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.

RELATED POSTS:

• 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)
• Yahoo Officially Confirms ATD Report on CEO Changes and Proxy Settlement
• Meet the Man I Call “The Hair”: The Video Stylings of Yahoo’s Newest CEO Ross Levinsohn
• Will Thompson’s Ouster Mean a Yahoo-Facebook Patent Settlement Too?
• Exclusive: Yahoo’s Thompson Out; Levinsohn In; Board Settlement With Loeb Nears Completion
• Heidrick & Struggles Slaps Back at Thompson’s Yahoo in Blame Game Over ResuMess
• 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
• Place Your Bets: Will Loeb Drop Another Bomb on Yahoo at Vegas Confab Later Today?
• Exclusive: Yahoo Director in Charge of Botched CEO Vetting to Step Down From Board
• CEO Says Sorry to Yahoos for Borked Bio “Distraction” — But Will Mea Culpa Work Without an Apology for Error? (Memo)
• Buffett Comments on Trust Issue in Yahoo CEO BioGate: “You’ve Got a Problem”
• Loeb Lobs Lawsuit, as Expected, at Yahoo’s Borked Bio Mess
• As Yahoo CEO Reaches Out to Top Staff, Board Meets to Weigh “Options” (I.E., Deciding Who Gets to Take the Borked Bio Blame)
• Yahoo Should Expect Incoming Lawsuit Lobbed by Loeb Tomorrow on CEO Hiring
• 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
• In 2009 Interview, Yahoo CEO Does Not Deny He Has a CS Degree, and Calls Himself an “Engineer” (Audio)
• Yahoo’s Board Will “Review” Resume Discrepancy of CEO
• How Did a Phantom CS Degree Get on CEO’s Bio in SEC Filings? Yahoo’s Not Saying.
• Yahoo’s Response on CEO’s Computer Science ResumeGate: “Inadvertent Error”
• Dan Loeb Alleges “Discrepancies” on Yahoo CEO Scott Thompson’s Resume Related to Computer Science Degree

Wall Street analysts have been left bewildered in recent days, as federal prosecutors begin to home in on insider-trading cases that appear to involve routinely published information about public-company supply chains.

Case in point: Apple Inc., one of the hottest stocks of the past year, for which an entire industry of well-known and obscure analysts and “expert networks” scramble to report every detail of the company’s undisclosed production plans.

The proliferation of such research raises questions about where prosecutors will draw the lines that define insider trading.

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Today, in a sharply worded post titled “In Defense of Standards, Ethics, and Honest Financial Reporting at Hewlett-Packard,” prominent venture capitalist Ben Horowitz took to his blog to shoot back at the plethora of critics of the Hewlett-Packard board for their conduct related to the controversial jettisoning of CEO Mark Hurd.

That came after Hurd admitted to filing inaccurate expense reports related to an outside contractor who worked closely with him, and who later alleged sexual harassment on his part. Those charges were dropped after Hurd settled with the woman, named Jodie Fisher, but before HP could complete an investigation.

Since then, the board has been under fire from Oracle (ORCL) CEO Larry Ellison, who hired Hurd as the database giant’s president, and former GE head Jack Welch, who laid into the HP board this week.

Now Horowitz has fired back and here’s a taste of his ire, which is aimed at execs, the media and more:

If a CEO is prone to compromise for any reason, he will have every reason. This time it was his expense report. Next time will it be a marginal accrued liability? A deal that came in at 12:01 am on the last day of the quarter? This is a slippery slope that a public board simply cannot tolerate.

And:

Who is Jodie Fisher? According to press reports, Fisher is a former Playboy model, reality show contestant, and softcore porn movie actress with no work history relevant to her job with HP. She was hired by Hewlett-Packard and paid up to $5,000 per meeting to meet with Fortune 50 CEOs.

The mainstream press has reported these facts as mundane, ordinary, and hardly worth concern. I disagree. HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience. This was the company spitting in the face of the people who worked hard and sacrificed every day to help the company win in the market. It was completely and categorically unacceptable.

And:

There are many who take the view that business is singular in purpose–to increase shareholder value. They further take the position that constraining that purpose in any way is inefficient and counterproductive. The mainstream press seems to have broadly adopted this position in its attacks on HP. The Wall Street Journal Op Ed page even complained that businesses were being held to an unfair standard when compared to politicians.

I do not subscribe to this view. Running our companies with no moral or ethical standards is bad for society, bad for the country, and ultimately leads to criminal behavior.

So, what do you really think, Ben?

Horowitz does have an interest in the situation, which he discloses clearly at the top of his piece: His longtime business and now venture partner is HP (HPQ) board member Marc Andreessen.

And the Silicon Valley soap opera continues….

