A History Lesson for Jerry Yang: It Sticks in My Craw(ford)
Yesterday, the powerful portfolio manager at Yahoo’s largest investor, Gordon Crawford (pictured here) of Capital Research Global Investors, a division of Capital Research & Management Co., made some very public and very harsh remarks directed at Yahoo (YHOO) CEO Jerry Yang for blowing the Microsoft (MSFT) deal.
All told, between two funds, Capital Research owns 16% of Yahoo. The fund run by Crawford, a legendary money manager and media power broker, holds 6% of that total. No surprise, then, that those funds took a big hit yesterday after the Microsoft takeover bid for Yahoo collapsed.
So a lot of people paid attention yesterday when Crawford, in a high-profile interview with The Wall Street Journal, laid into Yang (pictured here) in such an in-your-face manner.
Said Crawford: “I’m extremely disappointed in Jerry Yang. I think he overplayed a weak hand.”
Crawford was fuming even more to the New York Times yesterday:
“I am extremely angry at Jerry Yang and at the so-called independent board. … I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing, but I’m not optimistic about that.”
Uh-oh, because BoomTown has seen this story before.
It was back in 2002 and the exec under Crawford’s withering gaze then was former AOL Time Warner (TWX) Chairman Steve Case (pictured here).
Jerry Yang might want to take notes, as the situations are a little too familiar to ignore.
Thus, here is a longish excerpt from my book, “There Must Be a Pony In Here Somewhere,” which shows just how active and relentless Crawford can be as an investor when he gets irked by execs who disappoint him:
Gordon Crawford was still very, very angry.
Still piqued over the deteriorating situation at AOL Time Warner, he was now annoyed at himself too.
After laying into AOL Time Warner CFO Wayne Pace in early 2002 over what he perceived was dissembling by COO Bob Pittman and former CFO Mike Kelly in 2001, the powerful media investor at Capital Research and Management had decided over the spring to continue investing in the company.
He had visited the online unit and been heartened that executives were hard at work on a solution, even as the other divisions of the company were excelling and new CEO Dick Parsons had boosted morale.
Crawford calculated that the stock price had fallen well below the potential breakup value of the various parts of the company, and he had decided the stock of AOL Time Warner was being beaten down unnecessarily.
It now seemed a good buy. After all, how much worse could things get?
A lot, actually, as the online unit continued its downward spiral with new accounting allegations revealed over the summer and more signs that both subscriber numbers and ad revenue were in trouble.
Crawford would later kick himself for ignoring the signs he had flagged earlier.
“When there was one cockroach, one should always assume there are others,” said Crawford to me in 2003. “It was a stupid mistake.”
And Crawford wasn’t going to make another one, especially after he began hearing more and more angry voices from his network of sources across the divisions of AOL Time Warner.
Almost all the complaints were centered on one person: Steve Case.
After Levin and Pittman had left, it seemed, Case had begun to reassert himself at the company, visiting various divisions and doling out guidance on how to better achieve synergies.
It was advice that few divisional executives welcomed, especially coming from the man they held most responsible for the huge declines in the company fortunes, and who was also a constant reminder of how Time Warner had been snookered.
“To have to sit there and listen to him was unbearable for them,” said Crawford. “His continued presence was taking a terrible toll on morale.”
As the protests mounted, Crawford took it upon himself to gather key allies among the big shareholders–beginning with Ted Turner, who had now soured on Case much in the same way he had on Levin.
Crawford then contacted Malone, who had wanted to stay neutral but agreed to hear them out in an August visit to Denver. There, Crawford and Turner made their argument to Malone.
“Their view was that it was a disaster and no one could stand to have Case around,” recalled Malone. “The numbers lost were just too big, so he had to go.”
Lingering in the background, noted Malone, was the sense that Case had outsmarted everyone at Time Warner, a fact that further grated on them.
Since Crawford was headed east to New York for a series of meetings at various media concerns, including AOL Time Warner, the trio decided that he would be the one to deliver the news that Case should go.
He first met with Dick Parsons and Wayne Pace on on other topics at the company’s Rockefeller Center headquarters. During the meeting, Case joined the group and invited Crawford to his office when he was done for a private talk.
Case might have reconsidered the invitation when he heard Crawford’s definitive message: Resign.
Outlining his feedback from employees, Crawford explained that neither he nor other major shareholders thought Case could be an effective chairman any longer.
Case, sources familiar with the conversation said, was shocked by Crawford’s frank assessment and began immediately to argue with him.
Crawford was stunned when Case told him AOL was fine before the merger announcement and that he had no responsibility at the company after the deal was done.
It was not his fault that the economy had tanked. It was not his fault that both Levin and Pittman had proved to be unsuccessful leaders. It was not his fault that the Internet boom had turned to bust.
Case told Crawford he was not leaving.
The meeting ended with Crawford deeply troubled over Case’s finger pointing at everyone but himself, and the casting of himself as victim.
The gall of it rankled the longtime investor, who expected people to take responsibility for their errors. Yet Case hadn’t made even a slight effort at any kind of apology, claiming he either was not in control or not responsible.
What Crawford couldn’t grasp was that Case had no intention of saying he was sorry when he was not. To Case, offering a mea culpa would have been dishonest.
In addition, he felt it was more useful to figure out what to do next than wallow in blame. This was vintage Case, a behavior of moving on and compartmentalizing failure that had served him well for so long.
Case felt he had little authority to do anything, but a lot of responsibility to get it right.
Case called Crawford soon after he returned to his California office. “How can we patch things up,” asked Case.
But Crawford’s message was the same: “We can’t.”
Still, in the same conversation, Case asked Crawford to discuss the situation further in person when he’d be in Los Angeles on a visit to Warner Bros. in September.
He and Crawford, along with AOL’s Donn Davis and Capital Research and Management’s David Siminoff, decided to have lunch at a private executive dining room at the film studio in Burbank.
Case was nervous as they sat down, and he quickly said that he wanted to find a way to return to a productive relationship with Crawford.
“What do I have to do to become friends again?” Case joked.
He noted that he cared deeply about AOL Time Warner and wanted to rebuild value.
But then he again asserted that the blame for the failed merger was not his, since he wasn’t the one running the show at either AOL or AOL Time Warner.
To Case, this made sense–there were a lot of mistakes to go around, but all that mattered was where the company was now and what it should do to fix matters.
Case had no idea how badly he had misread Crawford, who wanted neither a friend nor excuses about leadership deficiencies nor lessons about the here and now.
Crawford understood that executives made mistakes, and he even thought it was OK to miss numbers—as long as you had the guts to admit that it was your fault and you didn’t point fingers.
Crawford told Case that he didn’t hate him and didn’t want to be accused of going behind Case’s back to get what he wanted as a major investor, as he began to talk to AOL Time Warner board members and shareholders about his concerns.
Crawford didn’t have a whole lot to add to what he had previously said.
And that was: Resign.
Case didn’t have much to add to his prior response, either: He would not.
…Crawford had been calling major investors since the late summer. Already, Crawford had Turner, Malone and many others on his side, including some AOL Time Warner board members.
As 2003 dawned, he was not going away in his quest to unseat Case and he probably held sway of at least one-third of AOL Time Warner shareholders.
“Case was an irritant, especially in a managerial role,” said Crawford. “He hurt the esprit de corps–you can’t be the general when your troops want to shoot you in the back.”
Another person close to Crawford offered a more descriptive take on the media investor’s motivations.
“He did not do it to embarrass Steve,” said this person. “Steve was just a festering boil at AOL that needed to be cauterized and removed.”
Note: Case resigned on Jan. 12, 2003.