One of Yahoo’s biggest long-term investors, Capital Research and Management, which owns more than 10 percent of the company in two different funds, is leaning toward voting for the slate proposed by activist shareholder Daniel Loeb of Third Point, in the wake of the controversy around the botched bio of its new CEO Scott Thompson.

“Having a CEO with that hanging over his head is really a problem going forward,” said one person with knowledge of the situation. “It’s hard to pretend this is not a problem.”

While sources said Yahoo’s longtime institutional investor — which currently holds large stakes via its Capital Research Global Investors and Capital World Investors funds — is not likely to go public with their voting choice until close to the annual meeting, which will take place sometime this summer.

But its fund managers have told key Yahoo board members of their grave concerns over the situation.

Ironically, in the last proxy fight showdown with Carl Icahn, Capital removed its support of Yahoo’s slate too and was an important influence to many major changes at the company.

Such a move is problematic for Thompson, since the rejection of another big shareholder at its upcoming annual meeting will keep the unusual issue and right in the middle of a noisy proxy fight.

A special committee of the Yahoo board is investigating the situation — in which a fake computer science degree somehow got on the resume of the former president of eBay’s PayPal payments unit and later into official Yahoo regulatory filings.

The problem was uncovered last week — unfortunately for the Silicon Valley Internet giant — by Loeb, who has been banging away on Yahoo since.

A trio of independent Yahoo directors is looking into the mess, with a focus on how that happened, whether anyone at Yahoo knew of the inaccurate bio and how it got there in the first place.

Also of great concern, is how Thompson could have not seen the error in the many years it was on the Web site of eBay and also how he approved a bio that had the inaccuracy in it when he was hired by Yahoo in January.

Worse still, in a 2009 interview, he clearly did not say he did not have such a degree in with a radio show host when directly asked about it.

“It’s a little hard believe an executive of this level would have missed such a thing, when he had so many opportunities to fix it,” said one source. “And, if he did overlook it that many times, that’s a problem too.”

In fact, according to a report earlier today by Business Insider that I also confirmed, Thompson told employees today in two separate meetings that he did miss the error since it was placed there — inexplicably — in 2004. In the meeting, he blamed a low-level headhunting staffer who added it incorrectly, an error that then proliferated.

Thompson also said he did not provide a resume to the company in his hiring process — say whaaaat, but true — although this still does not absolve him from the original error.

As to the interview: Thompson said he did not want to be rude and correct the host of TechNation, Moira Gunn, after she clearly asserted to him he had a computer science degree as part of a question on his qualifications. Others present at the meetings said he said he did not hear the question.

But, in an video interview with me yesterday, though, Gunn said she and Thompson discussed a computer science education in a way that left the clear impression that he had obtained one.

While Thompson’s excuse may beggar the imagination of some, it’s his story and he’s sticking to it. In all seriousness, his complete lack of willingness to take responsibility for the error — even if it was not his fault — itself is a little startling.

Because what’s not clear is how the bio was miraculously correct in eBay’s official filings and also if it is plausible that he never saw the mistake.

Numerous communications execs at Internet companies told me that it was unusual for a high-level exec not to pay close attention to information that went out about them, especially in legal filings. In addition, just as many execs are made to check and swear on their bios that go into such documents.

In fact, it was Thompson’s job to make sure the things written about him were correct at all times. As CEO, as a major Silicon Valley player pointed out, he is required by federal law to personally certify Yahoo’s Securities and Exchange Commission filings. Violations of these rules carry financial and also potential criminal penalties.

Sources said the board is worried about that credibility issue too and it puts Thompson in an ever-dicier position. Noticeably, the board has yet to make a public statement of support for him on the issue.

Also a major worry for the directors is the mostly negative response to the situation from Yahoo employees, who are deeply upset that Thompson’s error was not caught and that he might not be treated in the same way as anyone else who turned in a false resume, whether it was by accident or not.

A Yahoo spokeswoman told me last week that there was also support internally for Thompson, but in many dozens of interviews I have done with Yahoo employees and a continued monitoring of internal bulletin board, the tone is not in his favor by any means.

Like I said, it’s a dicey time to be Scott Thompson right now.

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• Yahoo’s Parting With Thompson Will Be for “Cause” (a.k.a. CSLie)
• Ross Levinsohn’s Yahoo Plan: Back to the Future
• Here’s New Yahoo CEO’s First Note to Troops! (The Leaking-Internal-Memos-to-ATD Policy Remains in Effect As Usual)
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• Is He In or Is He Out? Crunchtime for Scott Thompson at Yahoo.
• Not So Scott Free? Yahoo’s Other Big Shareholder — Cap Re — Leaning Toward Supporting Loeb Over Thompson ResuMess.
• Tech Nation’s Gunn Says She and Yahoo CEO Discussed Their CS Degrees Before 2009 Show (Video and Audio)
• Loeb Calls Again for Thompson Firing From Yahoo, as Former eBay Boss Supports Him
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• They Shoot Yahoo CEOs, Don’t They? But Not Without a Really Smoking Gun and a Much Stronger Board.
• Yahoo’s Thompson Asks Employees to “Stay Focused” — Except Not on Him
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• Dan Loeb Alleges “Discrepancies” on Yahoo CEO Scott Thompson’s Resume Related to Computer Science Degree

For someone who is still mulling things over about what to do about his more than five percent investment in Yahoo, hedge fund investor and activist shareholder Daniel Loeb has been very busy lately getting his arsenal ready.

While deciding whether to mount a proxy fight — a potentially nasty public fight with the Silicon Valley Internet giant that sources said could start much earlier than the expected February 24 filing date to make a board challenge — he’s also had at least one phone meeting with new Yahoo CEO Scott Thompson in the last week to talk about the company’s future.

Sources said the talk was cordial, although the pair were not yet discussing any kind of rapprochement, which presumably could lead to board seats for Loeb.

But how far Loeb will go and how far Yahoo will give are the big open questions that are about to be answered.

The earliest nominations for directors by outsiders like Loeb can be submitted is February 24. He then has a month after that to propose a competing slate.

