Yahoo is in the final stages of selling a large chunk of its stake in the Alibaba Group back to the company — in a complex deal that is set to include a multibillion-dollar share buyback to investors of the Silicon Valley Internet giant and an eventual IPO of the Chinese company — according to multiple sources close to the situation.

The deal has yet to be officially approved by the boards of both companies, but sources said it is likely to be, and could be announced as early as Monday.

This all could change, of course, since negotiations between Alibaba and Yahoo have taken place in a variety of ways in recent years, without success and with much acrimony. Talks over a tax-free deal — also involving Yahoo’s Japanese partner, SoftBank — collapsed in February, for example.

But the 324th time is apparently the charm — so here are the details of what looks to be a nearly complete agreement that I have ferreted out thus far from lots of relieved sources familiar with the situation:

Yahoo will sell half of its roughly 40 percent stake in Alibaba, in a taxable deal. The transaction is likely to value that portion of Yahoo’s holdings at about $7 billion — or 20 percent of Alibaba’s $35 billion enterprise valuation. Alibaba is in the midst of raising capital to fund the sale.

After taxes of upward of 35 percent are paid on the long-term gains — remember that Yahoo bought the now-lucrative Alibaba stake for a fraction of that, many years ago — the company will likely use the funds to buy back its own shares. That stock has been caught in the mid-teens doldrums for quite a while.

A shareholder dividend is also being considered. It’s not clear if some of the cash will be held back for acquisitions by Yahoo, sources added, but it is unlikely.

As part of the deal, sources said, incentives have been put in place for Alibaba to move forward with a public offering, which sources stressed is without the contractual obligation or a time frame. Alibaba execs have already been publicly indicating such a direction recently, but this will put them more firmly on that path.

In return, Yahoo has agreed to sell the remaining quarter of its current holdings when that IPO does occur. It would then have an only 10 percent stake of Alibaba, which it could sell at any time after the IPO.

If finally struck, the transaction will finally bring to an end one of the more protracted and disputed relationships in the Internet world.

Once close, the pair have been wrangling over the large Yahoo ownership, which Alibaba CEO Jack Ma has been trying to dislodge in a variety of nice and not-so-nice ways. It has resulted in a number of very public disagreements.

That included a nasty back-and-forth over its Alipay unit with now-fired CEO Carol Bartz, threats of takeover of Yahoo with private equity firms and, more recently, making friendly with its just-ousted CEO, Scott Thompson.

Those talks with him in recent weeks, which included a visit to China by Thompson, led to the new deal, which was negotiated primarily between Yahoo’s CFO Tim Morse and legal head Mike Callahan and Ma and Alibaba’s Joe Tsai.

The talks continued even as Thompson was suddenly engulfed in a controversy over a fake computer science degree on his resume that quickly led to his departure from Yahoo on Sunday.

Ironically, the error was first discovered by activist shareholder Daniel Loeb, who will now vote on the deal as a newly named director of Yahoo, after successfully helping to oust Thompson.

He owns almost 6 percent of Yahoo, and is expected to approve the transaction.

But the final decision to approve the deal will be in the hands of a very new board of Yahoo, which has been drastically reshaped in recent weeks. It is meeting tomorrow and perhaps over the weekend to vote on it.

While the deal with Alibaba looks to be nearing an end, Yahoo’s talks to sell its 33 percent stake in Yahoo Japan is not part of this agreement. That’s due to what Thompson had called a “valuation gap,” which sources said is still an outstanding issue.

New interim CEO Ross Levinsohn has not been involved in the Alibaba deal in any significant way. But he certainly will benefit from its halo effect, if approved, especially given that it will likely boost Yahoo shares.

Next up for Levinsohn, who has just rejiggered Yahoo management again, other sources said, is an effort to settle the patent-infringement lawsuit with Facebook, and also to renegotiate its search deal with Microsoft.

And, oh yes, fix Yahoo’s rocky core-advertising business, which is still in distress and needs a major overhaul to push it back to growth.

But that, as they say, is yet another episode of Yahoo’s ongoing reality show.

Here’s a memo that interim Yahoo CEO Ross Levinsohn sent his troops earlier today about some management switcheroos.

No surprise that ousted CEO Scott Thompson’s first big hire from his former job at eBay’s PayPal unit is gone — just-installed-a-minute-ago commerce leader Sam Schrauger. (Also heading out, but not in the memo is PR head Amanda Pires, also from PayPal.)

Also moved aside, to a position unknown, is Thompson’s chief of staff Marta Nichols, who had been head of investor relations at Yahoo. Levinsohn’s new chief of staff is Michel Protti.

So who’s in? Levinsohn favorites, of course, including: Mickie Rosen, who headed Americas media and who now gets global media and commerce; Mollie Spillman, who was co-running commerce with Schrauger and is now head of marketing (replacing former CEO Carol Bartz-regime exec Penny Baldwin).

For those following the soap opera that I am chief writer for, “Days of Our Yahoos,” Levinsohn became leader of the beleaguered Internet giant after a controversy over a false computer science degree on Thompson’s bio.

Like sands through the hourglass, these are the former employees of our Yahoo.

(At least, though, this is not a story about the Facebook IPO — hands up for those sick and tired of that one now?)

Here’s the Levinsohn memo:

Yahoos:

Thank you for all of the feedback, support, and comments since our all-hands meetings in Sunnyvale on Monday and NYC on Wednesday. I’m fired up and I hope you are too. I believe in the power of what we’re doing. We have an incredibly talented team, unparalleled strengths in key areas and most importantly, I see the purple pride building everywhere. Let’s move forward quickly with conviction and confidence.

We have a lot to do. The most pressing thing I heard from you is the desire to clearly define our vision and strategy. I promise you we will be transparent and plan to articulate this in the coming weeks. Right now, we’re identifying the most critical priorities and initiatives, clarifying the scope and charter of teams, ensuring we’re positioned to build on successes quickly and effectively, and focusing on Q2.

As part of this, there are a few changes to the structure of my leadership team beginning today:

**Mickie Rosen is now the head of global media and commerce. Mickie has done a fantastic job driving our Americas media network and will now lead the global media team — including media editorial, business development and partnerships, product, design, and engineering. Additionally, the commerce business unit will return to its original home and report into her. Commerce is a significant opportunity for growth, and in order to thrive it needs to be woven throughout the Yahoo! experience and close to our major traffic drivers.

**Mollie Spilman is our new chief marketing officer (CMO). Mollie is responsible for all of our worldwide marketing and brand efforts as well as the global comms (PR) team. Prior to the commerce org, Mollie ran the Americas marketing team for the last two years, creating closer connections between Yahoo! and its consumers and advertisers.

**Michel Protti will remain as my chief of staff, and will play a vital role in keeping me sane and all of us on track. Marta Nichols will help Michel through a transition as she determines her next role.

**Sam Shrauger is leaving the company and Penny Baldwin will transition her duties to Mollie. I want to thank Penny for leading the Marketing organization as acting CMO. Please join me in wishing them both well in their future endeavors.

As you’ve heard me say before, our largest competitive advantage is that we have amazing people. I want to help unleash our power, and I want to hear your challenges, successes, and how you are going to focus on transforming Yahoo!. Look for frequent and transparent communications from me, and I look forward to hearing from you.

Ross

There’s no question that every venture capitalist within 100 miles of Silicon Valley wanted to squeeze their khaki-clad selves into what had become tech’s hottest deal of late.

That would be to get a piece of the new round of funding for start-up phenom Pinterest.

But while piles of VCs and other investors tried to work every angle possible to noodge into the action, the iconoclastic CEO and co-founder Ben Silbermann decided to go big and go global by hooking up with a Tokyo-based Internet giant.

Japan’s Rakuten will invest upwards of $50 million in a $100 million round that values the social bookmarking site at $1.5 billion.

Rakuten is one of the largest online commerce companies in the world, with a flagship site Rakuten Ichiba, among others. It was founded in 1997 and had revenue of $4.7 billion in 2011.

Most important in Pinterest’s calculation was apparently the link with its CEO Hiroshi Mikitani, whose nickname is Mickey. One the richest men in Japan, Mikitani is one of the best known entrepreneurs there where he’s been described as “Richard Branson meets Jeff Bezos.”

I briefly chatted with Mikitani last night about why he decided on the Pinterest deal, in a conversation where he focused a bit on Rakuten’s famed “omotenashi” or “empowerment” philosophy. Simply put, the concept is that — unlike an Amazon — Rakuten is a facilitator of commerce, much like its shopping mall metaphor beginnings. The approach is to aid merchants rather than compete with them.

It’s a little eBay, a little Alibaba, some Etsy and even a little Amazon Web Services mixed in. It’s also a place that can move retail globally, which is presumably the attraction to it by Pinterest.

ATD: Why did Pinterest pick you?

Mikitani: We are not a venture capitalist. We got together and talked about our story and our history.

We agreed that we shared a vision of the future of Internet e-commerce.

ATD: Why make an investment?

Mikitani: When we started to talk about being involved in the round of investment, we wanted to invest as much as possible.

We were very impressed by their business model and also the management style.

ATD: What made Pinterest so attractive in comparsion to other similar companies?

Everyone is talking about social commerce and best solution to social commerce, but Pinterest really was the first to use graphics that well to connect with people.

Rarely have we seen such a powerful media and we were seeing huge traffic coming from Pinterest [to Rakuten sites]. It was much higher than anyone else.

ATD: What do you bring to the table?

Mikitani: I think there are some things we think we can do with our expertise. Ben and his team have an extremely strong commitment to make their products as attractive as possible.

But we have 40,000 stores in Japan and we can give them access to our customers and do aggregation to engage in everything. And we have sites in many other countries too.

ATD: How are you going to work together?

Mikitani: We are not going to stop them from doing dealings with other e-commerce companies. But we can have more constructive input on how to make their site more effective from e-commerce point of view.

This is a long-term arrangement and we have a strong committment and attachment to this business. We truly understand their business and respect their management.

Yahoo’s embattled CEO Scott Thompson (pictured here) is set to step down from his job at the Silicon Valley Internet giant, in what will be dramatic end to a controversy over a fake computer science degree that he had on his bio, according to multiple sources close to the situation.

The pair will apparently say he is departing for “personal reasons.” Sources said that Thompson will be claiming to be leaving due to a serious illness that he recently discovered he had.

But the evolving crisis — which is just over a week old — centered on his botched resume and how he handled the thorny issue is the key reason for the abrupt end to his tenure as a CEO.

Thompson’s likely replacement on an interim basis will be Yahoo’s global media head Ross Levinsohn, who most recently also ran its Americas unit, including its advertising sales.

In addition to the management upheaval, Yahoo’s board is closing in on a settlement with the man who discovered Thompson’s misstep, activist shareholder Daniel Loeb of Third Point, said sources.

The situation could change, since Yahoo’s full board still has to meet this morning to officially approve the sweeping changes at the long-troubled company.

