Responding to business challenges strategically: consideration of opportunities offered by leveraged recapitalization at Yahoo by creating an ownership group
Ethics and social responsibility: regardless of the fact that leveraged recapitalization could be advantageous for the company, the questions whether it is ethical for Mr. Yang who is one of Yahoo’s founders and a substantial shareholder of the company to combine multiple roles and influence the decision making process.
Entrepreneurship in action: a giant software company Microsoft Corporation offered more than $ 45 billion to buy the company in 2008, but Yang rejected this offer. Other buyers hesitate about buying Yahoo because they are uncertain about the future actions and position of Yang.
Mr. Yang who is one of the cofounders of Yahoo and a substantial shareholder of the company at the same time was asked to resign from the company’s board of directors. The actions of Mr. Yang created a conflict of interest because of his multiple roles in the Internet company. According to recent reports, Yang made attempts to take a controlling stake with other buyers at Yahoo though as one of directors he will vote whether to accept offers of other potential buyers.
A Yahoo spokesman commented on this situation, admitting that Yang is one of 9 directors, and he, as well as the rest of his fellow directors, acts in the best interests of all shareholders.
The multiple roles of Yang, including those of his position in the board of directors, a substantial shareholder and a position of the so-called “Chief Yahoo” make the interested parties hesitate whether Yang can act for the best of all shareholders and neglect his own desire of keeping Yahoo independent. The job of Chief Yahoo is ill-defined and gives rise to doubts concerning the responsibilities and power of Yang inside Yahoo.
Another option which was considered by Yahoo was to create an ownership group consisting of Filo and Yang who founded this Internet company 16 years ago (Das, Chon and Efrati, At Yahoo, Yang’s Dual Roles Are under Fire).
This option is referred to as leveraged recapitalization and would enable the company to buy back its stock, increasing its stake at the same time. Although people close to Yahoo state that there are no concerns expressed about Yang’s motivations by the board of directors, the potential buyers of the company hesitate about the role of Yang under different scenarios.
A Harvard professor Jay Lorsch admitted that the Yahoo’s governance would much clearer if Yang is not involved. The question whether Yang can be a disinterested director acting in the best interests of all shareholders remains rather doubtful. People close to Yahoo state that the involvement of Yang into the decision making process varied over the years, but he was always focused on selecting the right track for the company.
The multiple roles played by Yang as a cofounder, a substantial shareholder, one of directors and Chief Yahoo gave rise to discussion of his motivations when selecting the new business track for the company. The ethical concerns of being an interested party and acting in the best interests of all shareholders influence the opinion of the potential buyers. Though Yang always contributed to economical success of the company, because of the conflict of interest, he was offered to resign his position in the board of directors.
Das, Anupreeta, Gina Chon and Amir Efrati. “At Yahoo, Yang’s Dual Roles Are under Fire.” The Wall Street Journal 5 Nov. 2011. Web. 8 Nov. 2011