Starting last fall when he started accumulating Yahoo shares, Loeb had aggressively called for the ouster of Yahoo’s Chairman Roy Bostock and director and co-founder Jerry Yang. Yang stepped away from Yahoo earlier this month and Bostock just announced his upcoming departure this week.

Despite the renewed communication with Yahoo, Loeb is still acting like he might opt to fight — or at least freak out Yahoo enough to cooperate.

Among his recent activities, according to many sources:

* Attempting to assemble an alternate slate of directors — including trying to persuade high-profile entrepreneurs such as David Goldberg and Max Levchin to join his board. Loeb has been to Silicon Valley several times to stir that pot.

* Meeting with a spate of powerful tech execs, here and elsewhere, in order to gain support for his battle and search for his own preferred leaders for Yahoo. A favorite is Hulu CEO Jason Kilar.

* Working on hiring a top outside crisis communications firm to handle the expected onslaught of media mudslinging that is sure to take place.

* Buttonholing large Yahoo investors to join him and getting, sources said, more support than expected from bigger ones. That’s no surprise: Capital Research Global Investors and Capital World Investors, Yahoo’s biggest institutional shareholders, voted against the company’s board in its last proxy battle and has been much disgruntled with the latest Yahoo stumbles.

* Recently reaching out to top Yahoo execs, including both Yahoo’s Chief Product Officer Blake Irving and Americas head Ross Levinsohn. Irving was so spooked by Loeb’s hello-there, several sources said, that he sent an email to Yahoo’s top staff about the contact attempt, noting he did not return the call (teacher’s pet alert!).

These are, of course, classic activist tactics by Loeb, aimed at getting the changes he wants made at Yahoo by applying real and perceived pressure.

Loeb had previously criticized the company’s talks with private equity investors, saying the prices being discussed were too low, which helped scuttle those talks.

Yahoo has also tried to gird itself and to assuage other shareholders and the media, as it can hardly stand what a proxy fight will do to its already battered image.

Some recent moves to look like it is on the move include: Loudly negotiating with its Asian partners for a big payday; making significant board changes; and hiring Thompson. Next up, as I previously reported, a large-scale restructuring and the inevitable cost-saving layoffs.

Who wins — and who blinks — in this Loeb versus Yahoo face-off, though, is still to be determined.

Crawford’s thinking: After Time Warner ditches AOL, which is scheduled for a spinoff later this year, the company will ditch its magazine business as well. That will leave it with a portfolio made up only of a movie studio and cable networks, and a big cash pile to play with.

Time Warner won’t comment, but I’m sure the company has heard Crawford make this prediction before. His Capital Research Global Investors owns more than eight percent of Time Warner shares, which means he gets plenty of access to Bewkes and his lieutenants.

But here’s the thing: The body language from Time Warner executives in recent months makes me think they intend to keep at least part of their magazine business in the family. More than body language, actually: “Time Warner without People? I can’t imagine it,” one well-placed Time Warner official told me recently.

That said, I won’t be surprised if the publisher employs fewer people, producing fewer magazines in the future.

Time Warner officials have repeatedly said that Time Inc. has too many titles: The magazine unit publishes 23 magazines in the U.S. How many can you name? And last year’s mass layoffs, while unprecedented for the publisher, were still fairly modest compared to other publishers’ cuts. The six percent reduction left Time Inc. with some 9,400 people on the payroll.

But executives at the publisher love to stress, off the record, that its flagship titles–Time, People and Sports Illustrated–are each on track to generate millions of dollars of profit this year, even though ad pages and revenue are down. And while Time Inc. certainly hasn’t figured out its digital business yet, at least some of its print properties could and should do well on the Web, as People.com is already doing.

There are certainly assets that Bewkes and company could dispose of fairly easily. For instance, its U.K.-based IPC Media unit, which handles many of the 90-plus titles it publishes outside the U.S., is frequently brought up as a sale candidate. But I’d be surprised if he got rid of Time Inc. and its iconic brands altogether.

For the record, here’s how Time Inc. performed in the first half of the year. The company has already said it expects similar numbers for the remainder of 2009 (click table below to enlarge).

This incident will have ramifications in the coming weeks for the composition of Yahoo’s board. But here’s the shocking thing: This latest batch of numbers might still underrepresent the level of disdain shareholders have for this board.

Any corporate election that doesn’t receive 95 to 98 percent support from shareholders for the incumbent management and board is an anomaly. Yahoo’s first press release from last Friday suggested that, despite all the hubbub of the failed merger talks with Microsoft and public criticism from Carl Icahn and others, Yahoo (YHOO) shareholders had let the incumbents off the hook.

Chairman Roy Bostock and CEO Jerry Yang were re-elected with 79.5 percent and 84 percent support respectively. These relatively benign results (compared to last year’s), combined with the fact that there were not more pointed questions at the meeting last week, led some observers to conclude that this board had “faced down” its critics.

Not quite. Gordon Crawford of Capital Research Global Investors did all Yahoo shareholders a favor by demanding a recount. Yahoo and Broadridge complied.

And results of that recount were alarmingly different from the first set of numbers. We’ve all heard of +/- 4 percent in polling, but when was the last time you heard of +/- 50 percent?

The recount might set a modern-day record among S&P 500 companies for the most “withhold” votes for a board in a corporate election. Only Vyomesh Joshi, head of Hewlett-Packard’s (HPQ) printer group, got off without a serious warning from shareholders (a 7.1 percent “withhold” vote).

The “withhold” vote for Bostock was 39.6 percent, not 20.5 percent as originally reported. And 33.7 percent of Yahoo shareholders withheld their support from Yang, not 14.6 percent.

Other Yahoo directors who fared poorly in the election were Gary Wilson (27.7 percent of votes withheld) and Compensation committee members Ronald Burkle (37.9 percent withheld) and Arthur Kern (31.7 percent withheld).

What would we all be doing today if Crawford had never called for a recount? If a “tabulation error” happens and no one is there to hear it, did it happen at all? We will never know.