But, if it is, this development goes a long way toward fixing some of what has been ailing Yahoo recently.

And it’ll also be a stunning victory for Loeb (pictured here), since the pugnacious hedge fund investor is set to get three board seats from a slate proposed by him as part of a proxy fight aimed at Yahoo. The new Yahoo directors will be media exec Michael Wolf and turnaround specialist Harry Wilson. Loeb’s fourth selection — former NBC head Jeff Zucker — will withdraw.

The five current Yahoo directors — who were to step down at the company’s annual meeting this summer — will leave the board effective immediately, sources said, to make way for the Third Point selections.

Finally, Yahoo’s recently added director Fred Amoroso will be named chairman of the board.

Amoroso is the director who has been conducting the investigation into the issues raised by Loeb about how the fake academic credentials got in Thompson’s public bios, as well as in Yahoo’s regulatory filings, and also the hurried circumstances around his hiring in January.

Those mysteries — read, screw-ups — might never be solved now, although Thompson made a convoluted attempt to explain it all in two awkward employee meetings at the end of last week. In those gatherings, according to numerous sources, he blamed a headhunting firm for introducing the mistake when he was being hired for a job at eBay in the mid-2000 timeframe.

That company, Heidrick and Struggles, slapped back last week with an internal memo, noting that Thompson’s claim was “verifiably not true.” Sources said that Heidrick told Yahoo’s board that it was in possession of a resume that Thompson had apparently submitted showing the inaccurate CS degree on it.

That memo, impugning Thompson’s credibility, was one of many that piled on to create an impossible situation for the Yahoo board, related to his leadership ability going forward.

Thompson had also previously issued a Yahoo statement, in which he apologized for the “distraction” caused by the problematic resume, but not for the mistake itself.

And, initially, Yahoo — under his direction — had called the borked resume an “inadvertent error.”

Such fumbling to fix the situation was among the many other issues that the board has been considering relating the ability of Thompson to remain in his job. Also of importance was the sinking morale of Yahoo employees, who had largely rejected Thompson’s excuses in the ResuMess scandal.

Internal message boards at Yahoo lit up all last week, with staffers largely rejecting his explanations. In addition, a number of top execs and engineers approached the board calling for Thompson’s firing.

While that’s not precisely what happened here, it’s close enough to describe Thompson’s departure as inevitable.

All this change comes in the wake of a massive restructuring he was in the midst of at Yahoo, after 2,000 employee layoffs.

Thompson was pushing forward a vision of adding a much more significant data and commerce element to Yahoo’s largely ad-based business.

That is likely to be less stressed under media-focused Levinsohn, who will be essentially trying out to be the permanent CEO.

Well known in the media and advertising communities, he has worked at a number of big online efforts over many years.

According to his bio at Yahoo, where he arrived in 2010:

He previously served as the President of News Corporation’s Fox Interactive Media, where he was responsible for the day-to-day operations, strategy and acquisitions that helped transformed the company into a leader in digital media. He also held senior management positions with AltaVista, an early pioneer and leader in search, CBS Sportsline where he oversaw all content and development for the top rated sports site, and HBO where he launched and oversaw a unit developing new programming and revenue streams. Levinsohn also was the co-founder and managing director of Fuse Capital, an investment and strategic equity management firm focused on investing in and building digital media and communications companies.

Levinsohn sits on the board of Freedom Communications and the Bogart Pediatric Cancer Research Program. He holds a Bachelor of Arts in Communications from The American University.

So far in my checking, Levinsohn’s resume is accurate.

More to come, obviously.

I have emails and texts and calls into everyone for comment, but apparently they are all out at a Mother’s Day brunch (except me).

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

Longtime Yahoo exec Raymond Stern (pictured here) — who seems to have fit into a lot of management reorgs in his short time at the Silicon Valley Internet giant — has been named to a new role at the company as SVP of strategy, corporate development and new ventures.

He’ll be reporting to CEO Scott Thompson, according to an internal memo I got sent by the people who send me internal memos from Yahoo. (A group, I might add, that is getting bigger by the day.)

When he got to Yahoo in late 2009, Stern had first been named SVP of North America partnerships and business development for Yahoo. He later had to also pinch-hit as its head of U.S. audience, mobile and local, after an exec left, before being named SVP of North America audience. Then, after another exec took over the audience job, he was back to business development and partnerships and also added the listings business to his portfolio. Then, Stern got mobile biz dev back, after another exec left.

Now, the man who has been the Swiss Army Knife of Yahoo will be the key strategy guy for Thompson, who clearly wants to do a lot of strategizing.

Interesting note: Stern was a former consultant to Boston Consulting Group, which is Thompson’s go-to outside team on his ongoing restructuring of the company. He is also a former Intuit exec.

As per usual, here is the internal memo on Stern’s appointment from Thompson, who is dealing with some other very thorny issues right now too:

Yahoos –

Over the last few months, you’ve heard me talk a lot about focusing our company around our core business. As part of this, we need to find new ways to strengthen, leverage, and monetize our core assets — all in conjunction with our long-term strategy focused on driving growth. To help tackle this challenge, I’m excited to announce that Raymond Stern will take on a new role at Yahoo! as senior vice president of strategy, corporate development, and new ventures, reporting to me.

For those of you who haven’t had the chance to meet Raymond over the last two and half years here at Yahoo!, he previously oversaw distribution partnerships and business development, as well as our Latin American, Canadian, and small business teams. Earlier in his career, he spent 10 years at the Boston Consulting Group, and later had various roles at Intuit including leading strategy and corporate development during a transformational period in the late 90s through the mid 2000s.

In his new role, Raymond will work across the teams to ensure alignment and that we are taking advantage of opportunities around the globe. He will lead three critical areas for us:

Strategy: Raymond will lead corporate strategy, working in close partnership with the senior leadership team and me.

Corporate Development: Raymond will work with the team to find opportunities to accelerate our progress and growth through acquisitions, investments and strategic partnerships. In conjunction with this, Marcus Shen and his group will be renamed corporate M&A, and will continue to be the transactional execution arm supporting Yahoo!’s corporate development initiatives.

New Ventures: Raymond will look at emerging areas outside of what’s happening in the halls of Yahoo! and bring new innovative and disruptive ideas to the forefront.

In the coming weeks, you’ll hear more from Raymond as he works with the leadership team to align our corporate priorities and long-term strategy.

Please join me in welcoming Raymond to this important new role.

/signed
/Scott Thompson

And here’s to your new job, Raymond:

As expected, activist shareholder Daniel Loeb of Third Point released a new letter on the bio controversy he set off at Yahoo, again calling for the firing of its CEO, Scott Thompson.

“It seems farcical to us that the Board will most likely spend more time deliberating over whether Mr. Thompson should be fired than it did properly vetting whether he should have been hired,” read the letter in part. “The necessary investigation into whether certain senior executives and Board Members knew of Mr. Thompson’s deceptions before hiring him should not delay decisive action over his ethical breaches.”

Loeb, who is waging a proxy fight with Yahoo over board seats he wants, also offered to work with the Yahoo board to find a new CEO if it accepted his slate of directors. In the interim, he suggested Yahoo put either CFO Tim Morse or media head Ross Levinsohn in the job. Morse had taken that position temporarily after Yahoo fired its last CEO Carol Bartz last fall.

Confused yet?

Loeb set off a management crisis there last week with the revelation that Thompson had added a fake computer science degree to his bio.

The first casualty came yesterday with the stepping down of Yahoo director Patti Hart, who was charged with vetting Thompson for the job.

The Yahoo board also announced yesterday that it would be conducting a probe of the circumstances around the hiring, as well as how the faux academic credentials got in Thompson’s bio and also the company’s regulatory filings.

The new letter was a reaction to Thompson’s apology on Monday for the borked bio becoming a “distraction” (but not, oddly, for the mistake itself). Loeb had previously called for Thompson’s firing over the bio fibbing.

Loeb will be appearing at an investor conference in Las Vegas later today, where he will surely be asked about the situation.

In related news, eBay CEO John Donahoe, Thompson’s former boss, lent words of support, but also underscored that the online commerce company’s legal filings of his bio were always correct, even if its Web site and other PR documents handed out were not. Thompson came to Yahoo from a stint as president of eBay’s PayPal payments unit.

As reported by Bloomberg, Donahoe said:

“When Scott was hired at EBay Inc., all of EBay’s filings had the accurate information. Some of EBay’s PR materials had that bio. Our legal filings were taken care of by our legal department. Some of the PR materials had that info,” he said while in Tokyo of the correct bio versus the incorrect one.

Donahoe added: “I think Scott Thompson did a great job at PayPal. I think he’s a very talented leader and I believe he can help Yahoo. I hope they get through this and he can continue to do the very challenging job he’s got of helping to turn Yahoo around. I’m Scott’s biggest fan.”

This has been the first public support of Thompson by a prominent Internet figure, which might help lagging morale at the company.

Here’s the full version of the latest Loeb letter:

Third Point May 9 Letter Release

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

Daniel Loeb of Third Point — the activist shareholder who set off a management crisis at Yahoo last week with the revelation that new CEO Scott Thompson had added a fake computer science degree to his bio — will be onstage at a high-profile investor confab in Las Vegas this afternoon.

It’s Loeb’s first public appearance since he scored a direct hit on Yahoo in his ongoing proxy fight against the company — a first casualty yesterday, with the stepping-down of Yahoo director Patti Hart, who was charged with vetting Thompson for the job.

With one win like that, can Loeb resist using the panel — titled “Titans of Wall Street: Insight & Strategies for Capitalizing on Today’s Markets” — to strafe Yahoo a bit?

Sources said Loeb is prepping some reaction to Thompson’s apology on Monday for the borked bio becoming a “distraction” (but not, oddly, for the mistake itself), as well as an offer to work with the Yahoo board on a new CEO choice. Loeb has called for Thompson’s firing over the bio fibbing.

But the pugnacious investor will likely also be asked to opine on the situation so far at the off-the-record SkyBridge Alternatives Conference, which describes itself as “committed to facilitating balanced discussions and debates on macro-economic trends, geo-political events and alternative investment opportunities within the context of a dynamic global economy.”

What will be more interesting to see in the days ahead — even as the Yahoo board investigates how the false information about Thompson’s academic credentials got on that bio, as well as in regulatory filings — is if Loeb can be more than just a bomb-thrower and put forth a more specific and substantive plan for the long-troubled company than he has so far.

It’s not a requirement, of course, since Loeb is only seeking board seats and is not lobbying to be CEO, whose job it is to formulate a cogent strategy. But other Yahoo shareholders he is seeking to convince to join him in his proxy battle probably want more than “Yahoo stinks” from him at some point.

Still, for today at about 1:35 pm PT, when Loeb is scheduled to speak, it’s probably a good bet to expect some less-than-pretty noise from Sin City.

Update: In related news, eBay CEO John Donahoe, Thompson’s former boss, lent words of support but also underscored that the commerce company’s legal filings of his bio were always correct, even if its Web site was not. Thompson came to Yahoo from a stint as president of eBay’s PayPal payments unit.

