Wednesday, June 13, 2007
Yahoo Shareholders Narrowly Back Board
By Riva Richmond
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Shareholders in Yahoo Inc. (YHOO) voted in favor of the Internet company's slate of directors. But with some board members winning approval with as low as 66% of the vote, it appeared that recent calls to rebuke members who were responsible for approving generous pay packages for Yahoo executives resonated with shareholders.
Last year, each of Yahoo's directors were approved with roughly 97% or greater of shareholder votes, according to a company filing. In general, approval rates of 95% or higher are common, and a withhold rate of more than 20% is considered high. As such, approvals with only two-thirds of the vote could be considered a victory for shareholder activists who have condemned high executive pay at the company.
Ahead of the company's annual meeting, three advisory firms recommended shareholders withhold their votes from three company directors that comprise Yahoo's compensation committee - Roy Bostock, a veteran advertising executive; Ron Burkle, a billionaire best known for his investments in supermarkets; and Arthur Kern, a former radio broadcast executive - due to concerns about excessive compensation for Chief Executive Terry Semel.
The results may also have been influenced by shareholder activist Eric Jackson of Naples, Fla., a small investor who has mounted an online campaign to push for a new strategy at the company as well as the ouster of Semel and the majority of the company's directors. Jackson has said he gathered the support of investors who own about 2 million Yahoo shares, or less than 1% of its outstanding stock, for a "Plan B" for the company.
The meeting included a charged exchange between Semel and Jackson during its final question-and-answer period during which Jackson said he was "surprised" that Semel didn't apologize to shareholders for the company's poor performance and asked how the company would better compete with Google. Semel at one point charged Jackson with being "cute" during a followup question, but then backed off and thanked the owner of 96 Yahoo shares for his "constructive" questions.
Semel defended Yahoo's ad business as a strong one, diversified in both search and display markets that is well-positioned to take advantage of an expanding ad market. He said Yahoo's results in search will improve, thanks to its Panama system overhaul, and that Panama's capabilities will be expanded beyond search advertising. Semel also said the company began "another large project" a number of months ago to create a platform for serving newspapers and others that will have capabilities that go beyond online advertising.
Shareholder discontent has been building as Yahoo's growth has slowed, share price has lagged and position at the center of the Internet has been eclipsed by rival Google Inc. (GOOG). Yahoo's stock has fallen 10% from a year ago, while Google's stock is up more than 30%.
The lackluster performance has fueled complaints about Semel's outsized pay package, which at a value of $71.7 million last year made him the highest-paid CEO among Standard & Poor's 500 companies that have filed with regulators this year, according to an Associated Press analysis.
As part of a three-year arrangement, Semel's salary dropped to $1 in May 2006 from $600,000 previously. He was also awarded stock-option grants (priced at the market value of Yahoo shares when granted) on 6.8 million shares as part of his 2006 bonus and the three-year retention pact. Yahoo says the package ensures that "substantially all" of Semel's compensation is tied to the company's performance.
Meanwhile, investors defeated a shareholder proposal calling for executive pay based on performance, including payouts occurring only when performance exceeds that of peers in its industry. Though the proposal failed, it received a fairly high approval level of 35% of the vote.
Yahoo investors also voted on two shareholder proposals that stem from Yahoo's disclosure of information to the Chinese government that helped lead to the imprisonment of at least one dissident, defeating both.
A proposal calling for the creation of a board committee on human rights was defeated by 81% of the vote, while another calling for new company policies related to censoring and disclosing information at a government's request was defeated by 71% of the vote. Yahoo's board recommended that shareholders vote against the proposals, saying the company is already taking measures to address such issues.
A shareholder, claiming 100 Yahoo shares, read what he said was a message from Gao Qingsheng, the mother of jailed Chinese journalist Shi Tao, who is suing Yahoo for helping Chinese officials jail her son. Shi was sentenced to 10 years in prison in 2005 after sending an email about Chinese media restrictions using Yahoo's email service.
"My son's career has been destroyed and his health is deteriorating in prison," Gao wrote. "How many more families are suffering the same miserable life I have now?"
Yahoo founder Jerry Yang addressed the meeting with a lengthy accounting of Yahoo's efforts around protecting freedom of expression, including seeking the help of the U.S. government, expressing its concerns to China, and working with academics and human-rights groups on an industry code of conduct, which he said could be completed by the end of this year.
"We remain deeply concerned about governments that imprison their own citizens," Yang said. "Yahoo condemns these actions."
He also said Yahoo has a team of people who now do formal human-rights assessments of company initiatives and come up with strategies to limit risks to free expression. In China, it also now notifies users that certain search terms may be screened and that email content is subject to Chinese law.
Yet Yang repeated Yahoo's assertions that Yahoo must abide by the laws of countries it operates in, such as China, and that, on balance, its role in countries that restrict freedom of expression is constructive.
Yahoo, he said, "can have a transformative effect" on these societies by providing access to information that hasn't been available before and improves people's lives.
Yahoo shares closed Tuesday's regular session down 30 cents, or 1.1%, at $27.05.
-By Riva Richmond, Dow Jones Newswires