“I’m not afraid
To take a stand”
—Eminem

Disclaimer: my business partner, Marc Andreessen, is on the board of directors of Hewlett-Packard (HPQ). I note that I have no inside information, and this blog post is based purely on published material. In 2007, I sold Opsware, the company that I founded and ran to Hewlett-Packard for $1.6B. I worked at Hewlett-Packard from 2007 to 2008 as an executive in the software business.

Recently, my old company Hewlett-Packard has been in the news–and not in a good way. I’ve been watching the coverage from the sidelines up to this point, but felt increasingly compelled to join the conversation and share my point of view. So here goes.

After firing their CEO, Mark Hurd, the HP board has been accused of everything from incompetence to being prudes. The criticism comes from credible, important journalists and bloggers such as Joe Nocera from the New York Times (NYT), prominent economics blogger Felix Salmon, and former GE (GE) CEO Jack Welch. In addition, HP competitor Larry Ellison lambasted the board and even went so far as to hire Mark Hurd to be President of Oracle (ORCL).

So why in the world did the HP board fire such a high performing CEO? Don’t they care about profits and shareholder value? Aren’t those the most important things? Who cares about his personal shenanigans? Did Mark and his marketing contractor even have sex?

While I am pretty sure that there is much more going on behind the scenes than has been broadly reported, as there often is, let’s look at what has been reported:

* Mark Hurd falsified expense reports.

* The false expense reports are related to a contractor named Jodie Fisher, a former softcore porn movie actress and Playboy model with no relevant marketing experience, who HP was paying up to $5,000 per marketing event.

* At the time of his departure from HP, Hurd issued a public statement saying that he’d violated HP’s Standards of Business Conduct:

“As the investigation progressed, I realized there were instances in which I did not live up to the standards and principles of trust, respect and integrity that I have espoused at HP and which have guided me throughout my career. After a number of discussions with members of the board, I will move aside and the board will search for new leadership. This is a painful decision for me to make after five years at HP, but I believe it would be difficult for me to continue as an effective leader at HP and I believe this is the only decision the board and I could make at this time. I want to stress that this in no way reflects on the operating performance or financial integrity of HP.”

Let’s start with the issue of falsifying expense reports. This factor has been largely dismissed in the press with characterizations like this from Joe Nocera of the New York Times:

“When pressed, H.P. said that Mr. Hurd had fudged some expense reports.”

Nocera goes on to argue that there must have been an alternate motivation to dismiss Hurd, because clearly no CEO would be fired simply for “fudging” an expense report.

When I first read of the expense report issue, my reaction was the opposite of Nocera’s. If the Chief Executive Officer of a public company falsifies any official financial statement, he must be fired. In my mind, this is non-negotiable. We are not talking about a low-level employee tossing an extra receipt into his expense report. We are talking about a public company CEO who is paid tens of millions of dollars a year and is responsible for the integrity of the company’s financial statements fraudulently reporting his own expenses. Why is this a problem?

Every person who invests in Hewlett-Packard does so on the basis of HP’s financial statements. Every pension fund, every retiree, every charitable organization, every employee who joins and is compensated via stock options. When they do so, they trust that the statements are true and that the numbers are accurate. The person they trust to ensure accuracy is the CEO.

If the Chief Executive is willing to compromise the integrity of the company’s financials for any reason, then it is impossible to trust any statement. Every day, there are many potential reasons to falsify financial statements. Here are four examples:

* If you miss the quarter, shareholders will lose money.

* If revenues aren’t high enough, you’ll be forced to lay-off hard working, valued employees.

* If you grow slower than a competitor, you may jeopardize your job.

* A shareholder that you’ve been having an illicit affair with doesn’t want the stock price to go down and threatens to tell your wife.

If a CEO is prone to compromise for any reason, he will have every reason. This time it was his expense report. Next time will it be a marginal accrued liability? A deal that came in at 12:01 am on the last day of the quarter? This is a slippery slope that a public board simply cannot tolerate.

What reason was so powerful that it caused Mark Hurd to break his ethical standard, falsify an official financial statement, mislead the board, and ultimately be fired? It seems that this was done to cover up a “close personal relationship” with a woman named Jodie Fisher, who later accused him of sexual harassment, then subsequently withdrew her claim after Hurd personally paid Fisher a large sum of money.

Who is Jodie Fisher? According to press reports, Fisher is a former Playboy model, reality show contestant, and softcore porn movie actress with no work history relevant to her job with HP. She was hired by Hewlett-Packard and paid up to $5,000 per meeting to meet with Fortune 50 CEOs.