And there will likely be more shoes to drop in this tragedy of errors. This “tabulation error” was only one of two major question marks surrounding last Friday’s initial voting results. Yahoo easily made Broadridge the fall guy for this first error.

The second error–how few eligible shares were counted in the final tally–isn’t so easily eluded. And for that, Yahoo will be the fall guy.

Only 75.8 percent of the eligible shares as of the June 3 record date were voted in this election. After such intense media scrutiny in the past few months, it seems odd that so few investors participated.

Last weekend, I dove into the numbers in detail and reviewed them against numbers from the last two Yahoo elections. On Sunday night I wrote about the most recent Yahoo shareholder vote and verified that there were 200 million fewer votes cast this year compared to the average over the last two years. I called on Yahoo to appoint an independent third party to review and certify the voting process.

Yesterday, as news of the voting irregularities circulated, I received a number of complaints from frustrated shareholders.

Some claimed they had received multiple proxies from Yahoo over the last month, with several arriving Aug. 4–the Monday after the election. Some said they had had trouble voting by phone. Others, who had initially voted for Icahn’s slate, said when they tried to re-vote against the Yahoo board, they weren’t able to do so.

How many other shareholders encountered similar difficulties? Without a full inquiry, we’ll never know.

These missing votes could have had an even more significant impact on the overall results. For example, Bostock received “for” votes from fewer than half of the total shares eligible to vote (only 45.8 percent of the 1.4 billion shares eligible to vote). He truly lacks the approval of the majority of the shareholders he is supposed to represent. With a 47 percent vote, Burkle also lacks majority support. And while Yang won majority support, he did so by the skin of his teeth, with just a 50.2 percent vote.

Governance Matters

At Friday’s meeting, I asked Yang, Yahoo President Sue Decker and Bostock about three issues that suggest to me that Yahoo’s governance oversight has been lax.

(1) Why did Yahoo sell Overture Japan (a $396 million-per-year business) to Yahoo Japan for $13 million last August? Did Yang, who sits on Yahoo Japan’s board, recuse himself from the negotiations? Who negotiated on behalf of Yahoo and why did they agree to such a low price when Yahoo has a habit of paying three to five times revenues for companies like Zimbra, BlueLithium and Right Media?

(2) Decker serves on three Fortune 500 boards: Intel (INTC), Costco (COST), and Berkshire Hathaway (BRK). Her duties to those companies required her to attend at least 22 meetings last year, according to proxy filings. And each meeting required significant preparation. As a Yahoo shareholder, I fail to see how outside commitments like these benefit Yahoo. Are they really necessary? Shouldn’t Decker drop a few of them until Yahoo finds solid footing again?

(3) About a third–31 to 36 percent–of Yahoo shareholders voted against the re-election of Roy Bostock and fellow Compensation Committee members Burkle and Kern last year. Yet all three continue to sit on this committee (or the board). Why? And why did they agree to pay outside directors average total compensation of $500,000 last year? Google’s (GOOG) outside directors were paid $250,000, on average, for their services last year. Decker received $2,700 for sitting on the Berkshire Hathaway board (and $110,000 per year for serving on the Intel and Costco boards). Why is Yahoo paying its directors so much?

I found the trio’s answers to these questions unconvincing. Particularly surprising were Bostock’s comments on Compensation Committee member tenure and compensation.

In the first place, Bostock said while 32 percent of shareholders voted against his reelection last year, 68 percent voted for him. And that’s not bad, he said. This glass-half-full logic explains why he has never bothered to explain to shareholders why he, Burkle and Kern have remained on the Compensation Committee and the Yahoo board.

Second, Bostock disputed my assertion that Yahoo’s outside directors were paid an average of $500,000 last year. When I asked him if he was definitively stating that he did not receive compensation of about $500,000 last year, he said “yes.” Yet, according to Yahoo’s own proxy statement, Bostock earned total compensation of $499,264 last year. 2007 compensation for Yahoo’s other board members was as follows:

• Ronald Burkle: $482,046
• Eric Hippeau: $496,674
• Vyomesh Joshi: $519,520
• Arthur Kern: $496,990
• Robert Kotick: $492,774
• Edward Kozel: $516,202
• Mary Agnes Wilderotter: $205,832 (for five months of service; annualized $493,997)
• Gary Wilson: $482,046

The average compensation for each Yahoo outside director in 2007: $497,531.

Third, Bostock also claimed that this year’s vote would be a far better indication of shareholder support for Yahoo’s Compensation Committee than last year. With 39.6 percent of shareholders withholding support from Bostock and 37.9 percent withholding it from Burkle, isn’t it time for them to step aside?

Fool Me Once, Shame on You; Fool Me Twice, Shame on Me

Given all this, I am deeply concerned that my interests and those of all Yahoo shareholders are not being protected by the company’s board.

We need to know why 200 million shares were missing from this year’s vote as compared to the last two years’.

We need to know why so many proxies were mailed late to shareholders (on our dime).

We need to know why so many shareholders are questioning whether their votes were counted.

Yahoo will try to sweep all these concerns under the rug, but we shouldn’t allow it. The company should immediately appoint an independent third party to address these questions and assure shareholders that their votes were properly counted.

Immediate Changes to the Board

Also, Yahoo needs to immediately make some changes to the composition of its board. Bostock and Burkle should do the honorable thing and step down from this board.

In truth, this should have happened a year ago. One wonders what might have happened in the last 12 months with Microsoft negotiations had Yahoo acted swiftly, following the 2007 annual meeting, to remove them.

]]> http://allthingsd.com/20080806/jackson/feed/ 0 http://allthingsd.com/20080806/microsoft-inevitably-weighs-in-on-the-yahoo-shareholder-vote-miscount/ http://allthingsd.com/20080806/microsoft-inevitably-weighs-in-on-the-yahoo-shareholder-vote-miscount/#comments Wed, 06 Aug 2008 07:08:01 +0000 Kara Swisher http://kara.allthingsd.com/?p=2510

Yesterday–in a patented playbook move–some top Microsoft execs didn’t miss a chance to slap around Yahoo over its shareholder vote debacle, letting it be known to industry insiders (on the very loud QT, of course) that the Internet company knew full well that its biggest investor, Capital Research & Management, was going to vote a large number of shares against it.

