The Limits of Shareholder Communication?

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Wednesday’s NACD Directors Daily featured an article from the Wall Street Journal examining the recent moves by a large Yahoo shareholder. Daniel Loeb has indicated his intention to launch a proxy fight to “shake up the board,” and with the potential of electing four new directors to Yahoo, Mr. Loeb has certainly, at the very least, agitated the board.

Loeb’s actions come after major changes at the company. Just last month, Jerry Yang, founder of Yahoo, resigned from the board and four other members announced that they would not seek reelection at the 2012 annual shareholder meeting. Despite this extensive overhaul of the boardroom, Loeb still does not trust the board’s judgment to replace the departing members.

Instead, the Yahoo investor paints a grim picture of the board and its future. In his filing with the Securities and Exchange Commission (SEC), Loeb points out that “installing the hand-picked choices of the current Board does nothing to allay investor fears that Yahoo is poised to repeat the errors of its past.” He also contends that the current members lack the “fresh perspective and necessary experience to overhaul the Company’s challenged organizational and operating structure.” 

Yahoo’s response to the proxy challenge was one of disappointment. Their press statement indicated that the board “proactively engaged in discussions with many of [their] largest shareholders, including Third Point (Daniel Loeb).” Despite their efforts, Loeb continues on a path the Yahoo board calls “potentially disruptive.”

As stated in our Blue Ribbon Commission Report on Board-Shareholder Communications, “more communication can enhance a board’s credibility and reputation in the eyes of shareholders.” This trustworthiness is precisely what Yahoo needs right now. The board needs to engage in a second round of shareholder outreach and dialogue detailing the company’s strategy, and how the current nominees for directorship enhance their plans.   

Resolution to this challenge is still months away. Communications with shareholders will take on new importance for both Yahoo and Loeb as the annual meeting approaches. Regardless of the outcome, big changes are ahead for Yahoo.


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