Semel steps down from Yahoo

Yang takes over for CEO

Terry Semel unexpectedly ankled his post as head of Yahoo on Monday after a six-year run that saw him transform the once-struggling Netco into a fast-growing and profitable powerhouse, only to stumble in the past two years, following the rise of Google and social media networks.

He is taking the role of non-executive chairman, clearing the way for the appointment of company co-founder Jerry Yang as CEO. Susan Decker, former chief financial officer and head of the advertiser and publisher group, whom many had expected to succeed Semel, will instead become prexy and take on significant responsibilities overseeing content and marketing operations.

Semel’s decision to resign now is in many ways just as surprising as his appointment to the post in 2001. At the time, many questioned whether a Hollywood vet coming off a long and successful tenure co-leading Warner Bros. was qualified to run one of the world’s biggest Internet companies, which was then stuck in the doldrums of the dot-com bust.

Under Semel’s leadership, Yahoo rebounded and took advantage of the resurgence in Web advertising. Revenues increased ninefold from 2001 through 2006 to $6.4 billion; operating income went from a loss to a profit of more than $1 billion. Company’s stock price has more than doubled under his tenure, but it’s now down significantly from a high last year.

That reflects the company’s recent problems, which have included delays in the launch of an advertising system, missed financial targets, a failure to buy fast-growing startups like YouTube, MySpace and Facebook and difficulty competing with Google in search and related advertising.

Semel’s efforts to bring his Hollywood savvy to Yahoo also largely flopped. Appointment of Lloyd Braun to head an entertainment division in Santa Monica went poorly, with most efforts to develop original content floundering and Braun eventually leaving late last year.

But perhaps most fundamentally, Yahoo is largely perceived as having fallen behind Google and many other competitors when it comes to innovation and openness to change. Ex-employees frequently complain about a bureaucratic culture in which it is extremely difficult to make changes or launch products.

In the midst of those challenges, Semel had been lambasted for what critics said were outsized compensation packages.

He was the recipient of millions of stock options, which he exercised and sold at regular intervals over his six-year tenure. Records show that he has earned at least $450 million in stock options over the last four years.

About a year ago, he eliminated his mid-six-figure salary and accepted options instead.

Still, at the company’s annual meeting last week, several advisory groups recommended that support be withheld from directors who supported Semel’s compensation package. After a number of shareholders stood to publicly criticize management, approximately one-third of them voted against one or more members of the board. That was undoubtedly a key factor in Semel’s decision to resign now.

“The truth is that I have long been talking to the board about the importance of ensuring a smooth transition in Yahoo’s senior leadership,” Semel told analysts on a conference call. “And more recently, as the board and I discussed my future goals and plans, I was clear in telling them of my desire to take a step back from an executive role sooner rather than later.”

While he didn’t go into details about the Yahoo’s recent problems, Semel did grant that, “None of us have been satisfied with the company’s recent financial performance.”

Appointment of the 38-year-old Yang, who has always held an advisory role as “Chief Yahoo,” is a sign that the company wants to prioritize its entrepreneurial roots both to Wall Street and Silicon Valley in the face of criticism it hasn’t adapted to rapid changes on the Web in the past couple of years.

Yang, who co-founded Yahoo with David Filo while the two were graduate students at Stanford, emphasized repeatedly in a conference call with analysts that he will focus on employee relations. As it has gained a reputation for being bureaucratic and slow to change, Yahoo has had difficulty recruiting and retaining talent against competitors like Google, Facebook and many start-ups.

“Our recent performance has prompted some to question the commitment of our employees,” he stated. “I will be intensely focused on motivating, developing and attracting talent at all levels of our organization.”

Yang also took pains to emphasize his understanding of the challenges the company has faced and how closely he has worked with the leadership team in a bid to address Wall Streeters’ concerns about his lack of managerial experience.

Decker, however, will be taking on many of the company’s business operations as president, a previously unfilled role. One of her first moves was to partially undo a reorg the company implemented in December that separated Yahoo into three divisions based on user groups: advertising and publishing; audience; and technology. At the time, Decker was named exec VP in charge of advertising and publishing. The company had said it was looking for an exec to oversee the audience group, which includes all Yahoo’s content sites, many of which are run out of its Santa Monica office.

The advertiser and publisher and audience groups are now being consolidated, however, and all divisions within both will now report directly to Decker. That means the Santa Monica-based execs in Yahoo’s entertainment group, who run sites including movies, music, TV and sports, will continue to report to exec VP of the network division Jeff Weiner, but he will now report to Decker.

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