As reported by Bloomberg, Donahoe said:

“When Scott was hired at EBay Inc., all of EBay’s filings had the accurate information. Some of EBay’s PR materials had that bio. Our legal filings were taken care of by our legal department. Some of the PR materials had that info,” he said while in Tokyo, of the correct bio versus the incorrect one.

Donahoe added: “I think Scott Thompson did a great job at PayPal. I think he’s a very talented leader and I believe he can help Yahoo. I hope they get through this and he can continue to do the very challenging job he’s got of helping to turn Yahoo around. I’m Scott’s biggest fan.”

This has been the first public support of Thompson by a prominent Internet figure, which might help lagging morale at the company.

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

Earlier today, Yahoo’s persistent thorn, activist shareholder Dan Loeb of Third Point poison-penned another letter to the board of the Silicon Valley Internet company, demanding that Yahoo fire its new CEO Scott Thompson, as well as director Patti Hart, over bizarre inaccuracies related to their academic achievements.

“Permitting Mr. Thompson and Ms. Hart to stay with the Company after apparently violating the Code of Ethics sends a message to all Yahoo! employees that a different set of rules applies at the top,” Loeb wrote.”[Yahoo must] terminate Mr. Thompson for cause immediately given his demonstrable unsuitability to remain Chief Executive Officer and a director of Yahoo! and accept the resignation of Ms. Hart for similar reasons.”

And while many across the blogosphere — including some very clever tweets — called for his head tout de suite, that’s just not going to happen.

At least for now, at this early point in a controversy over Yahoo filing legal documents that misrepresented Thompson’s long-ago degree from Stonehill College.

In a nutshell: Thompson does not have a computer science degree, as he had maintained he did in public bios for almost a decade, a falsehood that mysteriously seeped into documents Yahoo filed with the Securities and Exchange Commission.

That’s bad news for Yahoo, for sure, on many levels, but moving against Thompson at this moment is not likely to be the answer — for the short term, at least.

That’s due to many reasons, that I like to think of it as three hopelessly complex puzzles that need solving pronto.

The What-Did-Yahoo-Know-and-When-Did-It-Know-It Question

There is no question the first thing Yahoo’s board needs to do is a thorough investigation to determine how a borked bio could proliferate so widely and for so long.

Most importantly, Yahoo will have to reveal if Thompson actually gave them this incorrect information, as he aggressively lobbied for the then-open CEO job.

As I had previously reported several times, Thompson cold-emailed a Yahoo director — Intuit CEO Brad Smith, as it turns out — despite not being on the list of potential candidates. Thompson was then shuttled over to Hart, who was running the vetting process with the help of headhunting firm Heidrick & Struggles, and hired within weeks.

Oddly, sources said Thompson never filled out the required informational papers for the job, nor did Heidrick conduct the normal background check on him. Instead, another forensic firm Yahoo hired did the work.

If it turns out Thompson gave any of them the bad bio info, it would be quick curtains for him.

But if Yahoo’s board members obtained his info on their own, the next key query would be how no one at Yahoo — especially its legal and compliance staffers, as well as outside help — managed to catch the problem during the vetting of Thompson.

Here are some good questions to start with:

Who put a faux computer science degree on Thompson’s bio in the first place, why and when did it happen?

Where did Yahoo get the inaccurate information?

Who was in charge of checking Thompson’s academic record for Yahoo?

And, who checked the work of the checkers?

The problem is made more complicated, because correct information was easily available in the SEC filings of eBay for years, since Thompson was head of its PayPal payments unit.

While the resume information was indeed wrong on eBay’s Web site and on numerous bios of Thompson for years, how did eBay legally get it right while Yahoo did not?

That calls into question the expertise of the company, its directors and those they hired to make sure execs were completely on the up and up, a task they clearly failed at.

If rank incompetence is the reason, which it looks like it might be, expect certain board members and other Yahoo staffers to go, along with anyone who helped in the Thompson vetting, or lack thereof.

Unless, of course, the gang-that-couldn’t-shoot-straight actually did shoot straight and some one at Yahoo found out about the educational discrepancy before the new CEO was announced, but declined to fix it.

While sinister, such a scenario is not entirely implausible, given how much pressure Yahoo was under at the time to hire a CEO quickly, due to Loeb and his looming proxy fight.

If any evidence were to surface that this was so, it is curtains all around, which would rain the kind of disaster down on Yahoo’s Sunnyvale HQ that would make Loeb’s attacks look like a Nerf battle. Instead, it would be “The Hunger Games” — except that no one survives.

The Chaos-in-Sunnyvale Conundrum

Which brings us to the profound implications of Yahoo jacking its second CEO within six months.

While it’s easy to yell “Fire the CEO” on a crowded Twitter, it’s simply not so easy in practice.

How long did it take Yahoo’s lugubrious board to figure out Carol Bartz needed to go? A … long … time. (And, she had a CS degree!)

More to the point, Thompson — and his not-so-merry band of consultants from Boston Consulting Group and, this week, McKinsey & Company — has only just completed a massive layoff of 2,000 employees and a jarring restructuring of management.

He’s also in the early stages of rolling out a new and decidedly still-squishy strategic plan to top execs (also just this week), along with working on some other key initiatives.

That includes renegotiating its search partnership with Microsoft; noodling around on a possible deal with Google; contemplating the sale of a variety of assets; and — oh, yes — trying to take on social networking Godzilla Facebook over patent infringement.

Busy much?

But, most importantly, Thompson is now the umpteenth Yahoo CEO to be working on the never-ending talks with its Asian partners over selling back a piece of the company’s lucrative stake to them.

While Yahoo CFO Tim Morse and head lawyer Mike Callahan are the point men on the deal, the lack of CEO would be an issue in the now-proceeding again talks.

This is a sale that must — and I underscore must — get done and soon, giving Yahoo much-needed breathing room and a whole lot of cash to fork over to increasingly disgruntled shareholders.

So, expect Yahoo to try to milk that deal for all it’s worth in the coming week, in order to give the appearance, at least, of positive forward momentum.

And, like it or not, Thompson has to play a key role in it getting done.

Thus, the likelihood of wait-and-see over point-and-shoot on Thompson is higher than you might think.

That’s especially true given four members of the board are leaving within six weeks and have either or are in the process of being replaced by new members.

Then, Thompson will be their problem to solve.

Again, no small thing, since the old crew — led by feckless Chairman Roy Bostock — is not likely to want to end its appalling tenure with yet another disaster.

Such a move would further tarnish the legacy of its outgoing directors, although I am not sure how it could be any more sullied, given their consistent record of one bad decision after the next.

What do I really think? I think this cursed board will maintain its 100 percent score of doing the wrong thing at the right time.

It could be a different case with the new directors, of course, who all seem pretty sharp and not as easily impressed by a record of failure.

They will surely be monitoring Thompson carefully, as will employees, who have taken to internal message boards with a rage not seen in a while over the resume debacle.

Their morale might be one uncertainty impacting Thompson’s fate. If a lot of key employees continue to bolt Yahoo or those remaining more loudly express their disdain for the bio antics, the new directors might listen.

The Whatever-Loeb-Says-We-Won’t-Do-Till-Later Head-Scratcher

Which brings us back to Loeb, whose noisy campaign to grab seats on the Yahoo board has certainly hit home this week.

And, though Yahoo likes to ding him a lot, since he started his campaign of terribly entertaining investor terror, a lot of what he’s been calling for has happened.

That includes a major flushing of the board — with five longtime members, including co-founder Jerry Yang, going, going and gone.

In addition, Loeb brought pressure to slow down some questionable deals, from Yahoo’s PIPE dream to a tax-free spinoff in Asia in a deal only an accountant could love.

He’s also — though they try to deny it — got the Yahoo directors in the dangerous habit of reacting to him, rather than playing their own game.

While the Yahoo board has resisted any deal with Loeb (pictured here), blaming him for rejecting their kind offers of settlement, it is he who is setting the tone more than Yahoo.

And that tone is of alarm and trouble and chaos at Yahoo.

That’s not going to work to convince other Yahoo investors to back his cause — in fact, Loeb has a decidedly uphill battle to win his proxy challenge — he has still scored a direct win with the bio relevations.

So far, though, Loeb has not sunk Yahoo’s battleship, so it is unlikely the board will acquiesce to his latest demand of Thompson being fired by noon on Monday.

Maybe it will eventually, or maybe it will just scold Thompson or maybe it will do nothing at all.

All that is an unknown — a riddle, wrapped in a mystery, inside an enigma, with a lot of managerial incompetence thrown in. And that, most of all, is the sad definition of today’s Yahoo.

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

Spencer Platt | Getty Images News

According to sources close to the situation, Starbucks Chairman and CEO Howard Schultz and Accel Partners’ Kevin Efrusy will be stepping down from the board of Groupon.

Schultz’s departure will be effective today, but Efrusy — who was critical to the initial funding around the Chicago-based daily deals site — will not be standing for re-election at the company’s annual meeting in June.

The departures are voluntary, but sources said the pair will be replaced by two new directors with significantly more fiscal oversight experience, whom one source characterized as “accounting types.”

(Update: Groupon just posted a press release noting the board departures, with the names of the new board pencil pushers: Daniel Henry, CFO of American Express, and Deloitte Vice Chairman Robert Bass. Henry joins immediately in Schultz’s place. Full press release below.)

It is a move that is critical, given Groupon’s recent series of missteps around its financial reporting that have hurt both its reputation and, more importantly, its stock.

Interestingly, several sources noted that Schultz almost left the board right before Groupon’s public offering last fall, after several ongoing disputes with its management, but stayed on so as not to scuttle its IPO.

The board of the company has not involved itself as prominently in the accounting messes at the company, but it appears as if they will begin to now.

It must, given Groupon shares have been trading at a low of $11. Its stock has dipped to $10.98 today.

As Tricia Duryee wrote recently about the fall:

At that price, it is now worth just over $7 billion, down 57 percent since the company went public last November and well off the more than $10 billion it was valued at as tech’s hottest start-up of 2011.

Ironically, Groupon’s current market valuation is actually not much more than the $6 billion offered for it by search giant Google in late 2010.

The fall of Groupon has been swift, from the honorific of being the fastest-growing company ever to one that cannot keep control of that runaway growth.

That’s perhaps no surprise.

Perhaps most significantly, Groupon went public in just four years, delivering the biggest tech IPO since Google.

The quicksilver move was typical for it. In just two years’ time, the company ballooned from 37 employees to 9,625 and from serving five markets in the U.S. to 175 in North America alone. And that’s leaving out massive expansion abroad. In the past year, Groupon has acquired roughly 17 companies, including many international copycats.

The company also has entered many new segments, expanding from selling lower-priced and simpler deals on restaurants and spas to more complex and pricey arenas, including travel, physical goods and luxury items.