Thus, it was just a hop, skip and a leak before their sentiments got hand-delivered to the doorstep of BoomTown HQ.

In essence, Microsofties are arguing that knowledge of a major investor’s dissatisfaction should have prompted Yahoo (YHOO) to question its unusually positive voting results at its annual meeting on Friday and ask the outside voting tabulator to recheck its numbers before officially releasing them.

As it turned out, the tally by Broadside Financial Solutions, an outside firm that conducts the tabulating for investors, was highly inaccurate related to the number of shares withheld by investors for particular board members.

As reported Friday, for example, Yahoo CEO Jerry Yang only had 14.6 percent of shareholder votes withheld, with 85.4 percent voting for him, which was better than the year before.

The new results saw Yang’s disapproval more than double what was previously reported, rising to 33.7 percent.

This huge delta was due to errors in counting the no votes from funds owned by Capital Research, which holds an overall stake of about 17 percent in Yahoo.

“They had to see the discrepancies,” said one source close to Microsoft’s (MSFT) thinking. “Yahoo was hoping no one would notice.”

While BoomTown is careful to consider the sources here–the collapse of Microsoft’s takeover bid for Yahoo has left quite a bit of acrimony between the pair–they actually might have a point.

Sources at Capital Research certainly agree, saying they unequivocally told Yahoo leadership that they were going to withhold a substantial number of votes from certain members of the company’s board.



Those targeted included Yahoo CEO Jerry Yang and Chairman Roy Bostock (pictured here), as well as several other board members.

“They knew our intention,” said one source at Capital, referring the many news stories about, in particular, the disgruntlement of Capital Research Global Investors fund head Gordon Crawford. “Everyone knew.”

Capital Research Global Investors–one of two funds separately managed at Capital Research–owns 6.5 percent of Yahoo, according to recent filings, and its Capital World Investors fund owns 9.8 percent.

As this column previously reported, Capital Research’s proxy committees had recommended to its various funds that they withhold votes from Yahoo leadership.

But sources familiar with Yahoo’s thinking said that while the company was surprised by the better-than-expected vote last Friday announced after the meeting.

They noted that while opposition was a “little light,” Yahoo could not tell exactly which votes came from where.

Yahoo sources acknowledged that while the company was well aware of the unhappiness from Capital Research, they received no definitive communication–such as a letter–outlining its exact voting intent.

They also assert that Capital Research’s many custodians who handled the voting for the investment giant’s many funds made have made the voting more difficult to parse.

In addition, Yahoo sources said that Capital Research waited until late in the week to vote, which also added to the confusion.

The new correct vote did not impact the re-election of Yahoo’s current directors, although the much lower numbers for leaders like Yang and Bostock are a significant sign that they are actually operating from a much weaker position.

It is a weakness that a company like Microsoft, as well as other critics calling for Yang and Bostock’s ouster, could take advantage of in the coming months, especially if Yahoo stumbles in any way.

In any case, Yahoo was not at fault for the tabulating errors made by Broadridge, mistakes which were corrected today.

Sources at Yahoo said the company did not think there were problems until Capital Research called Yahoo and Broadridge about problems in the vote.

“We double-checked their results,” said a source close to Yahoo about the wrong numbers the company received from Broadridge Friday. “But mistakes got made.”

That, in fact, is the definitive understatement of this whole mess.

]]> http://allthingsd.com/20080806/microsoft-inevitably-weighs-in-on-the-yahoo-shareholder-vote-miscount/feed/ 1 http://allthingsd.com/20080805/new-yahoo-shareholder-vote-yang-disapproval-more-than-doubles/ http://allthingsd.com/20080805/new-yahoo-shareholder-vote-yang-disapproval-more-than-doubles/#comments Tue, 05 Aug 2008 21:06:24 +0000 Kara Swisher http://kara.allthingsd.com/?p=2509 The vote is now in and it’s not so pretty for Yahoo, as it turns out.

Broadridge Financial Solutions’ corrected tabulation of the vote at the Yahoo annual meeting on Aug. 1, without the “truncation errors,” came out and, it seems, shareholders are actually mighty irked at Yahoo leadership.

Most glaringly, the new result shows Yahoo CEO Jerry Yang’s disapproval more than double what was previously reported, rising from 14.6 percent votes withheld to 33.7 percent. Yahoo Chairman Roy Bostock saw his shares withheld rise from 20.5 percent to 39.6 percent.



Yang (pictured here), who has been under fire for his management of Yahoo (YHOO), is likely to now endure yet another round of questioning about whether he should stay in his job in the wake of this massive show of disapproval by investors.

Here is part of Yahoo’s press release, with the correct and incorrect tables below:

Yahoo! Acknowledges Tabulation Error by Broadridge

SUNNYVALE, Calif., August 5, 2008 – Yahoo! Inc. (Nasdaq: YHOO) was informed today by Corporate Election Services, the inspector of elections for the Yahoo! annual meeting of shareholders on August 1, 2008, that Corporate Election Services was notified this morning by Broadridge Financial Solutions, Inc., an independent voting intermediary that processes proxies on behalf of banks, brokers and institutions, of errors made by Broadridge in reporting votes at the meeting. Specifically, as Broadridge publicly disclosed earlier today, when Broadridge reported voting results for “withholds,” a truncation error occurred in reporting share numbers that exceeded eight digits.

