In the latest of our conversations with players in the compliance and governance realm, we talk to shareholder activist Eric Jackson, chief executive of Jackson Leadership Systems.
Eric Jackson is the president and CEO of the consulting firm Jackson Leadership Systems. Prior to Jackson Leadership, he served as vice president of strategy and business development at VoiceGenie Technologies, a voice-activated call center software firm (now a part of Alcatel). Jackson led the efforts in raising more $25 million in venture capital financing, as well as developing and managing global strategic partnerships with IBM, Sun Microsystems, Oracle, Hitachi, and Unisys.
In January 2007, Jackson started an Internet-based shareholder revolt against Yahoo! He began his “Plan B” campaign on his blog and through YouTube videos to band together support from fellow individual investors disappointed by 3 years of under-performance. He led a coalition of 100 shareholders with a combined $60 million stake in the company, which agreed to meet with him in April to hear his group’s demands. On June 12, 2007, Jackson addressed Yahoo!’s shareholders at the annual meeting, where his group sought an “against” vote for seven of Yahoo!’s 10 directors. Shareholders voted 33 percent against the current board of directors at that meeting and on June 18, Terry Semel resigned as CEO.
Jackson remains a long-term Yahoo! investor.
Eric Jackson’s Motorola Wiki For Plan B
Eric Jackson’s Motorola Plan B Pledge Page
Eric Jackson’s Breakout Performance Blog
Jackson Leadership Systems Company Values
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The New Tool Against Activists: Surrender (June 27, 2006)
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How Heinz Squeezed Out Its Proxy Victory (Davis & Lukomnik; Sept. 12, 2006)
Building Alliances For Long-Term Growth(Davis & Lukomnik; April 11, 2006)
Anticipating Concerns Of Institutional Investors(Harvey Pitt; May 31, 2005)
At the start of this year, you began a campaign to improve the governance at Yahoo. What goals did you want to achieve?
We had a nine- point plan. It started out as a draft plan that I put up onto the Web on something called a wiki, which let people go in and make edits to it. We received a lot of comments and suggestions. What really surprised me was the number of former and current Yahoo employees who got involved with comments and edits, which we incorporated into the final plan.
Point No. 1 in the final plan was removing [Yahoo CEO] Terry Semel. We believed it would serve the company well in the long term. I can’t say that I thought it would happen for certain.
There were other points in the plan, some of which have been enacted by Yahoo over the last few months. For example, reducing the number of overlapping divisions because there were redundancies. We also advocated making changes at the board level. That, of course, was a big part of our campaign leading up to the annual meeting. We were asking shareholders to vote against a number of directors, and the large against vote—33 percent—was, I think, the final deciding factor in Terry Semel resigning.
What inspired you to start this campaign?
I was frustrated as an observer of the company. I felt this is a great company, and it can do better. Last December, they announced a reorganization in response to an internal memo from an employee who talked about the need for changes. Looking at that reorganization, it really didn’t seem to be substantive change.
I was also very familiar with activist investing as a hedge fund strategy and have followed it for a number of years and met with managers who practice that strategy.
Almost like a social science experiment, I was curious to see whether it was possible for an individual investor like me to use the tools of the internet to have the same impact that a hedge fund would through an activist campaign. In the political realm, tools like blogs and social networking have been used effectively by people like Barrack Obama. Howard Dean used [these tools] in his 2004 campaign, coming out of nowhere to be a real contender. I thought, if I can take the learnings from that sphere and apply it to the shareholder realm, we had a shot.
How much of Yahoo did you own during this fight?
I bought 45 shares back in January. Before the annual meeting, I purchased another 51 shares, and I still own those 96 shares in the company.
When you launched the campaign, did you expect to succeed?
I’d be lying if I said I expected it, but I hoped. I believed there was a good chance that it would capture a high level of attention because it was such a different way to push a shareholder’s view.
I didn’t pick the smallest company to start with. It’s a $40 billion company. Typically, even some of the bigger hedge funds tend to shy away from targets that large because they don’t feel they can have enough of a voice. It was a long shot for sure. But a big reason for the campaign’s success was that the arguments we put forward resonated with a wide number of shareholders.
What tools did you use to wage this fight?
The blog was obviously ground zero for updates and people leaving comments and making suggestions. The wiki was important, as it allowed people to comment and edit the plan before its finalization. That made the process more democratic, rather than one person’s campaign.
I used other tools like polling to gauge people’s interest in various potential aspects of the plan. I published 15 potential actions that we were thinking of including in the plan; people voted on which aspects most interested in them.
As others heard about the campaign, they would e-mail me or leave a comment on the blog like: “Sounds good to me, put me down for 500 shares.” I had an Excel spreadsheet where I would put down the person’s name and keep a running tally for how many shares our group represented.
Out of nowhere, a company in Philadelphia called YouChoose.Net contacted me. They have a site where anyone can go and start a grassroots campaign—not necessarily a shareholder campaign, but one where you can write to local congressman and such. On the site they created for us, our supporters could input the number of shares they held in Yahoo. The site would automatically keep a tally and a chart.