But Groupon is now learning that its original business does not work across just any segment, especially to more discerning customers of its higher-level and more expensive offerings.

In fact, it was those newer and potentially more lucrative markets that forced the company recently to revise the company’s fourth-quarter report after returns skyrocketed on luxury items, such as Lasik eye surgery.

The problems forced Groupon to lower revenue in the period by $14.3 million and net income by $22.6 million. It is now reporting a wider net loss of $64.9 million on revenue of $492 million, pushing it further away from its goal of profitability.

The company also disclosed at the time that independent auditors had noted “material weakness” in its financial controls. In addition, The Wall Street Journal reported that the Securities and Exchange Commission was examining Groupon’s revision. 

With many companies, investors might have shrugged off such accounting issues, but the impact on the stock has been greater since they are only the latest in a string of similar mistakes at Groupon.

In its pre-IPO period, for example, Groupon was forced to restate revenues after counting both its portion of the revenue and the revenue that goes to the merchant together. It also had to dump a controversial accounting metric that made the company look more profitable than it was, because it did not include important costs, such as critical online marketing expenses to attract new customers.

Those came after the company retracted a statement by Eric Lefkofsky, Groupon’s co-founder and executive chairman, who told Bloomberg in an interview that Groupon would be “wildly profitable.”

At least the wild part was accurate.

Much of the blame for these missteps by Wall Street is being aimed at CEO and co-founder Andrew Mason, the iconoclastic 31-year-old entrepreneur who is largely responsible for defining the company’s culture, as well as Jason Child and Joe Del Preto, the chief financial and accounting officers, respectively.

Child joined the company in December 2010, coming from Amazon, where he held several roles over a 10-year period — including VP of finance, international, and director of investors relations. Prior to joining Amazon, he worked at Arthur Andersen as a certified public accountant.

Del Preto has been Groupon’s chief accounting officer for the past year and, before that, he was the company’s global controller for three months. Before Groupon, he was controller and VP of finance at Echo Global Logistics and also served as controller at InnerWorkings, the same company where Mason was a computer programmer in his early career.

Mason, of course, is the best known and the person most responsible for establishing the company’s whimsical culture and managing — or mismanaging, depending on how you look at it — Groupon’s hard-charging growth.

It will also be up to him to turn it all around, as the company sinks in both value and investor regard. Since the restatement, Mason has said little about how he intends to do that. In February, when Mason concluded Groupon’s first-ever earnings call, he said: “Thanks, guys, this was a lot of fun, and I look forward to many more of these.”

It’s not clear fun will be on the agenda at his next outing on Groupon’s first-quarter call in mid-May.

Here is the official press release from Groupon on the board changes:

Groupon Appoints Two Directors to Board Daniel Henry, CFO of American Express, and Robert Bass, Vice Chair of Deloitte

CHICAGO — (BUSINESS WIRE) — Groupon, Inc (http://www.groupon.com) (NASDAQ:GRPN) today announced that Daniel Henry, the chief financial officer of American Express Company and Robert Bass, a vice chairman of Deloitte LLP will join its Board of Directors. Both will serve on the Audit Committee with Audit Chair, Ted Leonsis. Daniel Henry was appointed to the Board on April 26, replacing Howard Schultz, who has stepped down from the Board. Robert Bass will stand for election at the annual stockholder meeting to be held on June 19 following his retirement from Deloitte, replacing Kevin Efrusy, who will not stand for reelection at that time. “With their deep financial, accounting and operational experience, Dan and Bob will provide invaluable expertise to the Board going forward,” said Eric Lefkofsky, Groupon Chairman.

Daniel Henry, 62, has been the Chief Financial Officer of American Express Company since October 2007. Henry is responsible for leading American Express Company’s finance organization and representing American Express to investors, lenders and rating agencies. He has also served as Executive Vice President and Chief Financial Officer of U.S. Consumer, Small Business and Merchant Services and joined American Express as Comptroller in 1990. Prior to joining American Express, Henry was a partner with Ernst & Young.

Robert Bass, 62, has been a vice chairman of Deloitte LLP since 2006, and a partner in Deloitte since 1982. He will retire from Deloitte on June 2, 2012. Bass has specialized in e-commerce, mergers and acquisitions and SEC filings. At Deloitte, Bass is responsible for all services provided to Forstmann Little and its portfolio companies and is the advisory partner for Blackstone, DIRECTV, McKesson, IMG and CSC. He has also previously been the advisory partner for priceline.com, RR Donnelley, Automatic Data Processing, Community Health Systems and Avis Budget. He is a member of the American Institute of Certified Public Accountants and the New York and Connecticut State Societies of Certified Public Accountants.

“I’m thrilled to have been a part of Groupon’s development,” said Kevin Efrusy. “The Company is well on its way to becoming the operating system for all local commerce.”

“Howard and Kevin helped guide us on our journey to becoming a public company and I want to thank them and acknowledge their contributions,” said Groupon CEO Andrew Mason.

“During my tenure on the Board, I was impressed by the game-changing opportunities that Groupon has delivered for both merchants and customers on a global scale,” said Howard Schultz. “Groupon has a strong sense of mission and purpose, and as I move on to focus on my other time commitments, I wish them the very best.”

Justin Sullivan/Getty Images News

In this inaugural edition of Eye To Eye, Mark Cuban and Eric Jackson answer the following question about Web giant Yahoo.

Yahoo, which is hemorrhaging senior execs, just laid off 2,000 employees and underwent a massive restructuring under CEO Scott Thompson. Meanwhile, it’s embroiled in a questionable patent lawsuit/countersuit with Facebook. What is the one major thing you think it needs to do to turn itself around?

It was cool when you had hella weed to smoke
And you bought a new home where you could keep your folks
I don’t see how this side of you could be provoked
It was all good just a week ago
– Jay-Z, “A Week Ago”

When I started Loudcloud, I hired the best people I knew — people whom I respected, trusted and liked. Like me, many of them did not have deep experience in the jobs that I gave them, but they worked night and day to make it work and they made great contributions to the company. Yet for many of them, there came a day when it was clear that I needed to hire someone with more experience to run the function I had previously entrusted to a loyal friend. Damn. How do you do that?

Should you do it at all? The first question that always comes to mind is: “Do I really need to do this?” Who could I possibly hire who will work this hard and bleed the company colors like this?” Sadly, if you’re asking the question, you very likely already know the answer. If you need to build a worldwide sales organization, your buddy who did the first few deals is almost certainly not the best choice. As hard as it may be, you need to take a Confucian approach. You must consider first all of the other employees, and second your friend. The good of the individual must be sacrificed for the good of the whole.

How do you break the news? Once you make the decision, breaking the news will not be easy. It’s important to consider two deep emotions that the employee will feel:

• Embarrassment — Do not underestimate what a large factor this will be in his thinking. All of his friends, relatives and colleagues know his current position. They know how hard he’s worked and how much he’s sacrificed for the company. How will he possibly explain to them that he will no longer be part of the executive team?
• Betrayal — I’ve been there from the beginning, I’ve worked side by side with you. How could you do this? It’s not like you’re perfect in your job either. How can you be so comfortable selling me out?

Those are some powerful emotions, so get ready for an intense discussion. Ironically, the key to an emotional discussion is to take the emotion out of it. To do that, you must be very clear in your mind what you’ve decided and what you want to do.

The most important thing to decide is that you really want to do this. If you walk into a demotion discussion with an open decision, you will walk out with a mess: A mess of a situation and a mess of a relationship. As part of that decision, you need to be okay with the employee quitting the company. Given the intense emotions he will feel, there is no guarantee that he will want to stay. If you cannot afford to lose him, you cannot make this change.

Finally, you must decide the best role for him in your company. The obvious thing is to have him continue under his new boss, but this may not be the best thing for him, his boss or his career. Your loyal employee will continue to have lots of knowledge about your company, competition, customers and market that his new boss lacks. On the one hand, this can be a good thing — he can help get the new boss up to speed. On the other hand, when mixed with the intense emotions of embarrassment and betrayal, you might end up with a sabotage cocktail.

Another problem with this approach is that there is no way to paint him reporting to his old boss as anything but a demotion from a career path perspective. An alternative, if appropriate, would be to move him to another area of the company where his skills, talent and knowledge will help. This kind of move will give him a chance to develop a new set of skills and help the company while he’s doing it. For young employees, getting experience in different areas can be super valuable.

Sadly, this is not a silver bullet, since he might not want to work in another job; he might be hell bent on keeping his current job, so prepare for that as well.

Once you’ve decided to hire someone above your friend and decided on the alternatives that you’d like to offer him, you can have the conversation. Keep in mind that you cannot let him keep his job, but you can be fair and you can be honest. Some keys to doing that:

• Use appropriate language — Make clear with your language that you’ve decided. In fact, use phrases like “I have decided” rather than “I think” or “I’d like.” By doing this, you will avoid putting the employee in the awkward position of wondering whether or not he should lobby for his old job. You can’t tell him what he wants to hear, but you can be honest.
• Admit reality — If you are a founder/CEO like I was, it probably won’t be lost on the employee that you are just as under-skilled for your job as he is for his. Don’t dodge this fact. In fact, it’s fine to admit that if you were a more experienced CEO, you might be able to develop him into the role, but two people who don’t know what they are doing is a recipe for failure.
• Acknowledge the contributions — If you want him to stay in the company, you should say that and make it crystal clear that you want to help him develop in his career and contribute to the company. Let him know that you appreciate what he’s done and that your decision is a result of what’s next more than what’s previous. The best way to do this, if appropriate, is to couple the demotion with an increase in compensation. Doing so will let him know that he’s both appreciated and valued going forward.

Through all of this, keep in mind that it is what is and nothing you can say will change that or stop it from being deeply upsetting. Your goal should not be to take the sting out of it, but to be honest, clear and effective. Your friend may not appreciate that in the moment, but he will appreciate it over time.

Ben Horowitz is founder and general partner of Andreessen Horowitz. He was a co-founder and CEO of Opsware (formerly Loudcloud), which was acquired by HP, and ran several product divisions at Netscape. He serves on the board of companies such as Foursquare, Jawbone, Lytro, Magnet, Nicira and Tidemark, and blogs at www.bhorowitz.com.

Yahoo beat Wall Street estimates in its first-quarter earnings report today, with revenue of $1.08 billion and earnings of 23 cents. That’s a gain of 28 percent from a year ago in net earnings and 38 percent per diluted share.

Analysts had been expecting Yahoo to report revenue of $1.06 billion and earnings of 17 cents a share. But, as I reported earlier today, sources had indicated that the results would be on the upside.

Still, revenue was only up year over year by 1 percent — not exactly a great achievement, given exploding growth across the Internet industry. The real drag was the Europe, Middle East and Africa regions, whose revenue was down 9 percent — which Yahoo attributed to the weak economy there — with its “contribution” down 27 percent. That region has been run by Rich Riley, who is now Yahoo’s sales lead in the U.S.

