Yahoo’s Carol Bartz: on the Firing Line

After a stormy two-and-a-half-year run, Carol Bartz was unceremoniously fired Tuesday as the chief executive of Yahoo.

After a wildly successful run during the tech boom of the 1990s, the Internet company has found the new millennium a difficult and painful period of adjustment and consolidation.

Yahoo shares have plunged from an all-time peak of just above $108 in December 1999 to $12.91 the day Bartz was fired. Indeed, since Bartz succeeded Jerry Yang in January 2009, the shares have essentially gone nowhere. On the day Bartz took over, Yahoo shares closed at $12.09.

And now Bartz is gone.

Her departure was hardly a surprise. In fact, major Yahoo investors had reportedly been agitating for her removal after several of her initiatives -- including layoffs, elimination of unprofitable segments, management changes and a search deal with Microsoft -- failed to produce any discernible improvements in the company's performance, nor any increase in online advertising revenue.

Bartz’s profanity-laced tirades may also have turned off some board members and prominent shareholders. However, ultimately it was her failure to create shareholder value that led to her dismissal.

David Smith, chief investment manager at Rockland Trust Investment Management Group in Hanover, Mass., told International Business Times that “the market had lost enthusiasm over Bartz’s strategy, or more appropriately, her lack of strategy. The stocks has been flailing around for a long time.”

In the beginning of her tenure, Smith noted, Bartz effectively streamlined operations and aggressively cut costs, which gave Yahoo something of a temporary boost.

“But she wasn’t developing new streams of revenue growth, nor was she articulating a strategy for revenue increases,” he said. “You can only build-up the bottom line from cost-cutting for so long.”

Yahoo’s endless and inexplicable squabbles with Alibaba -- the China-based online commerce company in which it owns a large stake-- also may have played a role in Bartz ultimate demise.

Smith also indicated that Bartz’s selection as Yahoo boss was puzzling from the very beginning.

“She was formerly the chief executive of Autodesk, the design software company and she did an okay job there,” he said. “But, Yahoo has a totally different business model than Autodesk -- thus, hiring her made little sense, then or now. I also suspect she might not have been Yahoo’s first choice.”

Now, Yahoo faces a challenge in not only finding a suitable new chief executive, but also of reengaging a moribund shareholder base.

Colin Gillis, senior tech analyst at BGC Financial, recently told CNBC: We've been saying this trade [Yahoo] is stuck in a trading range until 2012. [Yahoo] has got to get this search deal with Microsoft sorted out.

He has a hold rating on Yahoo shares and believes the stock will grind sideways for the remainder of the year.

However, Yahoo remains a well-known brand name and still generates solid traffic -- meaning, it might be an attractive takeover candidate for another entity who may want to manage such assets differently.

Smith concurs that the only way Yahoo can realize the value of its underlying assets would be to merge with another company, or perhaps to split apart different segments.

“I don’t see what else they can do enhance shareholder value,” he said. “The big stockholders are probably very frustrated -- they may be pushing the board to sell.”

Separately, the way Bartz was dismissed (reportedly by a phone call from Chairman Roy Bostock) may raise some eyebrows.

Anna N. Danielova, assistant professor of finance at DeGroote School of Business in Hamilton, Ontario, noted that firing a chief executive over the phone was somewhat unorthodox.

“I have not heard of the existence of corporate etiquette with regards to firing,” she said. “But it seems times are changing. If people can break up over the text messages, then why cannot CEOs be let go over the phones?”

Still, she adds, this might send a wrong signal to prospective CEOs, while the company is looking for a successor.

Bartz’s dismissal also raises some questions about the future of female executives in the male-dominated tech industry. “It seems that it is harder for women to reach the CEO position,” Danielova noted.

Danielova indicated that of the Fortune 500 companies, only 12 had female chief executives (now 11, following Bartz’s firing).

Based on the Spenser Stuart Silicon Valley board index 2010, there are fewer tech company boards with female directors (56 percent), compared with 90 percent for companies in the S&P 500-stock index.

“However in 2009, 51 percent of boards in the tech sector had female representation, compared with 89 percent in the S&P 500,” she noted. “So there has been a slight progress, but the tech sector is still behind in female representation, both on corporate boards and in executive seats.”