes would be addressed. Mayer even allowed employees to submit anonymously, which naturally invited in the tougher questions. From an outside perspective, this was a genius move on her part and showed that she was being transparent and penny willing to put herself on the line. This next topic goes without saying that Yahoo! Has been hit hard by the mismanagement of their Chief Executive Officers in recent years. As stated above, the selection of the CEO is a critical task of the board and its committees. Yahoo! Has terminated four Chief Executives in three years. Mayer took the reins in 2012 following Scott Thompson resume embellishment that was made public only four months into his tenure. Each of the two interim Chief Executives had been deemed unsuitable to take the role on permanently. This is an example of poor governance; the situation tit Thompson may have gone away more rapidly had Yahoo! Not already terminated the 3 Chief Executives before him. This is also a problem of succession planning as 2 of the interim Chief Executives were internal. On the other hand, how might a company be prepared to nominate two internal Chief Executive candidates who are ready for the role in such a short space of time? Chief Executives are not interchangeable. It is believed that Yahoo! Did the best with what they had to work with, it just wasnt enough. To make matters worse, at the time of the Thompson revelation, the chair of he nomination committee, Patti Hart (who approved Thompson) was also found to have an embellishment on her resume. This is was an embarrassment for Yahoo! As the filing had already gone to the SEC to which the board was accountable. The concepts that stand out in this instance are: honesty, meaning not misleading and of strong morality and integrity, mean inning of high moral value and professionalism; such principles are expected by a board of a ($billion) company. One article describes the dilemma well. Should we be focused more on education or on ethics? Enders 201 2) As an outsider, I believe ethics weigh stronger than education; especially as top executives receive ongoing, relevant training and development. In Thompson case, he resume claimed a computer science degree from the asss which would have added little value to the company. Makes one wonder if it was really worth the risk. Oversights do happen, yet this particular one had been following him around since the early asss. Based on the updated company nomination guidelines, such mistake will likely never happen again as better, more appropriate checks and balances have been set in place. The final topic is around independence. As outlined above, a unitary board just have independent directors and committees to ensure that decisions are made in the best interest of the company. At the time of Thompson and Harts tenure, the only thing that makes sense is that the board became too comfortable and exercised gross oversight and incompetence. The trouble here was that the board didnt question the independent committees findings. Independence is important, though so is due process. (Labeled Sillies 2003) The audit committee was not involved and the chairman at the time was known for not rocking the boat. Brenner 2014) The results were crippling for the company. The concepts that require discussion and analysis are: responsibility, having clearly defined roles and reputation, an estimation of having done something well. Although each board member looked adequate on paper, there were many gaps that could have been avoided if the directors had been diverse enough or willing t o take a stand to ensure that all the boxes have been ticked. It seems that each was relying on the other to do the right thing and each accepted the general consensus without further query. This proved damaging to the reputation of the entire board and some lost their appointments as a result. On a positive note, Yahoo! Now have a new guideline in place to ensure that three committees review and approve a nomination before it goes to the board for further review. This is consistent with best practice for unitary boards. 5. Recommendation Mayer has been CEO for a little more than two years. Since then, she has driven more than 30 acquisitions worth more than $1 billion; she has also initiated a monthly bell curve review of all staff which determines merit for bonuses and in some cases, termination. Stock price has tripled under her tenure. Her decisions are not always popular, yet shes doing what few before her were able to. Therefore, its recommended that the board continue to give her money for acquisitions and also for RD to make Yahoo! Known for its products, not just its acquisitions. Mayer has been heavily criticized in the press for making decision based on feeling. Not all her decisions have worked out well, yet she has not yet created a pattern of poor decisions making. I recommend that she remain CEO for another two years to bring her strategy to fruition. That way, shareholders will continue to reap the rewards of the tock price whilst Mayer continues to harness energies toward customer experience, which is where her expertise lies. 6. Conclusion The past several years have been tough for the company. The good news is that Yahoo! Appears to be turning things around for the better. It was a big risk for the board to hire a green CEO. Her successful track record at Google as well as her industry contacts and networking skills will prove invaluable. Meyers gender, age and rapid ascent into executive management have earned her a national celebrity status.