One interesting note: While display revenue was down, search revenue was up. And unique visitors to Yahoo were up 7 percent, which was lower growth than in previous quarters. The reason was declines in search and communications, with media up strongly.

Now, investors are hoping to get more clarity from new CEO Scott Thompson in a call at 2 pm PT about the overall strategy for the troubled Silicon Valley Internet giant, which just restructured its management again and also had layoffs of 2,000 employees.

Thompson has yet to articulate a specific plan beyond the broad strokes of media, commerce and data/platforms as Yahoo’s aim.

But there is a lot more to deal with and in detail, including figuring out its troubled advertising search partnership with Microsoft, the talks around selling off parts of the company’s lucrative Asian assets, Yahoo’s patent lawsuit against Facebook, how Yahoo is going to deal with activist shareholder Third Point’s possible proxy challenge and whether more layoffs beyond recent firings will be needed.

“In the first quarter, Yahoo!’s results came in at the high end of our guidance range and beat consensus on revenue and profits,” Thompson said in a statement. “We also made changes to resize the organization and establish a new leadership structure to quickly deliver the best user and advertiser experiences at scale.”

Until Thompson gives more deets on the earnings call, which I will be liveblogging, here’s Yahoo’s official press release and cool charts on the subject:

YHOO News 2012-4-17 General

YHOO_Q112EarningsPresentation

In a move that AllThingsD had previously reported was coming, Yahoo said it had laid off 2,000 employees, or 14 percent of the workforce.

“Today’s actions are an important next step toward a bold, new Yahoo! — smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require,” said Yahoo CEO Scott Thompson in a statement. “Unfortunately, reaching that goal requires the tough decision to eliminate positions.”

While Yahoo has had periodic layoffs over the years, this one is its most significant in its history, and will also result in another large-scale restructuring of the management organization. More cuts are also likely to follow in the months ahead, due to the reshaping of Yahoo.

The latest employee action is being pushed by Thompson, who joined the Silicon Valley Internet giant in January from eBay’s PayPal unit.

“Change is never easy,” he wrote in an internal email to Yahoo employees (it is below in its entirety), in a well-worn cliché I am dead certain few appreciated hearing today from the top leader.

At an internal meeting with top staff last night, Thompson — who has gotten what seems to be a well-deserved reputation for chewing folks out at Yahoo — was more direct with the execs gathered, berating them extensively for not delivering and getting the company to this sorry point.

Ouch, Scott! It’s Easter, so it might be time for some forgiveness. (And no more ranting about my reporting to those inside Yahoo, since I have been 100 percent accurate so far. FYI, will aim for 110 percent next week!)

Yahoo said it will save about $375 million with the cuts, incurring a $125 to $145 million pretax cash charge for employee severance in its second quarter. Before the cuts, Yahoo had 14,000 staffers and has many thousands more hired as contractors.

The layoffs touch all units of the company, but the hardest hit is the product division, which is headed by Blake Irving, as well as its marketing, research and international units. Yahoo gave no details on the layoffs other than the number.

But the fate of two key parts of the soon-to-be-blown-apart unit — Yahoo’s advertising technology businesses, Right Media and APT, and its search business — is still being contemplated, as I have previously reported. Possible scenarios include a sale or a joint venture transaction for both, which employ thousands of Yahoo staffers.

The layoffs tomorrow are not the end of the road in cutting costs. Along with the likely shedding of its ad tech and search businesses, Yahoo leadership is also looking at future cuts as it evaluates current businesses, which could lop even more employees off its roster.

That said, Yahoo will be doubling down in some older and new arenas, so there would also be simultaneous hiring in the months ahead.

As wrenching as they will be today at Yahoo, the layoffs come as no surprise. Thompson had told employees in memos and also in recent meetings that “real change” was coming to the company.

Along with the trauma of the layoffs, Yahoo is also facing two other tense face-offs externally. In one, activist shareholder Third Point is waging a proxy fight for board seats and stepped up the public pressure this week; and Facebook struck back hard at Yahoo’s patent lawsuit with a counterclaim of its own.

After the layoffs tomorrow, sources say Yahoo will be announcing a new organization by next week. Thompson, along with outside consultants he has hired from the Boston Consulting Group, are making what appear to be profound changes.

Sources said that Yahoo will most likely be comprised of a global media division, one that encompasses Yahoo’s consumer products businesses and one focused on global and regional sales. There could also be a small organization of about 50 employees aimed at future innovation.

Americas head Ross Levinsohn is pegged to run the media arm, which will also include its leads/commerce businesses, such as autos; Shashi Seth — who now heads search and marketplaces — is likely to run consumer products, which will include Yahoo’s communications and search businesses.

Yahoo has already been conducting a search for a new worldwide sales head, who will also be boss of the U.S., Asia and Europe, Middle East and Africa sales regions. Rich Riley, who was recently running EMEA, is reportedly the pick for U.S. sales; Rose Tsou, who is running Asia, would presumably stay put; Yahoo is looking for an EMEA sales lead.

Some current operational execs — such as service engineering and ops head David Dibble, CFO Tim Morse, and top lawyer Mike Callahan — are likely to continue to operate as before.

One big question mark is how Chief Product Officer Irving fits in the possible new org, in which the new units get control of their product development. Irving has reportedly had several incoming job offers, although it is not clear if he has responded to that interest.

But today, the focus is on the layoffs and letting go all those employees, many of whom have worked at Yahoo for years. Even if it will result in a stronger Yahoo, as Thompson promises, it is still a very sad day in Sunnyvale.

Here is a video on the topic that I did with the WSJ.com “Digits” show today, after the cuts were announced early this morning:

Here’s the entire terse statement from Yahoo:

Yahoo! Statement

SUNNYVALE, Calif. — (BUSINESS WIRE) — Yahoo! today confirmed that it is taking important next steps to reshape the company for the future.

“Today’s actions are an important next step toward a bold, new Yahoo! — smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require. We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities. Our goal is to get back to our core purpose — putting our users and advertisers first — and we are moving aggressively to achieve that goal,” said Scott Thompson, CEO of Yahoo!. “Unfortunately, reaching that goal requires the tough decision to eliminate positions. We deeply value our people and all they’ve contributed to Yahoo!.”

Yahoo! has a solid foundation — nearly 700 million users and thousands of advertisers that engage with Yahoo! properties regularly and trust the company with their data and their business. Through its restructuring efforts, Yahoo! intends to grow by responding more quickly to customer needs and competing more effectively in areas where it can win. Yahoo! has identified key parts of the business — a select group of core businesses, the platforms that support those core businesses, and the data that drives deep personalization for users and ROI for advertisers — where the company will intensify efforts and redeploy resources globally, all focused on increasing shareholder value. With a clear focus on profitability and growth, the company will be disciplined in its investments and radically simplify how it builds, launches and maintains many of its properties and products.

Today, the company will begin the process of informing employees about these changes. As part of that effort, approximately 2,000 people will be notified of job elimination or phased transition.

Yahoo! expects to realize approximately $375 million of annualized savings upon completion of all employee transitions. The company currently expects to recognize the majority of an estimated $125 to $145 million pretax cash charge relating to employee severance in its second quarter financial results. The company may incur additional charges in connection with this action. More information will be provided about Yahoo!’s future direction in conjunction with the release of its first quarter financial results on April 17, 2012.

And here is Thompson’s memo to employees, stating the obvious and with nothing new from previous statements and internal memos:

Yahoos –-

Today we are restructuring Yahoo! to give ourselves the opportunity to compete and win in our core business. The changes we’re announcing today will put our customers first, allow us to move fast, and to get stuff done. The outcome of these changes will be a smaller, nimbler, more profitable Yahoo! better equipped to innovate as fast as our customers and our industry require.

Over the last 60 days, we’ve fundamentally re-thought every part of our business and we will continue to actively consider all options that allow Yahoo! to put maximum effort where we can succeed. As part of this process, I believe we have to focus to win in a select group of core businesses globally:

Core Media and Communications: Our content, media, and communications experiences must be best in class. That includes getting today’s core properties right and innovating on a next generation of great product experiences across all screens.∙

Platforms: We must make our core platforms and systems a genuine strength for Yahoo! — platforms that we can really leverage to support our massive scale, drive the deepest personalization, and boost speed to market.∙

Data: Our massive data sets must become a genuine competitive advantage for Yahoo!. We have to unlock the value in our data to allow us to really understand our 700 million users, encourage and win their engagement and trust, leverage everything they do with us to more fully personalize their experiences, and to give our advertisers the immediate insights they are rightfully demanding.

We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities. Our goal is to get back to our core purpose — putting our users and advertisers first -– and we are moving aggressively to achieve that goal.

Unfortunately, reaching that goal requires the tough decision to eliminate jobs, which means losing colleagues and parting with friends. Today, we will begin the process of informing employees about these changes. As part of that effort, approximately 2,000 people will be notified of job elimination or a phased transition. We value our people and for those who will be leaving, we thank you for all you have contributed to Yahoo!. We will treat all of our people with dignity and respect, providing resources to help manage through their transition.

Change is never easy. But the time has come to move Yahoo! forward aggressively with increased focus and accountability. Our values have always been about treating all Yahoos with dignity and respect, and today is a day to embrace those values. This is an amazing company with exceptionally talented people and I know we will all do our best to encourage each other through this difficult period of transition.

Scott

In yet another high-level executive departure, top-level content exec Luke Beatty, the founder of the Associated Content unit that the Silicon Valley Internet giant bought several years ago for $90 million, is departing, according to sources.

Beatty’s move comes as Yahoo is preparing large-scale layoffs and a massive restructuring, which several sources said will begin mid-week.

It’s another blow for the company, given the entrepreneurial Beatty was the kind of exec that Yahoo desperately needs to keep if its media aspirations are to remain innovative.

While Associated Content — now called the Yahoo Contributor Network — has been integrated into the media offerings at Yahoo, other upcoming cuts in Beatty’s areas of management could be decimating.

The changes are due to a new initiative from new CEO Scott Thompson to turn Yahoo around after years of lackluster performance. The situation has been tense at the iconic company, made worse by an increasingly nasty proxy fight that is also looming.

In another high-profile parry in its increasingly aggressive proxy fight against Yahoo, activist shareholder Third Point has launched an extensive Web blog to support its case with investors called “Value Yahoo.”

Along with a long statement — a blogifesto of sorts — about what it will take to fix the Silicon Valley Internet giant, Value Yahoo also tries to keep up the pressure on Yahoo’s board and management.

The purple-themed site — this is Yahoo’s well-known color — features a humorous take on Yahoo’s now dearly departed neon sign in San Francisco, with the banner: “Yahoo Shareholders Deserve Overdue Representation!”

It includes a section on “Failed Leadership,” info on its “Road to Recovery” slate of alternate directors and even an FAQ and mission statement.