The mainstream press has reported these facts as mundane, ordinary, and hardly worth concern. I disagree. HP employs over 300,000 people. Every single one of HP’s employees is keenly interested in the qualities, skill sets, and behaviors that HP values most. Financial compensation and access to the CEO are the most important ways that HP communicates what it values to its employees. Jodie Fisher had more access to the CEO and was paid more than 99.9% of HP’s workforce, despite having no traditional qualifications.

It’s important to note that this was not Hurd paying for his personal extracurricular activity out of his own pocket. This was the Hewlett-Packard Corporation paying a softcore porn movie star with no relevant work experience more than it pays Harvard graduates with 20 years of industry experience. This was the company spitting in the face of the people who worked hard and sacrificed every day to help the company win in the market. It was completely and categorically unacceptable.

Finally, Hurd admitted in a press release to violating the company’s standards of ethics and integrity. So what? Why do companies have standards and ethics anyway? Shouldn’t they just be concerned with profits? Do we want choir boys or shareholder value?

There are many who take the view that business is singular in purpose–to increase shareholder value. They further take the position that constraining that purpose in any way is inefficient and counterproductive. The mainstream press seems to have broadly adopted this position in its attacks on HP. The Wall Street Journal Op Ed page even complained that businesses were being held to an unfair standard when compared to politicians.

I do not subscribe to this view. Running our companies with no moral or ethical standards is bad for society, bad for the country, and ultimately leads to criminal behavior.

Companies should not merely be thought of as money generating machines. Business can represent human society at its best. A business is a group of people working together to deliver value to the world and improve people’s lives. When done ethically, business quite literally changes the world for the better. However, if the dark side of human motivation is not mitigated with standards and ethics, business can destroy.

We saw this unfold at Enron, a company that was, in its time, celebrated for its impressive profits. Underneath the profits was a culture designed from the ground up to completely ignore any ethical standard including a dazzling display of ethically questionable sexual activity among its executives. These activities, such as promoting secretaries to executive positions in exchange for sexual favors, parallel Hurd’s behavior with Jodie Fisher. In Enron’s case, the bad behavior bled over into first line employees who conspired to create blackouts in California in the name of profits and in the absence of ethics. Ultimately, Enron imploded in a swirl of criminal behavior that bankrupted the company, but not before destroying tens of thousands of peoples’ life savings and damaging millions of innocent victims. After the fact, the press bemoaned the culture that lead to the destruction. However, the same reporters instantly forgot the cause as they cavalierly dismissed Hurd’s ethical breach.

In closing, I point out the impressive courage of the HP board of directors to ignore popular opinion and do the right thing. It is not an easy thing to fire a popular, highly successful CEO. It’s even more difficult when you know that you will be roundly criticized for tolerating that same CEO’s failure to develop internal successors. Despite those factors, Hewlett-Packard’s board of directors stood tall and protected the company, its shareholders and all of us from a dark and destructive journey. As a member of the business community and as a citizen, I am extremely proud of and grateful for their actions.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

Anonymous sources close to the investigation into the attacks, which targeted dozens of American corporations, tell the New York Times they originated at Shanghai Jiaotong University and the Lanxiang Vocational School. The former boasts one of China’s top computer science programs; the latter has been known to train computer scientists for the Chinese military and reportedly has ties to Baidu, the dominant search engine in China.

While the implications of these findings seem obvious, insiders differ on what they really mean. Some suspect the schools are being used as a cover for Chinese government operations. Others speculate that they’re being used to hide intelligence operations run by a third country. Still others wonder if there’s no government involvement here at all, speculating that the attacks are criminal in origin and were intended to steal intellectual property from American tech firms.

Regardless of which scenario seems most plausible, it’s important to remember that just because the attacks have been linked to IP addresses at these schools’ networks doesn’t mean they necessarily began there.

Asked about the possibility the attacks originated at his school, a professor of Web security at Jiaotong’s School of Information Security Engineering said it was certainly possible.

“I’m not surprised,” the source told the Times. “Actually students hacking into foreign Web sites is quite normal. I believe there’s two kinds of situations. One is it’s a completely individual act of wrongdoing, done by one or two geek students in the school who are just keen on experimenting with their hacking skills learned from the school, since the sources in the school and network are so limited. Or it could be that one of the university’s I.P. addresses was hijacked by others, which frequently happens.”

PREVIOUSLY:

• Nearly a Month After Debut, Google’s “New” Approach to China Still a Lot Like the Old One
• Google CEO: Ask Not What Google Can Do for China–Ask What China Can Do for Google
• China on “Google Farce”: Our Internet Is Open
• China to Google: No Worries, We Were Planning to Clone Those Android Phones Anyway
• U.S. State Department to Complain to China About Google Hack. Not That China’s Going to Listen.
• Microsoft: “Don’t Be Evil” Is Google’s Motto, Not Ours
• What’s the Chinese Word for Bing? Google Threatens to Leave China.

