At the beginning of 2012, Yahoo installed PayPal’s Scott Thompson as its new CEO. The inauguration followed a lengthy CEO search after the company summarily fired the outspoken Carol Bartz. A few days after naming Thompson, Yahoo co-founder Jerry Yang walked away from the company, cutting all ties. The stage was set: Thompson was to bring his money-making savvy and decisiveness to Yahoo, re-invigorating the once-mighty Internet company — which still packs a big punch — and finally generating some income for shareholders who’ve been licking their wounds since Microsoft’s hostile takeover attempt back in 2008.
All that re-invigorating stuff hasn’t quite happened yet. Now, four months into Thompson’s tenure, Yahoo’s CEO is facing a major challenge from an unexpected quarter: it seems Thompson padded his resume, claiming academic credentials that he never earned. We’re not talking an honorary diploma or award received semi-recently that somehow got recorded incorrectly: it goes all the way back to Thompson’s undergraduate days.
Thompson can clearly walk the walk: he served as President of PayPal (and before that as senior VP and CTO). Before that, he was an executive VP and Inovant, and before that he was CIO at Barclay’s Global Investors. Thompson has been a respected (and highly visible) executive for many years. But does that matter in the face of, well, lying?
A little white lie?
The current turmoil stems from how Thompson’s academic background has been represented to investors, both on Yahoo’s corporate Web site as well as in regulatory filings to the SEC. Thompson’s biography at Yahoo claimed that he had a bachelor’s degree from the Boston-area Stonehill College in both accounting and computer science. Turns out, Thompson’s degree doesn’t include computer science. At first, Yahoo dismissed the discrepancy as an “inadvertent error,” but now says the company board will be taking it seriously and examining how the misrepresentation made it into Yahoo’s official documents. The company has not set any timelines for its examination.
American hedge fund manager Daniel Loeb has set a deadline: 12 noon on Monday, May 7. If you’re reading this, that’s already passed. Loeb wants Thompson fired for unethical conduct, and has threatened to launch a shareholder suit if Yahoo’s board doesn’t do exactly that. In a forceful public letter to the Yahoo board, Loeb noted: “Should our concerns about Mr. Thompson’s record be accurate, that would call into serious question whether the Board failed to exercise appropriate diligence and oversight in one of its most fundamental tasks — identifying and hiring the Chief Executive Officer.”
Loeb noted that Stonehill College didn’t offer computer science degrees until four years after Thompson graduated. While Thompson was enrolled there, the college only offered a single computer science class.
Loeb also questioned the educational background of Patti Hart, who headed up the search committee for Yahoo’s CEO. Hart claimed a bachelor’s degree in marketing and economics from Illinois State University; Loeb found the degree is instead in business administration. And the discrepancy in Thompson’s history should have turned up in Hart’s due diligence.
If it sounds like Loeb has an axe to grind — well, he does. Loeb’s Third Point investment group represents Yahoo’s largest external shareholder (it controls from six to eight percent of Yahoo, depending how you count). For several months, Loeb has been maneuvering to get a slate of four directors appointed to Yahoo’s board — including himself (naturally), former NBC chief Jeff Zucker, former MTV head Michael Wolf, and business turnaround expert Harry Wilson. Yahoo claims to have looked at more than 100 possible board candidates (including Third Point’s nominees) in its move to re-stack its group of directors with new blood, and the company has recently added five members to its board (not counting Thompson himself, who got a seat with the CEO chair). Amazingly, none of the new board members are Loeb or his nominees.
“Following completion of the full process, the committee and the board determined that the distinguished group of five candidates recently announced were the best choices,” Yahoo said last week.
One could easily argue that Loeb’s decision to light a fire under Thompson’s undergraduate education credentials is just sour grapes, and some industry watchers have indicated Loeb’s actions aren’t in Yahoo’s (or its shareholders’) best interests.
Should he go…?
It would be one thing if Thompson’s undergraduate credentials were somehow confused in Yahoo’s biographical materials on him — and only in Yahoo’s biographical materials about him. However, numerous reports and archive checks have found that Thompson had been offering the same misrepresentation about his undergraduate degree since at least 2002 — although, curiously, it never seemed to make it into regulatory filings from eBay, PayPal’s parent company, during Thompson’s tenure there.
What are the possible consequences? The fact that Yahoo included Thompson’s false educational background in its recent filings with the SEC technically could be a violation of criminal law — the last thing Yahoo needs is the Federal government coming after it on a probe of criminal misconduct. However, the general consensus is that the SEC is unlikely to pursue criminal charges in an instance like this — since, so far as anyone knows, the inaccuracy has no particular bearing on Yahoo’s financial and business position. Some legal analysts have noted that the SEC will likely watch how Yahoo responds to the issue; if the agency is not convinced the company is taking it seriously, they might consider civil charges.
Thompson’s padded résumé may be a much bigger problem within Yahoo itself. First, Loeb accurately points out that Yahoo’s own corporate code of ethics (PDF) mandates that all public disclosures — whether to the SEC or not — “must be full, fair, accurate, timely and understandable.” Loeb’s call for Thompson’s ouster has been joined by Ironfire Capital’s Eric Jackson, and other shareholders may get on board too.