“We believe in Yahoo!, its loyal users, committed employees, dedicated partners, and the potential of the brand,” it reads, in part. “Yahoo! shareholders, employees, and partners have suffered for too long with a revolving door of management teams and Directors who have been unable to seize opportunities despite the Company’s enduring role as the premier online source for news, sports, business, entertainment and email.”

By the way, in a clever dig, there is also a Facebook site for Value Yahoo — patent lawsuit or no, you can “like” Third Point’s effort.

Here, for example, is one of Value Yahoo’s charticles:

The goal of all this, presumably, is to get Yahoo to give in to demands for several board seats using its directors, including Third Point’s Dan Loeb. So far, ongoing discussions between Loeb and Yahoo have failed to stop the shareholder battle, which comes in the midst of the company’s wrenching restructuring.

Last week, Yahoo said it had appointed three new directors to its board. In a pointed slap at Loeb, the company said it had rejected him specifically, although Yahoo added that it was willing to accept one of his current choices and another that was mutually agreed to.

Loeb reacted to that, um, badly, with another letter last week that said Yahoo leadership was living in an “illogical Alice-in-Wonderland world.”

The war of words continues with the new site, which Third Point said it will maintain actively like a blog, with updates, charts, filings, outside news stories and more.

(Since Yahoo has apparently banned me from its internal news offering to employees, according to more sources than you can shake a stick at, I hope they can see my work here!)

In its newest post — titled “Why Are We Running for Election to the Yahoo! Board?” — Third Point presents an argument for other shareholders to act, even though Yahoo has actually made a lot of the changes that Loeb has been pushing for already.

(In fact, that’s an FAQ question on Value Yahoo, natch: “Yahoo! has made changes to its Board. Hasn’t Third Point already gotten what it wanted?” Short answer: Vigilance, since they are well-known backsliders over there!)

As the firm notes in its reasons-why essay, with the original bolding on the Value Yahoo blog:

“After years of failed leadership and poor governance, Yahoo! shareholders have a chance to inject experienced, independent voices aligned with their interests. The “Shareholder Slate” — Daniel Loeb, Harry Wilson, Michael Wolf, and Jeff Zucker — seeks a voice and a choice for Yahoo! owners hurt by the current “Legacy Board’s” track record of value disintegration, and wants to prevent the Board from simply nominating their handpicked replacements — the “Insider Slate” — for Yahoo!’s board.”

Yahoo is preparing to begin layoffs of what could be thousands of employees starting next week, according to multiple sources, and is then expected to announce a new restructuring of the company the week after.

The swirl at the Silicon Valley Internet giant has grown more intense this week, as new CEO Scott Thompson has brought in top management for a series of meetings both Tuesday and Wednesday to outline the plans.

What has emerged — although sources noted that Thompson and others communicating the pending changes said nothing was yet set in stone — is the picture of a drastically slimmed-down organization with a focus on media, advertising and new but unclear “future” initiatives.

First the layoffs: Sources said the cuts will be deep and mostly aimed at the product, research and marketing units of Yahoo, which are likely to take place Wednesday. The ultimate goal, said multiple sources, is to cut many thousands from Yahoo’s staff of close to 14,000 employees, which is actually much larger, due to contract workers not officially in its roster.

The entire cut will not take place at once, said sources, since Thompson and others are still trying to figure out how to dispense with its ad technology org and, potentially, its search business. He has been in discussions with both Microsoft and Google about this, although there are other possibilities, too.

Both these parts of Yahoo together have about 2,500 staffers, whose fate is not yet sorted out.

Also still baking is the new structure, although sources said it is most likely to be comprised of a global media division, one that encompasses Yahoo’s communications and search businesses, and ones focused on global and also regional sales. There could also be a small organization of about 50 aimed at future innovation.

Americas head Ross Levinsohn is the likeliest exec to run the media arm, while Shashi Seth — who now heads search and marketplaces — would be the obvious candidate for the the communications/search one.

Thompson has already been conducting a search for a new worldwide sales head, although one possible internal exec for the job could be Rich Riley, who was recently running Yahoo’s Europe, Africa and Middle East region.

It is not clear how Chief Product Officer Blake Irving fits in the possible new org, since much of the development could now move to the decentralized units.

Some current operational execs — such as service engineering and ops head David Dibble, CFO Tim Morse, and top lawyer Mike Callahan — are likely to continue to operate as before.

Thompson, along with consultants he has hired from the Boston Consulting Group, presented the possible plan in front of Yahoo’s senior execs on Tuesday. That was followed by more meetings with a wider range of top management yesterday, although Thompson was not as highly specific in these meetings.

In fact, according to a half-dozen sources, Thompson apparently grew somewhat testy in one of the gatherings, when asked if there was a strategy he was going to announce in more detail to the group.

(Dear Scott, these are very talented employees who love the company and who have been through the wringer and it’s not their fault that leadership has failed them, so it might be a good idea to treat them with as much respect as possible right now.)

More to come, obviously.

Shakil Khan, the well-known head of special projects for the popular Spotify music service, is taking a job with the same title at Path, the fast-growing personal social networking start-up.

Khan will be focusing on growth and international issues, and based out of London but with global duties. Path’s HQ is in San Francisco.

That’s important, since Path has been growing strongly outside its initial U.S. market, especially in Asia. In February, Path CEO Dave Morin announced that it had two million users.

In an interview last night, Khan said he will remain an adviser to Spotify’s CEO and co-founder Daniel Ek, noting that he is also an investor.

Interestingly, said many sources and also a number of reports, both Path and Spotify are in the midst of large funding rounds with hefty valuations.

In fact, Spotify is being valued at $4 billion, which was not the case when Khan came to the then-fledgling company in 2008. Taking up a job essentially as a kind of fix-it guy for Ek, he worked on a number of important initiatives, from gaining early user traction to hiring its early management to wrangling celebrities to use the service.

Khan said that he decided to leave Spotify, which has recently had a huge spurt of growth due to its recent integration on Facebook, because he has “always been a start-up guy.”

“I loved the days when people used to say, ‘What is that, how do you spell it,’” he said about Spotify. “I need those kind of butterflies, and Path is just that kind of amazing product with huge global potential.”

In an email, Path’s Morin said:

“We are beyond delighted that Shak has chosen to join the Path family as we continue our mission to build the first global personal network by helping people journal and share life with family and close friends. Shak brings a unique global perspective and skill set to Path which will help us reach and serve our members and partners across the globe in a uniquely personal way.”

And Ek, calling in from Sweden (where it is 80 degrees!), said that he was sad to see Khan go, and was also in his debt for his service to Spotify.

“I am kind of an introvert guy, and Shak is definition of social, so he was the link to the rest of the world in many ways for me and for the company,” said Ek. “So where he is going and what he will be doing at Path is perfect.”

In an effort to minimize the impact of massive layoffs that Yahoo’s top management has been planning, according to sources close to the situation, one of the latest ideas to save costs and presumably jobs by new CEO Scott Thompson is to sell off much of its advertising technology platform, including Right Media.

And among the possible buyers Thompson has been targeting in recent visits: Google and Microsoft, as well as Silver Lake, the private equity firm that had once been talking to the Silicon Valley Internet giant about making a large investment in the company.

(That particular deal has gone south, but there is always yet another scheme on the horizon at Yahoo!)

The concept behind such a sale, according to several sources inside and outside the company, is to turn a cost center into a revenue source, with Yahoo essentially outsourcing a business that was a cornerstone of its strategy. A negotiable number of employees affiliated with those units would then move over to the new owner.

The most ideal plan, said sources, would be to sell Yahoo’s whole advertising technology “stack,” including the Right Media Exchange, a marketplace for advertisers, publishers and ad networks to trade online ads. Yahoo bought it for $700 million in 2007.

According to info on the company’s site, it has “300,000 active global buyers and sellers and more than 11 billion daily transactions.”

Also part of the possible package is APT, a system Yahoo has built to make buying and selling online advertising easier. In addition, Yahoo’s technologies for display-ad serving have been mentioned as a possibility for sale.

It’s unclear what the potential sale means for the new ad strategy that U.S. boss Ross Levinsohn and his lieutenant Jim Heckman have been pursuing since last summer. That plan included its own acquisition of ad network Interclick and an attempt to sync up with rivals AOL and Microsoft in an effort to fend off Google and some third-party players, like ad networks.

But the reason for contemplating much a major move — which has been considered before, but never has been seriously offered — are obvious: While Yahoo once dominated this arena, it has steadily lost ground, especially to Google. The search giant has made almost all of its money in search-related ads, but has been moving aggressively via its DoubleClick and other ad-serving entities into higher-level ads.

Microsoft has also been trying to compete, as has AOL, but it’s getting to be an expensive race, and one where Yahoo would have to make major investments to once again gain momentum. Building up this business again had been the aim of co-founder Jerry Yang, who wanted to go big in the arena in a number of ways before he left the company earlier this year.

But those days seem to be over at Yahoo.

“A lot of what has happened so far under Scott [Thompson] has been trying to find more revenue anywhere it can be generated, and get out of businesses that are not growing,” said one person. “Right now, it’s a lot about what we shouldn’t do rather than what we should.”

That has meant visits to see both Google and Microsoft about possible deals by Thompson, with the involvement of CFO Tim Morse and Chief Product Officer Blake Irving.

Thompson (pictured here) has also recently been talking to Silver Lake about the ad-platform sale, in a deal that might include the Andreessen Horowitz venture fund. This would be a different kind of transaction, said sources, in which a separate company would be formed, with Yahoo owning a piece and contracting with the new entity to provide ad technology.

All this activity is related to the layoffs in the works of perhaps thousands of employees, which were to have been communicated to the company this week.

Sources said those have been delayed for some weeks for several reasons, including whether to consider more deeply if certain larger business units can be spun off, sold or somehow transformed. (To be clear: Major layoffs are still being planned, but now might take place in two parts, said sources, in what is a quickly changing and volatile atmosphere at Yahoo.)

Another area being looked at, said sources, is Yahoo’s search advertising partnership with Microsoft, which has not been as successful as had been expected. While Yahoo has been working with the software giant about improving the results, Thompson has apparently been contemplating other possibilities, including working with Google (calling all regulators!) and/or laying off up to 900 employees who work on the company’s search offering.

Any of these moves could, of course, cause a firestorm of controversy, which Thompson appears to not worry much about. He was the driving force in Yahoo’s patent lawsuit against Facebook earlier this week, which is largely attracting a negative reaction across the tech landscape.

A number of prominent voices have spoken out against the legal action, including well-known VC Fred Wilson, who yesterday penned a poisonous blog post, titled “Yahoo Crosses the Line.”

It ends thusly: “I am not writing this in defense of Facebook. They can and will defend themselves. I am writing this in outrage at Yahoo! I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now.”

Ouch!

Also weighing in publicly via Twitter was former Yahoo director Eric Hippeau, who was one of the company’s first investors, which is embedded below:

Pathetic and heartbreaking last stand for Yahoo bit.ly/yirCcj It’s all over. I loved you very much.

— Eric Hippeau (@erichippeau) March 13, 2012

Double ouch!

