The Yahoo (NSDQ: YHOO) executive diaspora looks bad, but it’s simplistic to think it means the company is falling apart. Since Yahoo is trading back near multi-year lows, you have executives sitting on piles of underwater stock options, which may not see air for quite some time, if ever. As much as Yahoo might like to retain these execs, companies are hesitant to do anything that smacks of opportunistic options resetting in the wake of the fading, but wrenching backdating scandal from a couple of years ago. A couple of Silicon Valley lawyers I talked to about this said it was a concern, though some companies, as a rule, wouldn’t reset executive options since they were the folks that got the company into this mess. Basically, the surest way for any executive to “reset” their options is to walk away and move to another firm.
One lawyer, who is directly involved with compensation issues, predicted a lot of back-and-forth executive shuffling across a swath of tech companies with depressed shares for just this reason. The good news: Although Yahoo can’t use its low stock price to retain talent, it can use it to attract new talent, drawn to the large upside potential in a turnaround story. It’s pretty common actually to attract folks willing to take the high risk/reward profile of a situation like this.
This is Yahoo’s brightest silver lining, as it needs new blood, badly. No doubt many of the departed executives were well liked, experienced and talented, but they were the ones in charge during the slide. Some of the departures, like the Flickr co-founders, were probably inevitable. Word is their leaving coincides with the full vesting of their Yahoo shares, and entrepreneurs often don’t stay too long at the companies they sell to. Google (NSDQ: GOOG) has had problems with keeping entrepreneurs, too. In fact, overall talent retention is one of Google’s big problems, though a lot of it is a perception issue. Google execs, the conventional wisdom goes, leave because they’re super rich and need a new challenge. Yahoo execs (many of whom got rich earlier, during happier days) leave because things are going badly. Again, this could be turned into a plus if Yahoo gets an infusion of new talent and energy.
It’s easy to see hitches with this plan though. Would new executives feel a turnaround is possible as long as the very top (Jerry Yang and Sue Decker) remain in place? Typically, turnaround specialists are brought in at the top of the org chart. Also, the Google deal could be a hindrance to bringing people in if there’s the perception that insiders have been marginalized (as has been suggested). This could all come to a head fast: a re-org is on the way, and the August 1 shareholders meeting isn’t far behind. Even if Icahn can’t win anything, there could be the equivalent of a “no confidence” vote. The worst scenario would be a situation where the antsy, hungry folks leave, while the complacent ones, happy with a little bit of power and a good salary — bureaucrats, essentially — are left hanging around.