Yahoo’s board faces a dilemma. If they keep Thompson on board, they’re essentially saying “Our CEO lied on his résumé, and we’re OK with that.” That position not only undermines the credibility of the entire board — which has generally been regarded as one of the least effective in the technology industry — but also undermines the reputation of the already-struggling Internet company. Yahoo’s image immediately changes from that of a company working to innovate its way back to the top of the Internet game to a company where dishonesty and gaming the system is literally rewarded at the highest levels. It would also likely provoke a shareholder suit from Loeb and his supporters, so the board will also have to weigh whether keeping Thompson on board is more valuable than the distraction, expense, and negative public relations surrounding a shareholder suit.
Keeping Thompson may have another negative consequence: irking employees. Contacts with several sources within Yahoo indicate the fracas over Thompson’s résumé wasn’t going over well in-house, with one source characterizing the situation as “frat boy stuff” that demeans Yahoo. Another source in one of Yahoo’s international groups didn’t hear about the controversy until Thompson sent out a company-wide email message on Friday, advising employees the Yahoo board will “make an appropriate disclosure to shareholders” once its review is complete. Her response: “If anyone on my team lied on their résumé, they’d be fired.” All Things Digital’s Kara Swisher has also noted Yahoo’s internal message boards are awash with discussion of Thompson’s credibility — and the uptake is not positive.
…or should he stay?
The flipside, of course, is that Thompson has been with Yahoo just four months, trying to fill a substantial leadership gap in the wake of Carol Bartz’s dismissal. If Yahoo were to kick Thompson to the curb, who could they reasonably expect would be willing to step into the CEO position. Thompson already had a very tough job cut out for him to revitalize the struggling company. If Thompson were dismissed, whoever follows him is going to have an even more difficult job: they’ll have to do everything Thompson set out to do, plus recover from aftermath of Thompson’s appointment. It could easily take Yahoo the better part of a year to persuade someone else to be CEO, during which time the company will be running on already-dwindling momentum.
During his brief time at Yahoo, Thompson has already signed off on a major restructuring of the company: Yahoo is axing 2,000 jobs, or about 14 percent of its work force, in an effort to reduce costs and tilt it books more towards the black. Thompson has also been at the helm as Yahoo launched a patent attack on Facebook, seeking unspecified damages. (Facebook fired right back.)
However, perhaps more significant to the board and investors, recent reports have Yahoo nearing a deal to sell some of its stake in China’s Alibaba Group. Yahoo has reportedly been struggling for months to find a way to manage an Alibaba asset sale in a way that wouldn’t incur any taxes, but recent reports in Reuters and elsewhere indicate Yahoo is now going for the expediency of a direct sale and paying tax on the gains. Thompson had hinted at the possibility in Yahoo’s first quarter conference calls with investors (saying Yahoo was exploring a “simplified transaction structure” for a portion of its Alibaba holdings). Alibaba’s Jack Ma has been trying to shake off Yahoo for years, but Carol Bartz wouldn’t budge. With Thompson (and the new board appointees) Yahoo seems to have finally accepted that they need to cash in on at least some of their Alibaba equity to turn the parent company around. Jettisoning a CEO in the midst of a high-stakes deal is not the best negotiating strategy.
But everyone pads their résumé!
Thompson isn’t the only high-profile corporate executive to have Photoshopped their credentials — the tech industry has been rife with examples. In 2009, it came out the the CEO of chipmaker Microsemi, James Peterson, had never earned his claimed bachelor’s and MBA degrees from Brigham Young University. In a development that might bode well for Scott Thompson, Peterson is still CEO of Microsemi, although he sacrificed his bonus and paid a $100,000 penalty.
Other instances haven’t worked out so rosey. Back in 2006 RadioShack’s CEO David Edmondson resigned after acknowledging he’d lied about earning a bachelor of science degree — he actually compounded the gaffe by saying he believed he’d received a less-rigorous degree, which nobody could document. Back in 2002, Veritas software accepted the resignation of CFO Kenneth Lonchar after learning his supposed MBA from Stanford was really a BA from Arizona State.
But my personal favorite tale of high-profile résumé tweaking is from 2004, when gun manufacturer Smith & Wesson appointed James Minder as its new chairman. Turned out, Minder had done at least a decade of hard time for a string of armed robberies in the 1950s and 60s — something he’d failed to mention to the company. Minder resigned from the chairmanship — but stayed on as an independent director.
Does it matter?
Many industry watchers concur that the value of a computer science degree earned (or not) in the early 1980s probably doesn’t have too much bearing on Thompson’s ability to serve as Yahoo’s CEO. His track record as an executive and corporate leader is well-established. Certainly very few people care deeply that his undergraduate degree is in accounting rather than computer science. And the technology industry is replete with examples of college drop-outs who’ve gone on to lead the world’s most influential companies — like Microsoft and Apple and Facebook.
The real issue is the dishonesty. If Thompson is seemingly willing to carry on an apparently insignificant fabrication about his undergraduate education for years, what else is he wiling to be dishonest about? We may never know — and Yahoo may not be able to afford to find out.
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