All I can say is that Thompson certainly has a lot of gumption. That has actually been his M.O. from the start, said several sources, with the former president of eBay’s PayPal payments unit and dark horse cold-emailing his way into the Yahoo CEO job.

True story: He had not been among its list of possible candidates — largely because he had been placed in his job at eBay many moons ago by Heidrick & Struggles, which was conducting the Yahoo CEO search, and that’s a talent acquisition no-no to poach someone you placed.

That did not stop Thompson, who thought he might be good for the job and reached out directly to board members at the end of the selection effort, which then led to the search committee and soon enough to the job in what was a very quick vetting and secretive (although not secretive enough!) hiring process.

Since then, Thompson has been on a tear, from working on a restructuring to trying to assuage activist shareholder Dan Loeb to helping put the kibosh on its Asian stake sale talks to suing Facebook. And now this sale effort, too.

If the peripatetic Thompson — who might need a dose of Ritalin before this thing is over — wanted to get noticed by the tech powers that be: Mission accomplished!

“He’s definitely someone who appears to have decided on shooting the moon with a lot of these actions,” said one person close to the situation, referring to the move in the card game of Hearts, which is a risky gambit to capture every penalty card worth 26 points in order to win. “I just hope no one loses an eye in the process.”

(That would be triple ouch, by the way.)

No comments all around, but everyone was certainly cordial on this rainy morning.

(c) Tim Vetter / Flickr

This last weekend, Foursquare founder Naveen Selvadurai announced in a blog post that he was leaving the company, three years after launching the check-in service with Dennis Crowley. In a terse note, Sevaldurai wrote that he would remain on the company’s board and as an adviser, as well as the “single most vocal user” of the popular check-in service.

But, he added, “spring is time for things that are new, and i realize that i have a desire to do something new as well. i’m not sure about my exact next steps.”

Spring forward indeed, because — according to numerous sources inside and outside the company — the impetus for Selvadurai’s departure was a lot more complex and fraught than he or the company indicated.

To be fair, this is not uncommon for start-ups at all. Twitter went through the mother of all contentious partings — twice, in fact — in an ongoing battle among its founders. Tech is rife with similar examples, most often of lesser drama.

And it is much the same with Selvadurai and Crowley, who had together become New York’s highest profile entrepreneurs in recent years. The pair cut a wide swatch of fame, including doing commercials together (see video below).

But times change and sources said that they had come to the conclusion over a series of talks over the last several months that there was no place for Selvadurai any longer at the fast-growing start-up.

“This company grew very quickly and a lot of senior management has been added,” said one person with knowledge of the situation. “It got to the point where Naveen was not in charge of much.”

Indeed, since Foursquare began adding execs — I have a list below — he had become ever more sidelined, ending up with a small team focused on platform efforts and supporting APIs.

“Naveen was no longer heading any meaningful area of functional responsibility, so things got tense,” said another source.

Still, according to several people familiar with the situation — unlike the highly charged parting that took place at Twitter — the departure was not ugly or closely related to either a recent stock sale by employees or its most recent funding in June that valued Foursquare at $600 million.

“Dennis and he don’t hate each other — things just changed,” said one person.

Said another source: “When you look at all the external stuff, Naveen’s leaving was really not tied to anything in particular. The business was really starting to mature … and there is eventually a line in the sand between building a product and building a company.”

Indeed, rather than a scrappy start-up, Foursquare now has 111 employees, up from 50 last year, and has moved into a new phase of trying to evolve from simply being a check-in service.

As that was happening, said multiple sources, the discussions about roles at the company became more pronounced.

“The way this company has been structured, the talks centered on how to contribute to a company and Naveen and Dennis agreed that there was not a place for him day to day,” said one person. “But that does not mean he still will not be contributing to the future of Foursquare in a different way.”

The pair both emailed Foursquare’s staff about the change, although Crowley’s public goodbye on Twitter was short and, yes, sweet:

After 3 yrs, my @foursquare co-founder is moving onto new projects & big ideas. Can’t wait to see what’s next @naveen! naveenium.com/stream/next

— Dennis Crowley (@dens) March 5, 2012

Like I said: Things change.

Here’s the current Foursquare management team:

Dennis Crowley, CEO & co-founder
Evan Cohen, COO (joined January 2010)
Holger Luedorf, head of business development (joined summer 2010)
Alex Rainert, head of product (joined April 2010)
Harry Heymann, head of engineering (joined summer 2009)
Susan Loh, head of talent (joined fall of 2010)
Jon Steinback, director of marketing and communications (joined fall of 2010)

And here are some of the latest stats from the service:

* Over 15 million users (up from just over five million this time last year).

* Over 1.5 billion check-ins.

* Five million check-ins per day.

* Over 750,000 businesses affiliated.

And here’s the video that Foursquare’s co-founders did together for USA Network last year:

Image: (c) Tim Vetter / Flickr

PeopleMatter said it has raised $14 million in a Series C funding, which was led by Morgenthaler Ventures.

The Charleston, S.C.-based software company, which focuses on hourly workers, said the new investment will be used for product innovation and customer-acquisition strategies.

Existing investors Noro-Moseley Partners, C&B Capital, Intersouth Partners and Harbert Ventures also participated in the round. PeopleMatter had previously raised $14.4 million, which brings its total funding to just over $28 million.

PeopleMatter competes with other online talent management firms, such as SuccessFactors, Taleo and Rypple, although those focus on career professionals. In contrast, PeopleMatter is aimed at service-industry workers, including food service, convenience store, hospitality and retail verticals.

The company’s offering allows organizations to manage applicant tracking, hiring, onboarding, training and scheduling processes. It is also launching a smartphone app this week that workers can use.

Given the events of the past 18 months or so — two new CEOs, a brief flirtation with a significant spinoff, the failure and then marginalization of an important consumer product and an unpopular and expensive acquisition — it’s probably no surprise that morale among employees at Hewlett-Packard has dropped significantly in recent months.

But now, many employees in HP’s mid-tier management ranks have something new to grumble about. Some 700 to 900 HP employees who have been participants in a three-year-old HP stock bonus plan learned right before the holidays that they would not be receiving the payout of shares they expected.

The program concerns what HP refers to as PRUs, or Performance-based Restricted Units, and is described in detail in HP’s 10-K and proxy filings with the Securities and Exchange Commission. It was created both as a performance-based bonus and also as a retention plan for certain HP management-level employees at the vice president level and higher.

In a Dec. 12 internal HP email obtained by AllThingsD, employees participating in the program were told that they wouldn’t be receiving a payout for 2011, and that shares accrued during HP’s fiscal years 2010 and 2009 would also be lost.

To explain:

Under the terms of the program, employees received grants representing hypothetical shares of HP stock that were to have been paid out at the end of the three-year period ending Oct. 31, 2011. Had HP met the stated cash flow and shareholder return goals, the shares would have been paid out to employees sometime in December.

Instead, employees were told that they would receive no payout from the PRU program at all, not for 2011, nor for 2010 or 2009.

This is, of course, exactly how the PRU program was to work: With HP’s goals not met, there was no payout to give. And while other equity-based bonuses and grant programs remain in force, for employees in the mid-level ranks — not those in the senior ranks already earning half-million-dollar salaries or more — PRUs represented an important benefit.

It’s not clear exactly how much HP would have been required to pay had the company met the PRU program’s requirements. The company’s most recent 10-K filing said that it had “$82 million of unrecognized pre-tax stock-based compensation expense related to PRUs with an assigned fair value,” but now that the payout has been canceled entirely, it no longer has to account for that amount, nor for any previous year’s PRUs.

Whatever the total amount involved, affected employees who stood to receive PRUs are seething about how and when they were told they wouldn’t be receiving them.

The email, delivered to certain managers on Dec. 12, contained instructions on talking with subordinates about their annual performance review and the rewards they could expect. The subject line was: “Deliver the One conversation.”

It reads, in part:

Managers with FY09 Performance-based Restrictued Unit (PRU) Award Holders

We have the final performance results for the FY09 Performance-based Restricted Unit award, which was based on HP’s performance from FY09-FY11. As you will recall, the performance metrics for the FY09 PRUs were:

1. HP’s annual cash flow from operations as a percentage of revenue for each of FY09, FY10 and FY11, and

2. HP’s Total Shareholder Return (TSR) for the FY09-FY11 period relative to the S&P 500

As a result of the change in HP’s stock price over the three-year period, the TSR requirements were not achieved, and no shares will be released from the FY09 PRU award.

Of course, we are very disappointed that there is no payout this year from this program, and you have specific management actions to communicate the final disposition of this grant for FY09 PRU award holders. The actions are:

– During the One Conversation, you will also need to address the outcome of the FY09-11 PRUs with employees on your team who are FY09 PRU Award Holders

– Please review the FY09 PRU Talking Points and PRU FAQs [Here the email contains links to internal HP documents I have not seen. -Ed] to prepare to have this discussion with your affected employees, who are listed below: [Here the printed copy of the email I received has several listed names blacked out.]

For any other questions about FPR, please ask Contact HR.

Regards,
Evan Wittenberg, VP, Global Talent

Stan Dunlap, VP, Global Rewards

And here’s some more detail about how the PRU program worked, taken from HP’s 10-K and proxy filings:

HP employees who participated in the PRU plan could track the accrued amounts of their PRUs on a Merrill Lynch Web site. I talked to two sources, both of whom had accrued PRUs worth between $100,000 and $200,000 for fiscal 2009 and 2010. Other less senior employees who received PRUs would have accrued between $20,000 and $50,000 in their accounts.

One source told me that as rumors began to circulate that PRUs would not be paid for 2011, most people assumed that the accrued amounts for 2009 and 2010 would still be paid. How wrong that assumption was became apparent on Monday, Dec. 11, as the amounts in their Merrill Lynch PRU accounts plummeted to zero. As recently as Dec. 9, the prior Friday, the value of the accrued PRUs for 2009 and 2010 were still displayed.

HP CEO Meg Whitman discussed the decision not to pay out PRUs in a conference call with HP’s top 900 executives days later. According to people who were on the conference call, Whitman primarily blamed the economy.

Despite the fact that HP followed the PRU program’s provisions correctly, affected employees are grumbling that management has “crossed a line.” As one source put it to me, revealing the decision during the weeks leading up to Christmas was “unconscionable.”

“If they will cross this line now, there’s no line they won’t cross later,” said one source, a current HP employee who asked not to be named. “They could have played straight with us and told us this was coming months ago. The way they’ve done this is not in keeping with the HP way.”

The decision is hurting morale at a time when HP needs to hold on to its people. One source, who left HP recently for another company, says he is routinely being peppered with resumes from HP employees looking to jump ship.

Update: An HP spokesman says of the PRU program that compensation is tied to performance and the 2011 fiscal year wasn’t a good one for HP. Still other bonus programs did pay out. “High-performing employees were still eligible for salary, stock and bonus awards that year.”