The following table reflects the corrected Broadridge numbers:

Roy Bostock (Shares For: 632,023,657/60.4%; Shares withheld 414,071,927/39.6%)

Ronald W. Burkle (649,373,291/62.1%; 396,722,293/37.9%)

Eric Hippeau (948,862,579/90.7%; 97,233,005/9.3%)

Vyomesh Joshi (971,594,650/92.9%; 74,500,934/7.1%)

Arthur H. Kern (714,871,925/68.3%; 331,223,659/31.7%)

Robert A. Kotick (967,044,818/92.4%; 79,050,766/7.6%)

Mary Agnes Wilderotter 964,939,727/92.2%: 81,155,857/7.8%)

Gary L. Wilson (756,006,576/72.3%; 290,089,008/27.7%)

Jerry Yang (693,055,602/66.3%;353,039,982/33.7%)

The following table shows the original voting results certified by the inspector of elections, as previously reported:

Roy J. Bostock (Shares for: 832,023,657/79.5%; Shares Withheld: 214,071,927/20.5%)

Ronald W. Burkle (849,373,291/81.2%; 196,722,293/18.8%)

Eric Hippeau (948,862,579/90.7%; 97,233,005/9.3%)

Vyomesh Joshi (971,594,650/92.9%; 74,500,934/7.1%)

Arthur H. Kern (814,871,925/77.9%; 231,223,659 /22.1%)

Robert A. Kotick (967,044,818; 92.4%; 79,050,766/7.6%)

Mary Agnes Wilderotter (964,939,727/92.2%; 81,155,857/7.8%)

Gary L. Wilson (856,006,576/81.8%; 190,089,008/18.2%)

Jerry Yang (893,055,602/85.4%; 153,039,982/14.6%)

]]> http://allthingsd.com/20080805/new-yahoo-shareholder-vote-yang-disapproval-more-than-doubles/feed/ 2 http://allthingsd.com/20080805/broadridge-to-yahoo-oops-we-added-wrong-and-shareholders-like-you-lots-less/ http://allthingsd.com/20080805/broadridge-to-yahoo-oops-we-added-wrong-and-shareholders-like-you-lots-less/#comments Tue, 05 Aug 2008 17:07:09 +0000 Kara Swisher http://kara.allthingsd.com/?p=2507

Here’s the full statement (below) from the outside firm, Broadridge Financial Solutions, that tabulated Yahoo’s recent shareholder vote.

Bottom line: An underreporting of shares withheld for certain directors, which the Lake Success, N.Y., shareholder services firm is calling an “isolated incident” and also a “truncation error.”

That sounds painful.

And it is likely Yahoo CEO Jerry Yang will feel much of that pain, as sources said the shares are largely those that were withheld from him by disgruntled shareholders.

While the mistake will not change the vote’s overall outcome, in which all current Yahoo (YHOO) directors were re-elected, it will surely make the no-vote tally worse than first reported for many directors, and underline more clearly the increased investor disappointment directed at Yahoo leadership.

As reported Friday, for example, Yang only had 14.6 percent withheld, with 85.4 percent voting for him, which was better than the year before.

A Yahoo spokesman said the company was redoing its results, based on the new information, and would release the new numbers soon. The Internet company did not do the vote tabulation.

The examination of the results was prompted by an unusually positive Yahoo shareholder vote, when it did not seem to include the withheld votes of one major Yahoo shareholder.

Thus, Capital Research & Management asked Broadridge for a recount of its votes.

The problem centered on how shares were tallied in the Yahoo annual meeting, specifically related to a group of votes withheld by Capital Research Global Investors.

That fund owns almost seven percent of Yahoo, and its head, Gordon Crawford, had recommended withholding votes from Yahoo.

Here is the statement from Chuck Callan, Senior Vice President Regulatory Affairs at Broadridge:

On August 4, Broadridge was notified by an investor of a potential discrepancy in a reported vote at the Yahoo Annual Meeting on August 1.

Upon review, it was determined that there was a truncation error in the final printout sent to the tabulator. This resulted in the underreporting of shares withheld for certain directors.

This error did not change the outcome of the election of directors, and was determined to be an isolated incident.

Broadridge has determined that the situation was unique–a truncation error occurred when shares withheld for a specific director in a specific nominee exceeded 8 digits and were reported to the tabulator in paper format. Broadridge has fixed the problem. Further, Broadridge has verified that over the past 18 months there were no other meetings with reports that included this unique combination of factors. The review is ongoing for meetings occurring before then.

On August 4th Broadridge notified Yahoo’s Inspector of Elections and Tabulator of the problem, and a revised report was issued on August 5th.

]]> http://allthingsd.com/20080805/broadridge-to-yahoo-oops-we-added-wrong-and-shareholders-like-you-lots-less/feed/ 1 http://allthingsd.com/20080805/the-yahoo-shareholder-vote-like-florida-except-more-confusing/ http://allthingsd.com/20080805/the-yahoo-shareholder-vote-like-florida-except-more-confusing/#comments Tue, 05 Aug 2008 13:50:33 +0000 Kara Swisher http://kara.allthingsd.com/?p=2503

All Yahoo needs now is for former Florida Secretary of State Katherine Harris to show up and start recounting votes.

It could happen, given all the crazy characters who have been drawn to the much-beleaguered Internet company like a magnet, in 2008.

It’s almost as if there is a voodoo curse on Yahoo (YHOO).

So, you didn’t think the digital gods would let it have more than one weekend of good news, did you?

No, they will not, it seems.

After the annual meeting last Friday, which went off without a hitch and, more importantly, without an expected major shareholder vote against the company’s management and board, you could feel a palpable easing of tension among Yahoo leadership and its exhausted PR team.

By Monday, the Yahoo shareholder kerfuffle–in essence, one major shareholder of Yahoo has asked for its outside tabulator of investor votes at the annual meeting for a recount–had landed with a thud.

The problem is how shares were tallied in the Yahoo annual meeting, specifically around whether a group of votes withheld by Capital Research Global Investors was not counted, counted incorrectly or even voted incorrectly by the investor.

Parent company Capital Research & Management confirmed that it had asked Broadridge Financial Solutions, a Lake Success, N.Y.-based financial services company that does securities clearing and processing, to investigate whether those votes were correctly counted on behalf of its Capital Research Global Investors fund.

Capital Research Global Investors–one of two funds separately managed at Capital Research & Management–owns 6.5 percent of Yahoo, according to recent filings, and Capital World Investors owns 9.8 percent.



