When revenue is down, basic business strategy usually dictates aggressive cutting of costs and unprofitable business segments. All expenditures and efforts should focus on driving revenue in traditionally successful segments. Mayer, on the other hand, invested money in unproven pet projects and increasing spending, even after she agreed with outspoken investors for reductions.
Activist investor and CEO of Starboard Value Jeffery Smith met with Mayer to discuss plunging revenue and increased costs. Smith has a history of forcing board replacements when executives do not perform, presumably something Mayer hoped to avoid.
Smith urged Mayer to give billions of dollars back to shareholders, spin off Chinese Alibaba Group Holdings, and cut costs by more than 10 percent. In return for meeting these demands, Smith agreed to hold off on three proposed board nominations, according to The Wall Street Journal. Because Smith’s holdings were below the requirement to publicly disclose their meetings, this agreement only recently became public knowledge.
In the meantime, Yahoo’s spending continued to increase, and revenue continued to sink. Executives, lacking faith in Mayer and in the company’s direction, jumped ship in a steady stream despite her pleas for them to agree to a three-year turnaround commitment. Mayer’s authorization to purchase Polyvore at $111 million more than its valuation plus an additional $15 million for stock added to the lack of confidence, and caused investors and the board to take action.
In February, Yahoo’s board announced it would seek out alternatives, and quietly put out feelers for buyers. By March, Mayer scrambled to appease the board and investors by cutting the Yahoo workforce by 15 percent. This represented a potential $400 million per year in savings, but was too little too late for Mayer. By all accounts, the company will sell and final bids are expected in July.
Either way, Mayer has already been compensated $118.2 million for her role in Yahoo’s demise. If fired, she stands to make an additional $55 million.