As to the timing of the decision, he said since HP’s fiscal year ends on Oct. 31, it’s natural that compensation decisions fall in December. “That’s the time every year that we do raises and award bonuses. That is when these things are announced.”

Of course, many of the affected employees are blaming HP’s prior generation of management for not meeting results, as well as its board of directors. HP shares fell considerably during the 11-month period that Léo Apotheker was CEO, and it was on his watch that the company shook the confidence of investors, as it missed quarterly earnings targets three times in a row.

This probably won’t make them feel any better, but Apotheker is affected by the loss of PRUs, too: Under terms of his separation agreement, Apotheker was to have received 424,000 PRUs which on paper would be worth $12 million and change, given Monday’s share price. But according to his contract on file with the SEC, his PRU grants were made under the same rules as those made to other employees. That means they’re gone, just like those of other affected HP employees.

It is now the new year, and you are faced with the rather undesirable task of hiring a new VP. Upon reflection, you realize that the SpiderNet hiring process failed. Given the issues (laziness, lack of leadership ability) surrounding the VP you just fired, you realize that your process (or lack thereof) did not properly vet prospective job candidates.

So before you move on to hiring again, you take an inventory of the current process in order to better understand how to correct things in the future. Here’s what you find:

1. You identified the requirements of the position and developed a comprehensive job specification on your own. Since the position reported to you, you did not see the need to ask for other input.
2. You hired a search firm and saw a number of good candidates. You felt that the candidate pool was adequate, but not exceptional.
3. The interview meetings were always with you, your co-founder and one or two other people from the executive team. Everyone exchanged emails on the candidates after their meetings.
4. The search firm did the bulk of the reference checks, which significantly helped your schedule and time.

What mistakes do you think you made and how can you better go about interviewing future candidates?

I have often considered the ability to hire great people as being analogous to a batting average in baseball. A player who hits .300 is near the top of their game. While I have certainly had a much better than 30 percent success rate in my hiring overall, I’m not sure that I’ve topped 30 percent for truly exceptional hires. Hiring phenomenal employees, like hitting in baseball, is difficult. I must admit that only recently did I come to realize that there is a set of steps that a company can follow that will significantly increase the hit rate.

With respect to the SpiderNet situation, there were several mistakes made with the current process. First, there was no input from either the board or the other executives on the job specifications. It is particularly important to gain agreement on the position and have the interviewing team help develop the requirements. Second, there wasn’t a defined interview team and the results of the interviews felt a bit ad hoc. Having a defined interview team should be part of the process. Finally, the CEO left reference checking to the search firm, which was a huge error in judgment, and probably the biggest mistake of the entire process.

I took the liberty of asking Jeff Stump, our partner responsible for Executive Talent at Andreessen Horowitz, and he outlined the following steps that should be taken when hiring an executive:

1. Develop the candidate profile and expected qualifications
2. Lay out the compensation framework
3. Craft a set of questions to be used in the interview process
4. Identify your interview and recruiting methodology
5. Perform reference checks

Let’s look at each of these in more detail.

Candidate Profile and Qualifications: There should be a universal understanding of what the profile is and why the company is looking for this new hire. What is the charter of this hire over the next six months to one year? What does the company/hiring manager expect this person to deliver during this timeframe and what does success look like for this hire one year out?

The focus in this phase should be on developing a set of non-negotiable attributes as input to the interview process. Make sure to include input from anyone who is going to have a say in the interview process, including the Board and the management team. There does not need to be universal alignment, but this process will help identify any differences of opinion that can be addressed up front. This first step will drive consistency in the interview process and candidates will take notice.

Compensation and Reporting Framework: Determine the title, reporting structure and compensation of the position. Not doing this up front can often lead to misalignment late in the recruiting process.

Interview Questions: Once the profile and qualifications have been identified and agreed upon, develop a set of questions that are going to be used in the interview process. These can also be used by the search firm to screen candidates. Questions should be crafted to gauge motivation, fit and expectation.

During this phase, the hiring manager also should identify the interviewing team and start the selection of a search firm. In most cases, the company’s internal network will not be sufficient to identify the absolute best candidate and a search firm is recommended. There are exceptions to this, but in most cases, thinking that the company has enough contacts often results in a substantial delay.

Interview and Recruiting Methodology: High-level items to consider:

• Decide on the appropriate team members to be involved in the search process.
• Determine who is running point on the management team. Tasks may include interview coordination, candidate follow-up, feedback collection, reference coordination, compensation, negotiation, etc.
• Who from the board of directors will be involved?
• Define the sequence of interviews and meetings. Who needs to meet when and what is the strategy/objective during a first round vs. a second round of interviews? I also recommend spending a great deal of the first meeting on determining “fit.” Can you work with this person? Nothing else matters if you can’t check this box.
• Have the team interview for different attributes to create a better experience for the candidate and to avoid overlapping questions in the interview process.
• Define the feedback loop: What info gets captured and recorded and how/when is it shared?

Reference Checking: One of the most important — and overlooked — parts of the recruiting process is reference checking. When you make an offer to a candidate, you should feel as though you really know the person, warts and all. Reference checking is the best way to really understand what a candidate is like to work with.

Often your search firm will offer to do reference checks. While it is fine for them to do some investigation, do not leave all of it to them. You need to do a large part of the reference checking yourself. Compare notes with the search firm but handing it off to someone else is a huge mistake.

In general, you should do between 10 to 15 reference checks and they should have a 360-degree approach (i.e., 1/3 bosses, 1/3 peers, 1/3 subordinates). At least one-third of these queries should be backchannel references.

Finally, when you have settled on the final two candidates, you should have the finalists come in to present a 100-day plan with your executive team at your staff meeting. This will give you a very good sense of how the person responds to an assignment and the nature of their work.

Hiring takes planning and time, and the process is often ad hoc or simply non-existent. Don’t make hiring a batting average. Take the time, develop a clear process, and you will see much better results in your overall hit rate.

Peter Levine has been a lecturer at both MIT and Stanford business schools and CEO of Xensource. Prior to Xensource, Peter was EVP of Strategic and Platform Operations at Veritas Software where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

When you base your life on credit
and your loving days are done
checks you signed with love and kisses
later come back signed insufficient funds.
– Funkadelic

Thanks to Ward Cunningham, the metaphor “technical debt” is now a well-understood concept. While you may be able to borrow time by writing quick and dirty code, you will eventually have to pay it back — with interest. Often this trade-off makes sense, but you will run into serious trouble if you fail to keep the trade-off in the front of your mind.

There also exists a less well-understood parallel concept, which I will call management debt.

Like technical debt, management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence. Also like technical debt, the trade-off sometimes makes sense, but often does not. More importantly, if you incur the management debt without accounting for it, then you will eventually go management bankrupt.

Like technical debt, management debt comes in too many different forms to elaborate entirely, but a few salient examples will help explain the concept. For this post, I chose three of the more popular types among start-ups:

• Putting two in the box
• Overcompensating a key employee because she gets another job offer
• No performance management or employee feedback process

Putting two in the box
What do you do when you have two outstanding employees who logically both fit in the exact same place on the organizational chart? Perhaps you have a world-class architect who is running engineering, but she does not have the experience to scale the organization to the next level. You also have an outstanding operational person who is not great technically. You want to keep both in the company, but you only have one position. So, you get the bright idea to put “two in the box” and take on a little management debt. The short-term benefits are clear: a) you keep both employees, b) you don’t have to develop either because they will theoretically help each other develop and c) you instantly close the skill set gap. Unfortunately, you will pay for those benefits at a very high rate of interest.

For starters, by doing this you will make every engineer’s job more difficult. If an engineer needs a decision made, which boss should she go to? If that boss decides, will the other boss be able to override it? If it’s a complex decision that requires a meeting, does she have to schedule both heads of engineering for the meeting? Who sets the direction for the organization? Will the direction actually get set if doing so requires a series of meetings?

In addition, you have removed all accountability. If schedules slip, who is accountable? If engineering throughput becomes uncompetitive, who is responsible? If the operational head is responsible for the schedule slip and the technical head is responsible for throughput, what happens if the operational head thrashes the engineers to make the schedule and kills throughput? How would you know that she did that? The really expensive part about both of these things is that they tend to get worse over time. In the very short term, you might mitigate these effects with extra meetings or by attempting to carve up the job in a clear way. However, as things get busy the mitigation will fade and the organization will degenerate. Eventually, you’ll either make a lump sum payment by making the hard decision and putting one in the box or your engineering organization will suck forever.

Overcompensating a key employee because she gets another job offer
An excellent engineer decides to leave the company because she gets a better offer. For various reasons, you were undercompensating her, but the offer from the other company pays more than any engineer in your company, and the employee in question is not your best engineer. Still, she is working on a critical project and you cannot afford to lose her. So you match the offer. You save the project, but you pile on the debt.

Here’s how the payment will come due. You probably think that your counteroffer was confidential because you’d sworn her to secrecy. Let me explain why it was not. She has friends in the company. When she got the offer from the other company, she consulted with her friends. One of her best friends advised her to take the offer. When she decided to stay, she had to explain to him why she disregarded his advice or lose personal credibility. So she told him and swore him to secrecy. He agreed to honor the secret, but was incensed that she had to threaten to quit in order to get a proper raise. Furthermore, he was furious that you overcompensated her. So, he told the story, but kept her name confidential to preserve the secret. And now everyone in engineering knows that the best way to get a raise is to generate an offer from another company then threaten to quit. It’s going to take awhile to pay off that debt.

No performance management or employee feedback process
Your company is now 25 people and you know that you should formalize the performance management process, but you don’t want to pay the price. You worry that doing so will make it feel like a “big company.” Plus, you do not want your employees to be offended by the feedback, because you can’t afford to lose anyone right now. And people are happy, so why rock the boat? Why not take on a little management debt?

The first noticeable payments will be due when somebody performs below expectations:

CEO: “He was good when we hired him, what happened?”
Manager: “He’s not doing the things that we need him to do.”
CEO: “Did we clearly tell him that?”
Manager: “Maybe not clearly …”

However, the larger payment will be a silent tax. Companies execute well when everybody is on the same page and everybody is constantly improving. In a vacuum of feedback, there is almost no chance that your company will perform optimally across either dimension. Directions with no corrections will seem fuzzy and obtuse. People rarely improve weaknesses that they are unaware of. The ultimate price you will pay for not giving feedback: systematically crappy company performance.

In the end
Every really good, really experienced CEO I know shares one important characteristic: they tend to opt for the hard answer to organizational issues. Faced with giving everyone the same bonus to make things easy or sharply rewarding performance and ruffling many feathers, they’ll ruffle the feathers. Given the choice of cutting a popular project today because it’s not in the long-term plans or keeping it around for morale purposes and to appear consistent, they’ll cut it today. Why? Because they’ve paid the price of management debt and they would rather not do it again.

Special thanks to my friend Joanne Bradford who came up with the idea for this post and coined the term “management debt.”