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Yahoo! Scandal reveals deep internal crisis

05/15/2012 -by:Silvina Moschini , President and Founder of TransparentBusiness

The company had to replace its chief executives four times in the past three years, and it cannot improve its financial performance.


It is undoubtedly a giant, one of the biggest in the Internet. At some point, its search engine was opening automatically on most computers. Yahoo!Mail free email system is one of the oldest in the web, and even today, it is the second most used in the world. However, its current state is very different from what Yahoo! used to be.

Its search engine, the tool that made the company popular in the beginning, cannot compete against Google. And in recent months it has been surpassed even by Bing. In addition, Yahoo! has not found a way to keep its footing in the dynamic market of social networks. And, if this were not enough, the company is now mired in a serious scandal, after its chief executive Scott Thompson submitted his resignation amid accusations of a fake degree on his CV.

The chief executive added a fake degree to his academic experience. Thompson has a degree in accounting from Stonehill College, but his CV includes a degree in accounting and computer science. What is surprising is that those responsible for such large and prestigious company overlooked this fact. In addition, this wasn’t the only fault of CEO: according to the British newspaper The Guardian, Thompson broke one of the Yahoo’s rules by holding management positions at two other companies, Splunk and F5 Networks.

After being publicly exposed by the activist shareholder Daniel Loeb, Thompson – who was not even 6 months in office – tried to downplay the issue, sending an apology by email in which he described his action as a “distraction” and an “error that went unnoticed”. However, the executive eventually resigned over the past weekend and was replaced by interim CEO Ross Levinsohn. Loeb, meanwhile, will be on the company board.

However, a remarkable question, as noted by the Forbes magazine, is that Loeb was probably not aware that this scandal not only hurts Thompson’s reputation, but also damages the already fragile Yahoo’s image.


Another fall in a string of setbacks

There is one thing that does not make things easier for Yahoo! With Thompson stepping down, the company changed its CEO four times in three years. Why does the company fail in electing its leaders? Carol Bartz, the CEO preceding Scott Thompson, was fired in September 2011 after her turnaround plan failed to reverse declining revenue figures. Without doubt, the new scandal further affects the already delicate situation of the company, which just last month announced the layoff of 2,000 employees –14% of its workforce – to reduce its operating costs.

Beyond the controversy that surrounds Thompson, there is no doubt that, the reality for Yahoo! is not easy. A recent info graphic by Mashable reveals that its income fell about 30% in the last four years. Only in 2011, an estimated traffic on its sites was reduced by 35%. How did Yahoo! get into its current state? Is it due to increasing competition from companies that manage to capture more users through new platforms? Has one of the Internet giants lost its capacity to innovate? 

The truth is that while the current kings of the net gain followers thanks to online sociability and new tools that promote interaction, Yahoo! still has a score to settle in this respect. A platform Yahoo! Answers is an interesting move in this direction, but it does not have much weight in the web world. 

Currently, the firm is making desperate attempts to improve its image. Besides Thompson’s departure, the company has decided to remove from office its head of recruitment, Patti Hart. Meanwhile, Third Point, the leading shareholder in the company, has initiated an investigation into Thompson’s hiring in an attempt to ensure the company’s transparency from now on. 

However, things in Yahoo! have not being going well for a long time. Beyond its management problems, the company does not have a product offering that is attractive to web surfers or advertisers. Undoubtedly, one of the web pioneers needs a change of direction that will allow it to ride the wave in a new era of social Internet with proposals that will re-capture public interest. Can Yahoo do this?