Capital Research Global Investors is run by legendary media investor Gordon Crawford (pictured here), who has become disenchanted with Yahoo over the last year.

Because of that, sources close to the fund’s thinking said Crawford had recommended that the fund withhold votes from CEO Jerry Yang and some other board members.

It’s not clear whether that actually happened or, if it did, whether the votes were tallied properly.

That’s because Yang, for example, only had 14.6 percent withheld, with 85.4 percent voting for him.

The votes withheld seemed low to Capital, considering Crawford’s large stake and how many shareholders have been deeply unhappy with Yahoo management this year.

Instead, overall results for Yang and the Yahoo board were mostly better than last year.

Everyone is investigating, of course–from Capital Research to Broadridge to Yahoo, which does not do its own tabulation, although it has hired an outside proxy solicitor to manage the process–to try to find out what’s what.

It is likely there’s a nonsinister reason for the voting results.

And there might be a lot of possible explanations, but I am partial to blaming the confusion that followed after activist investor Carl Icahn pulled his proxy fight a week before the meeting and made nice with Yahoo.

Unfortunately, Icahn’s golden proxy ballot was already in the hands of investors, many of whom might have voted for it and then had that vote essentially voided.

Wrote one BoomTown reader and Yahoo shareholder:

“I hold 23,000 shares of YHOO. I had 17,000 on the date of record. I voted to ‘withhold all’ … I think twice. Then I voted for all of Carl’s team. Now I have learned that the Carl votes did not count and a day AFTER the annual meeting I received my new ballot. I wonder how many other people were disenfranchised??? Who can I complain to?? Is this how Jerry got his support??”

Another commenter on the site also wrote:

“As a stockholder, I was curious *which* of my proxy letters actually was counted–I received four. One was from Icahn, the other three were from Yahoo. The last of which arrived today, August 4th. Does this strike anyone as odd?”



Actually, Yahoo’s twisting journey passed odd a long time ago and is now headed toward “The X-Files” territory.

(So let’s all triple-hope Yang’s upcoming trip to China for the Olympics goes smoothly. Have a good time, Jerry, we’ll be back here counting!)

]]> http://allthingsd.com/20080805/the-yahoo-shareholder-vote-like-florida-except-more-confusing/feed/ 2 http://allthingsd.com/20080804/yahoo-shareholder-vote-number-crunching-whither-cap-res-no-vote/ http://allthingsd.com/20080804/yahoo-shareholder-vote-number-crunching-whither-cap-res-no-vote/#comments Mon, 04 Aug 2008 21:39:26 +0000 Kara Swisher http://kara.allthingsd.com/?p=2497

There is a mini-tempest brewing over how shares were tallied in the Yahoo annual meeting last Friday, specifically around whether a group of votes withheld by one of Yahoo’s major shareholders was not counted, counted incorrectly or even voted incorrectly by the investor.

According to sources close to the thinking at Capital Research & Management, the proxy committees for its two large funds that hold a significant stake in Yahoo (YHOO) recommended last week that they withhold votes specifically from CEO Jerry Yang and from various board members, such as Chairman Roy Bostock, to register disappointment with their performance.

Thus, the investment fund confirmed it had approached outside vote tabulator Broadridge Financial Solutions, a Lake Success, N.Y.-based financial services company that does securities clearing and processing, to investigate whether those votes were correctly counted on behalf of its Capital Research Global Investors fund.

Capital Research Global Investors–one of two funds separately managed at Capital Research & Management–owns 6.5 percent of Yahoo, according to recent filings, and Capital World Investors owns 9.8 percent.

Capital Research Global Investors’ investor Gordon Crawford has been vocal about his disappointment with Yang and the board at Yahoo.

And sources close to the fund’s thinking said Crawford recommended that it withhold votes from Yang and some other board members.

Capital World Investors has been less critical of Yahoo, but sources said it was also leaning toward voting at least some of its stake against the company’s leadership.

But Yang, for example, only had 14.6 percent withheld, with 85.4 percent voting for him. Bostock fared worse, grabbing only 79.5 percent of the yes vote, with 20.5 percent withheld.

That would mean, assuming a large part of Capital Research’s votes to withhold were counted, that only a few other investors voted against Yahoo.

This is highly unusual in a year when many shareholders have been deeply unhappy with its management.

But, in fact, overall results for both Yang and Bostock were actually better than last year.

I called Broadridge for comment and am awaiting a response.

Yahoo does not do its own tabulation, which must be done by a third party, although it has hired MacKenzie Partners as a proxy solicitor to manage the process.

Said a spokesman in response to my inquiry about the situation:

“The independent inspector of elections certified the results of the election and Yahoo! accurately announced those results. Yahoo! did not participate in the execution of the votes and was not a party to any errors which may have been made either by a voting institution or a proxy processing intermediary acting on behalf of banks, brokers and institutions.”

While the recommendations of the proxy committees at Capital Research are apparently not binding on some individual directors of smaller funds that make up the larger ones, they typically follow along with the overall decision from the top.

They might not have in this case, of course, or they might not have voted the shares at all, although it is also possible they could have voted incorrectly or that the votes were not tallied properly.

This is better than a hanging chad!

Another unusual issue around the voting: The amazing drop in the number of shares that were voted at all.

In 2008′s shareholder tally (see below for individual director numbers), only 75.8 percent, or 1,046,095,584 out of 1,381,008,701 possible share votes, were cast.

There were 1,205,435,371 votes cast in 2007 and 1,276,175,601 in 2006, a much higher percentage of overall votes.

Sources at Yahoo speculated that this could be due to the fact that most investors vote automatically in an uncontested election and were waiting for an outcome in the proxy fight between activist investor Carl Icahn and Yahoo.

After that issue was settled right before the annual meeting, though, some investors might not have even bothered to vote.