[Image Credit: China Security Blog]

As far as I know, no one can steal my identity. Even if my bank account number, my credit card number and all my passwords are stolen, I am fairly confident that I will still be me and the thief will be a different person.

Yes, the criminal will be masquerading as me. But anyone who knows me–my husband, my children, my colleagues, my doorman, my employer–will not be fooled. If “I” was actually stolen, I believe that would be called a kidnapping.

The entities that would be fooled by a masquerader are ones that don’t really know me: my bank, my credit card company, places where I do online or offline shopping. Maybe they should have done a better job figuring out who I was before parting with my money or their goods.

Read the rest of this post on the original site

Craigslist this morning turned the tables on South Carolina Attorney General Henry McMaster, suing him for threatening to file criminal charges over its adult classifieds. The suit seeks declaratory relief and a restraining order against McMaster, who alleges that those classifieds often display advertisements for prostitution and graphic pornographic material.

“Despite craigslist’s legal immunity from criminal or civil liability under State law for unlawful third-party content on its Web site, and despite the numerous good-faith actions that craigslist has voluntarily taken to deter abuse of its service by third parties notwithstanding its legal immunity, McMaster has persisted in threats to criminally prosecute craigslist on the basis of third-party content appearing on the craigslist Web site,” the suit reads. “…Given Defendant McMaster‘s persistent and continuing public threats, craigslist is presently faced with the untenable choice of either completely shutting down all portions of its website that are directed at South Carolina or else putting itself and its management at risk of imminent criminal prosecution by Defendant McMaster.”

Or calling McMaster’s bluff, as craigslist has so excellently done here. And with great success, apparently. Within a few hours of the suit’s announcement, McMaster backed down, issuing a rather remarkable statement proclaiming himself victor in the spat. “The defensive legal action craigslist has taken against the solicitors and my office is good news,” he wrote. “It shows that craigslist is taking the matter seriously for the first time. More importantly, overnight they have removed the erotic services section from their website, as we asked them to do. And they are now taking responsibility for the content of their future advertisements. If they keep their word, this is a victory for law enforcement and for the people of South Carolina.”

Craigslist this morning turned the tables on South Carolina Attorney General Henry McMaster, suing him for threatening to file criminal charges over its adult classifieds. The suit seeks declaratory relief and a restraining order against McMaster, who alleges that those classifieds often display advertisements for prostitution and graphic pornographic material.

“Despite craigslist’s legal immunity from criminal or civil liability under State law for unlawful third-party content on its Web site, and despite the numerous good-faith actions that craigslist has voluntarily taken to deter abuse of its service by third parties notwithstanding its legal immunity, McMaster has persisted in threats to criminally prosecute craigslist on the basis of third-party content appearing on the craigslist Web site,” the suit reads. “…Given Defendant McMaster‘s persistent and continuing public threats, craigslist is presently faced with the untenable choice of either completely shutting down all portions of its website that are directed at South Carolina or else putting itself and its management at risk of imminent criminal prosecution by Defendant McMaster.”

Or calling McMaster’s bluff, as craigslist has so excellently done here. And with great success, apparently. Within a few hours of the suit’s announcement, McMaster backed down, issuing a rather remarkable statement proclaiming himself victor in the spat. “The defensive legal action craigslist has taken against the solicitors and my office is good news,” he wrote. “It shows that craigslist is taking the matter seriously for the first time. More importantly, overnight they have removed the erotic services section from their website, as we asked them to do. And they are now taking responsibility for the content of their future advertisements. If they keep their word, this is a victory for law enforcement and for the people of South Carolina.”

Prodded into action by New York Attorney General Andrew Cuomo, Verizon (VZ), Sprint (S) and Time Warner Cable (TWX) have agreed to block Web sites identified by Cuomo as ones that disseminate child pornography. They’ve also agreed to restrict access nationwide to most, and in the case of Time Warner Cable all, of Usenet’s discussion groups, most of which are not repositories of illegal material. To repeat, Time Warner will now block all of USENET.

“It’s going to make a significant difference,” Cuomo said of the agreement. “It’s like the issue of drugs. You can attack the users or the suppliers. This is turning off the faucet. Does it solve the problem? No. But is it a major step forward? Yes. And it’s ongoing. No one is saying you’re supposed to be the policemen on the Internet, but there has to be a paradigm where you cooperate with law enforcement, or if you have notice of a potentially criminal act, we deem you responsible to an extent. This literally threatens our children, and there can be no higher priority than keeping our children safe.”

Of course. A noble effort, this curtailing of access to child pornography. It would just be unfortunate if it became the first step in widespread Internet censorship.