As of today, we have about 100 individual shareholders, who collectively own just under 2.1 million Yahoo shares. That’s a stake worth approximately $55 million dollars. It far exceeded my expectations.
How important were online channels to your efforts? Could you have done this, say, 20 years ago?
Not at all. The internet has certainly democratized shareholder activism. We’re at the vanguard here of shareholder activism in the next five to 10 years … We’ll all be chatting on YouTube about shareholder issues in a few years.
What other unusual tactics did you use?
I used YouTube to record video postings and updates about the plan. A lot of people would rather watch a short video than read a blog post.
One also created three political style campaign ads, supporting “Plan B” and asking Yahoo shareholders to vote against seven of the 10 directors at the annual meeting. It was very direct, often humorous, but short and to the point. Because it was creative and had not been done before in a shareholder context, we put it out there on YouTube, and it spread quickly and got people talking about it.
We also put up some photos on a Flickr photo site of various Yahoo executives and shots to get people to visually think about the company. Having visual images, as well as facts and arguments, helped to leave an impression in supporters’ minds.
What should the proper company response be to small shareholder activists? Should they entertain all of you and all your requests?
I was an unknown quantity when this campaign started. If I were in their shoes, I would have wondered: “Who is this guy? Is he credible? Does he have an argument to make here? Does he have any hope of banding together support?” Because I wasn’t known, they assumed I wasn’t that credible. Probably any big company would have done the same.
Companies shouldn’t swing into action at every shareholder demand. They need to examine the merits of the ideas that the shareholders are advocating. If the ideas are strong, it’s likely other shareholders will hear about them in this age of blogs, wikis, and YouTube. Big companies should get out in front of critics by adopting some of the best ideas. At the end of the day, the executives are shareholders too. Why wouldn’t they want to adopt them if they make sense?
What could Yahoo have done that would have placated you, short of the executive turnover?
I had a meeting with them in April, after submitting the plan. They were pleasant. They listened. However, at the end of the day, nothing happened.
I didn’t necessarily expect them to adopt each of the nine points in the plan. If they had implemented some of the points and if we could have had an ongoing dialogue, that would have gone a long way in the eyes of our group that they were willing to do the right thing, and they were listening. We would have become very supportive.
Where things are at now, I’m very supportive of [cofounder and current CEO] Jerry Yang and Sue Decker. I think they will do the right things. I will continue to have discussions with them. We’re at a good place now in the relationship. I have spoken with both of them. We’ve communicated a couple of times since the annual meeting via e-mail … We’ll continue to give them our thoughts and suggestions on what we think will add value to the company. We want to have an open dialogue going forward. I intend to be very supportive.
Who became your allies in this campaign?
The press, in general, helped early on and continuously throughout the campaign. We got a lot of great coverage, I think primarily because of the novelty factor early on. It was the first time a grassroots Internet campaign was happening. Once other people started to see the press coverage, we had additional credibility. Our group shareholdings grew; it was a virtuous circle.
The other big ally that happened later on in the campaign was Institutional Shareholder Services. We had the opportunity to make our case to the two analysts who cover Yahoo a few days before they issued their report. They came out against the three directors, and they also included a page about our “Plan B” campaign in their report. That helped us build credibility with the institutional shareholder community.
We did more than that. I spoke to over half of the top-ten institutional shareholders and a dozen pension funds directly, dating back to March. They weren’t necessarily allies, but we got several large holders of stock to vote against a large number of directors. They were sympathetic, and appreciated that we were out there suggesting possible actions.
How much did it cost you to wage this campaign against Yahoo? Can you describe those costs?
Very little in terms of hard costs. It cost $30 for a webcam to shoot my YouTube video. The cost of buying the Yahoo shares was $2,500. I had to make two trips to California. All out-of-pocket costs, you’re probably talking $3,000 to $4,000. It was remarkably cheap to wage this campaign, which is why I think others will follow it in the future.
The real costs were more soft costs, meaning my own time and energy. It was a labor-intensive process. You have to be educated about any company if you’re going to engage in this kind of work because you hold yourself up to criticism.
Do you think your type of activism is the way of the future? Lots of executives would find that world disturbing.
I do. There is one misconception about this campaign. Howard Rheingold of Stanford made this comment and I agree with it: that you can sometimes get swept up in the technology and think there’s technological determinism that takes over; that if I just put a plan up on a blog or a Wiki, the campaign starts to snowball. That’s definitely not the case. If you’re going to lead a campaign, you need to be prepared to invest significant time and push it along. Otherwise, it will peter out.
Who’s your next target?
Motorola. They have different issues than Yahoo. A basic issue is, if you look at this company over the three and a half years under this CEO, their stock price has underperformed their major competitor, Nokia, and the market, by three times. Their price-to-earnings ratio is significantly lower than major competitors.
They’ve got some major problems in their mobile handset division. They’ve been caught off-guard by those problems and haven’t done enough to prepare their next generation of phones. You have a lot of clunky, old-fashioned phones that look even more so since the iPhone came out.
We’re advocating that a new CEO be appointed. We would like to see changes on the board and a more articulate strategy for the turnaround. We are going to lead a more governance, leadership-focused campaign, not so much a financial-focused one.