More to come, but here are the pertinent stats on the Yahoo vote as of Friday:

Roy J. Bostock (Shares for: 832,023,657/79.5 %; Shares Withheld: 214,071,927/20.5%)

Ronald W. Burkle (849,373,291/81.2%; 196,722,293/18.8%)

Eric Hippeau (948,862,579/90.7%; 97,233,005/9.3%)

Vyomesh Joshi (971,594,650/92.9%; 74,500,934/7.1%)

Arthur H. Kern (814,871,925/77.9%; 231,223,659 /22.1%)

Robert A. Kotick (967,044,818; 92.4%; 79,050,766/7.6%)

Mary Agnes Wilderotter (964,939,727/92.2%; 81,155,857/7.8%)

Gary L. Wilson (856,006,576/81.8%; 190,089,008/18.2%)

Jerry Yang (893,055,602/85.4%; 153,039,982/14.6%)

]]> http://allthingsd.com/20080804/yahoo-shareholder-vote-number-crunching-whither-cap-res-no-vote/feed/ 7 http://allthingsd.com/20080729/yahoo-annual-meeting-countdown-3-days-to-go-jerrys-staying-put/ http://allthingsd.com/20080729/yahoo-annual-meeting-countdown-3-days-to-go-jerrys-staying-put/#comments Tue, 29 Jul 2008 08:16:09 +0000 Kara Swisher http://kara.allthingsd.com/?p=2448

It is not exactly news that influential major Yahoo investor Gordon Crawford (pictured here) was displeased with Yahoo CEO Jerry Yang, given the amount of money Crawford must have lost by now, backing the troubled Internet company.

While BoomTown referenced it in a more veiled way last week, the New York Post yesterday reported that the Capital Research Global Investors honcho was considering withholding votes from Yang and others on its current board at Yahoo’s annual meeting Friday to show his unhappiness publicly.

More to the point, I would assume the move is to perhaps prompt others to ponder whether Yang should remain in his current job for much longer.

What effect that will have on Yang, though, will probably be negligible–except for perhaps feeling badly, as he has great regard for Crawford–because I think he has never been more determined to stay put.

In fact, I predict a series of partnerships and high-profile announcements–starting this week ahead of the annual meeting–to give Yahoo and Yang the image of momentum they dearly need.

While many kibitz over Yang’s fate and wonder who activist investor Carl Icahn is dreaming of replacing him with once he gets on board (AOL’s Jon Miller? Google’s Tim Armstrong?) at the company, I think Yang is aiming at finally getting the chance to prove he can run Yahoo without the Sturm and Drang of a hostile takeover hanging over him.



Yang (pictured here) clearly thinks he deserves more time to turn around Yahoo’s core businesses and improve employee morale.

And he will probably get it, if he wants to stay, because there is actually no one who can effectively oust him, until, that is, Yahoo (YHOO) stock drops to the mid-teens based on troublesome future financial signals.

That could come if the Google (GOOG) search-ad outsourcing deal does not pan out as well as expected, for example, especially in the current economic downturn, or if Yang cannot hang onto the talent he has left to work with.

But all these chickens, should they come home to roost, are at least six to nine months away, the same amount of time Yang has been caught in Yahoo’s current Twilight Zone of mess.

Of course, due to all that, Yang’s tenure has been particularly rocky, almost since he took over in a rush from former CEO Terry Semel.

It was at last year’s board meeting on June 12 that Yang told those assembled that he had no interest in filling the then-open CTO slot, even jokingly saying he preferred to play golf.

Of course, he was in the CEO seat within a week, part of some still-mysterious moves that got Semel out and Yang in.

Does it feel like 134 years since then, or is it just me?



It certainly must feel like a long time to Yang, although he seems only to have gotten more emboldened throughout this whole circus, made up largely of what feels like an endless series of freak acts.

Such hijinks are a nightmare to mannered investors like Crawford, who frowns on such behavior from all sides and tries to convince the leadership of companies he invests in to act with more realism and less emotion.

Too bad the Yahoo situation has been a soap opera from the start, which is definitely not what Crawford likes.

I wrote about the troubled relationship between Crawford and Yahoo when the threat of a proxy fight by Icahn was still looming.

Sources then told me that Crawford was considering backing Icahn, who is not exactly his first choice. But his dissatisfaction with Yahoo leadership was by then running very deep.

I also posted, for Yang’s benefit, an excerpt from my second book about how the normally polite, erudite and calm Crawford had finally had enough with AOL Time Warner’s (TWX) Steve Case and helped give him the heave-ho many years ago.

Crawford’s Capital Research Global Investors fund–one of two separately managed at Capital Research & Management–owns 6.5 percent of Yahoo, according to recent filings. (Capital World Investors, which is not run by Crawford, owns 9.8 percent.)

Thus, when he wants to, Crawford can wield a mighty cudgel–and a vote of “no confidence” by withholding votes, especially such a big stake, would clearly look bad for Yang, even if it were largely a symbolic move.

But bad does not mean fatal, and it could be, once again, that Yang will live to fight yet another day.

]]> http://allthingsd.com/20080729/yahoo-annual-meeting-countdown-3-days-to-go-jerrys-staying-put/feed/ 0 http://allthingsd.com/20080728/yahoos-ugly-august/ http://allthingsd.com/20080728/yahoos-ugly-august/#comments Mon, 28 Jul 2008 19:18:00 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=2889 Just four days to go before Yahoo’s (YHOO) annual shareholders’ meeting this Friday, and already, things are starting to get messy. Capital Research Global Investors, Yahoo’s second-largest shareholder, is considering withholding votes for Chairman Roy Bostock and CEO Jerry Yang in protest over the company’s bungling of Microsoft’s takeover bid. Capital Research Global Investors owns 6.5 percent of Yahoo, according to recent filings, so a disdainful withdrawal of support like this would certainly be humiliating. But it won’t be nearly so destabilizing as it might have been now that Yahoo’s proxy contest with investor Carl Icahn has been resolved.
]]> http://allthingsd.com/20080728/yahoos-ugly-august/feed/ 0 http://allthingsd.com/20080728/yahoos-ugly-august-2/ http://allthingsd.com/20080728/yahoos-ugly-august-2/#comments Mon, 28 Jul 2008 19:18:00 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=2889 Just four days to go before Yahoo’s (YHOO) annual shareholders’ meeting this Friday, and already, things are starting to get messy. Capital Research Global Investors, Yahoo’s second-largest shareholder, is considering withholding votes for Chairman Roy Bostock and CEO Jerry Yang in protest over the company’s bungling of Microsoft’s takeover bid. Capital Research Global Investors owns 6.5 percent of Yahoo, according to recent filings, so a disdainful withdrawal of support like this would certainly be humiliating. But it won’t be nearly so destabilizing as it might have been now that Yahoo’s proxy contest with investor Carl Icahn has been resolved.
]]> http://allthingsd.com/20080728/yahoos-ugly-august-2/feed/ 0 http://allthingsd.com/20080728/how-do-you-spell-cuil-f-a-i-l/ http://allthingsd.com/20080728/how-do-you-spell-cuil-f-a-i-l/#comments Mon, 28 Jul 2008 18:00:41 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=2897

