GEB 1011 Management Case Study Marissa Mayer, former Vice President of Google Product Search, left the company in 2012 to become the CEO of Yahoo! At that t

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GEB 1011 Management Case Study

Yahoo! CEO Marissa Mayer Is under Pressure to Make Big

Changes

Marissa Mayer, former Vice President of Google Product Search, left the company in 2012 to

become the CEO of Yahoo! At that time, the stock sold for $15.74. It sold for $29.77 in January

2016, reaching a high of $52.28 in 2014. Interestingly, investors are not happy with this rate of

growth. Some feel that the company’s strategies are lacking and that new leadership is needed.

Hedge fund investor Starboard Value LP demanded that the board fire Mayer.

Mayer was hired to help turnaround the company’s floundering business model. She

immediately put in place strategies to grow via acquisitions. For example, Yahoo! paid $1.1

billion for Tumblr, a micro blogging platform and social networking website. This acquisition

did not produce the expected growth in revenue. A letter from Canyon Capital Advisors to

Yahoo!’s board of directors stated that Yahoo! “has spent more than $3 billion on acquisitions,

which, based on the company’s stock price, have been getting ‘absolutely no (or negative) value’

from Wall Street.”

One of the poor decisions that has plagued Yahoo!’s financial performance was its reluctance to

transition its offerings to mobile devices. Another involved the company’s investment in

Livetext. This app allows users to chat with friends by sharing video and text, but no sound. One

writer described it this way: “You could awkwardly watch, but not talk, as you texted your loved

ones and friends.”

Several Yahoo! investors are calling for big changes because “Yahoo!’s 15 percent stake in

Chinese Web giant Alibaba, valued at $25.7 billion … , plus its $8 billion stake in Yahoo! Japan

and $5.9 billion in cash, well exceeds Yahoo!’s market cap of $27.5 billion. That implies a

negative value for Yahoo!’s core Internet businesses.” This has led Canyon Capital to

recommend that Yahoo! “prioritize a sale of its core business, a portion of its assets, or the entire

company.”Yahoo!’s leadership team is against these suggestions.

Yahoo!’s problems have led to layoffs and employee dissatisfaction and turnover. The company

has responded by providing a broad set of perks, including iPhones, parties, and free lunches.

The firm has a budget of $108,000,000 a year for free food.

“Employees’ faith in Ms. Mayer began crumbling in earnest in August 2014, when Yahoo!

embarked on a series of stealth layoffs, current and former insiders said. For months, managers

called in a handful of employees each week and fired them. No one knew who would be next,

and the constant fear paralyzed the company, according to people who watched the process.”

It is estimated that 33 percent of the work force left the company in 2015. “Worried about the

brain drain, Ms. Mayer has been approving hefty retention packages—in some cases, millions of

dollars—to persuade people to reject job offers from other companies. But those bonuses have

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had the side effects of creating resentment among other Yahoo! employees who have stayed

loyal and not sought jobs elsewhere.”

Sadly, employee morale does not appear to be improving. Surveys conducted by Glassdoor

revealed that “only 34 percent of Yahoo!’s current employees foresee the company’s fortunes

improving. That compares to 61 percent at tanking, scandal-struck Twitter and 77 percent at

Google.”

According to one business writer, “Mayer’s protracted deliberations over a corporate

reorganization last year [2015] that led to the departure of several key lieutenants and broke up

the much-ballyhooed mobile team, prompting many mobile engineers to seek other jobs” also

contributed to employees’ dissatisfaction.

Another potential problem involves Mayer’s compensation package. “Executive pay at Yahoo! is

essentially based on Alibaba’s stock price,” which is outside of her control. “Of Mayer’s $365

million pay over five years, only 3.3 percent will actually be affected by her performances. “This

practice is against the common managerial practice of paying people for their performance.

So where does this leave Mayer and Yahoo! as a whole? Some employees, like Jeff Bonforte,

Yahoo!’s senior vice president for communications products, love Mayer and the company.

Mayer is the best boss he ever had, according to Bonforte. Broadly speaking, however, there are

continued threats of more layoffs and calls to sell off parts of the company.

Yahoo! announced in February 2016 that it would lay off about 15% of its workforce. The Wall

Street Journal further reported that “Yahoo’s next step may be to initiate a formal sale process,

which entails setting up a virtual data room detailing the company’s business metrics, and

proactively reaching out to the most likely potential buyers. Or the board could choose to wait

until a suitor approaches them with an offer, at which point it would weight that against any

counteroffers. … A sale process would also likely mark the end of Chief Executive Marissa

Mayer’s attempt to turn around Yahoo.”

To make matters worse, investor “SpringOwl Asset Management called for firing as many as

9,000 of Yahoo!’s workers, who numbered 11,000” in June 2015.

Although key investors are waiting to hear the details of Mayer’s turnaround plan, some are very

unhappy with the company’s strategic direction. They are demanding changes. Jeffrey Smith

from Starboard Value L/P, for example, concluded that “dramatically different thinking is

required,” and that changes are needed “across all aspects of the business starting at the board

level, and including executive leadership.”

Questions to answer and include in your case analysis

1. What are the key problems facing Yahoo!?

2. Which of the four principal management functions seem to be causing the problems faced

by Yahoo!? Explain your rationale.

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3. Which of the seven managerial challenges discussed in this chapter is Yahoo! facing?

How is the company handling these challenges?

4. What is your evaluation of Mayer’s ability to effectively execute the three key

managerial roles—interpersonal, informational, and decisional? Explain.

5. If you were a consultant to Yahoo!, what advice would you give to senior management

about handling the crisis being faced by the company? Discuss.