[ See post to watch video ]
]]> http://allthingsd.com/20080728/how-do-you-spell-cuil-f-a-i-l/feed/ 1 http://allthingsd.com/20080604/yahoo-players-burkle-icahn-crawford-and-also-the-web-make-some-news-some-not-so-good/ http://allthingsd.com/20080604/yahoo-players-burkle-icahn-crawford-and-also-the-web-make-some-news-some-not-so-good/#comments Wed, 04 Jun 2008 13:06:10 +0000 Kara Swisher http://kara.allthingsd.com/20080604/yahoo-players-burkle-icahn-crawford-and-also-the-web-make-some-news-some-not-so-good/ You would have to have been under a rock not to have heard about the controversial piece in Vanity Fair magazine this month about the escapades of former President Bill Clinton since he left office.

Called “The Comeback Id” (oh, how pun-ny!), the article has gotten a lot of attention for pointing out the rampant speculation that Clinton’s well-known penchant for marital infidelity had returned.



And the reason for that disturbing development, besides Clinton himself? The piece actually placed a good bit of the blame on Clinton’s close friend, grocery magnate and billionaire Ron Burkle (pictured here), who also has been one of the key directors at Yahoo (YHOO) in its takeover fight with Microsoft (MSFT).

It’s a wonder Burkle can focus on the turmoil at Yahoo, given how busy he appears to be in the article corrupting Clinton both personally and–worse–professionally, via some questionable investments the pair had made through Burkle’s Yucaipa Companies.

Writer Todd Purdum paints a decidedly unattractive picture of Burkle, noting even the tasteless nickname of Burkle’s plane these days, in a portrayal so rough that Yahoo CEO Jerry Yang’s tough treatment by the press recently looks like a walk in the park.



Well, almost.

In what amounts to a rant by Carl Icahn (pictured here), The Wall Street Journal gives the billionaire investor lots of room to kvetch about what he thinks of Yang, including asserting that he will oust the Yahoo founder if he wins his proxy fight against the company.

“I am amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation,” said Icahn.

Apparently, Icahn was the only one who didn’t get the memo that Yahoo has been consistently obstreperous about Microsoft’s many overtures, since–well, let’s do the exact calculations–forever. And a day.

Still, Icahn perseveres and hangs this old entrenched management chestnut on a lawsuit that was recently filed by shareholders that points to the massive and costly severance plan Yahoo sneakily put into place as a ploy to fend off Microsoft.

“It’s no longer a mystery to me why Microsoft’s offer isn’t around,” Icahn said. “How can Yahoo keep saying they’re willing to negotiate and sell the company on the one hand, while at the same time they’re completely sabotaging the process without telling anyone.”

How? By Yang opening his mouth, that’s how, and then doing nothing much.

As a student of this lugubrious style of Olympic dithering, I would point Icahn to Yang’s 100-day Sacred Cow VisionQuest, well before this soap opera got started.

You need to catch up pronto, Carl!



And speaking of people irked by Yang of late, investor Gordon Crawford (pictured here) also made some news yesterday with his investment in Veoh Networks, part of a $30 million round that included Intel Capital and Adobe Systems (ADBE).

Existing investors in the not-YouTube video service–Shelter Capital, Spark Capital, Goldman Sachs (GS), Michael Eisner’s Tornante Company, Time Warner Investments (TWX) and Jonathan Dolgen–also ponied up more money.

Crawford, the SVP of Capital Research Global Investors, manages a massive portfolio, and it is one of Yahoo’s biggest shareholders.

And, unlike Veoh, Yahoo is an investment Crawford has not been happy with recently.

“I am extremely angry at Jerry Yang and at the so-called independent board,” he said in an interview a month ago. “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.”

And by independent board, by the way, he meant directors like–you guessed it–Ron Burkle!

At least Burkle’s not to blame for the so-so, lots-and-lots-missing–Google? What Google? (GOOG)–piece in the same Vanity Fair issue, an oral history of the Internet.

Called “How the Web Was Won,” it makes the founding of the world’s most important medium seem awfully dull.



I’d recommend instead–as any sentient being would–the cover story on Angelina Jolie, with this sharp quote from her: “In my father’s generation, the product was 80% of what you were putting into the world, and your personal life was 20%. It now seems that 80% of the product I put out is silly, made-up stories and what I’m wearing.”

Or not wearing, in the case of the pictures of Jolie in this article.

]]> http://allthingsd.com/20080604/yahoo-players-burkle-icahn-crawford-and-also-the-web-make-some-news-some-not-so-good/feed/ 0 http://allthingsd.com/20080506/a-history-lesson-for-jerry-yang-it-sticks-in-my-crawford/ http://allthingsd.com/20080506/a-history-lesson-for-jerry-yang-it-sticks-in-my-crawford/#comments Tue, 06 May 2008 09:34:41 +0000 Kara Swisher http://kara.allthingsd.com/20080506/a-history-lesson-for-jerry-yang-it-sticks-in-my-crawford/

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.

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