Behind the Replacement of Yahoo’s Carol Bartz

Yahoo chief financial officer Tim Morse — a veteran of the power General Electric finance-development powerhouse — has been chosen on an interim basis to replace the fired Carol Bartz.

Bartz Couldn’t Deliver Yahoo Turnaround

Carol Bartz Out As Yahoo CEO

With Bartz Out, Yahoo Must Refocus or Die

Bartz sent a brief e-mail to employees on Tuesday saying she had been fired by Yahoo’s chairman, the Wall Street Journal’s All Things D blog was the first to report. In a press release, Yahoo said it would seek a permanent replacement for Bartz.

An IDG News Service analysis examined some reasons for her departure, tying them mainly to a failure to deliver a turnaround. [Also, read the Bloomberg News story on the management change, and this PC World article about how Yahoo must refocus or die.]

The 63-year-old Bartz, who took over as CEO in January 2009, often frustrated investors and failed to keep Google Inc. and Facebook Inc. from siphoning off Internet users and advertising revenue. The management change and strategy overhaul show the board is listening to shareholders, Ken Sena, an analyst at New York-based Evercore Partners, told Bloomberg News.

“It shows some accountability for the dissatisfaction that investors have felt over the last few years,” Sena said. “The turnaround efforts have not worked and trends seem to be getting worse. I see this as a positive step.”

Bartz took over from co-founder Jerry Yang. After that point, Yahoo’s stock has gained 6.7%, compared with a 34% rise for the Standard & Poor’s 500 index. The shares rose 4 cents to $12.91 on Tuesday on the Nasdaq Stock Market before the announcement. They have dropped 22% this year.

‘I’ve Been Fired over the Phone’

“I am very sad to tell you that I’ve just been fired over the phone by Yahoo’s chairman of the board,” Bartz said in the memo that she sent to staff. “It has been my pleasure to work with all of you and I wish you only the best going forward.”

Said Morse in the company’s press release, “It is an honor to be selected for this role and lead the Company with this world-class team of executives. I look forward to working with the Executive Leadership Council and the talented employees of Yahoo!, and to partnering with the board to invest in the organization and continue to drive its ongoing growth plans.”

As CFO Morse currently is also responsible for the investor relations and mergers and acquisitions groups, and is charged with helping develop the company’s business strategy. Morse previously was CFO of Altera Corp., a semiconductor company specializing in programmable logic devices for communications, industrial, and consumer applications, where he established scalable, cost-effective processes and controls.

He previously served as the CFO and general manager of business development for General Electric Plastics. A 15-year GE veteran, the Boston College management-school graduate also held a variety of positions at GE Appliances and GE Capital in North America, Europe and Asia, as well as with GE Plastics.

Morse holds a bachelor’s degree in finance and operations and strategic management from the Boston College Carroll School of Management.

Growth Ahead

Yahoo gave few details of the management change, except to confirm that Bartz had been removed by the company’s board. Directors see “enormous growth opportunities on which Yahoo! can capitalize, and our primary objective is to leverage the Company’s leadership and current business assets and platforms to execute against these opportunities,” chairman Roy Boston said in the press release. “We have talented teams and tremendous resources behind them and intend to return the Company to a path of robust growth and industry-leading innovation. We are committed to exploring and evaluating possibilities and opportunities that will put Yahoo! on a trajectory for growth and innovation and deliver value to shareholders.”

Bostock thanked Bartz “for her service to Yahoo! during a critical time of transition … against a very challenging macro-economic backdrop.” Morse was thanked “for accepting this important role,” Bostock said. “We have great confidence in his abilities and in those of the other executives who have been named to the Executive Leadership Council.”

Morse will also continue in his CFO role, and will serve on a Yahoo executive leadership council, which the struggling search company created to help him run the company.

Also in that group are Michael Callahan, executive vice president, general counsel and secretary; Blake Irving, executive vice president and chief product officer; Ross Levinsohn, executive vice president, Americas; Rich Riley, senior vice president, and Rose Tsou, senior vice president. Co-founders Yang and David Filo each will continue as “Chief Yahoo,” providing counsel to Morse and the Executive Leadership Council.

Bartz’s tenure as CEO began in January 2009 after Yang announced plans to step down. Her choice followed an extensive courtship, during which Microsoft tried to acquire Yahoo, but which eventually turned into a partnership between the companies.

That partnership hasn’t paid off nearly as well as Yahoo hoped. Revenue at the company continues to fall, and its display advertising business, where it historically was a leader, has begun to suffer too.

“It’s not a surprise” to see Bartz go, said Greg Sterling, an analyst at Sterling Market Intelligence.

Annual Meeting Questions

At the company’s recent annual meeting, a shareholder called Bartz a “lame-duck CEO” and called for her resignation. Chairman Bostock defended her at the time.

Bartz was widely supported in the beginning. “She was kind of a breath of fresh air for a while,” said Sterling. She had a strong track record as CEO of Autodesk and before that as an executive at Sun Microsystems, and had a “no-nonsense” style, Sterling said. She was known for her colorful language and dropped the “F-bomb” at least once during a company earnings call.

Bartz made a number of organizational changes and for a while had the bad economy to blame for Yahoo’s lackluster performance, Sterling said. But ultimately she failed to retain some top talent who have left the company since she took over. “There were just a ton of great people that came out of there that abandoned ship,” he said.

Yahoo needs a dynamic leader who will get people excited and bring a strong product vision, he added. Morse would clearly be an interim leader, according to Sterling, while the company looks to hire a permanent replacement.

Taking on a new leader while the company continues to struggle will be a challenge. “The problem with a new CEO is, if you have more of a revolving door,” Sterling said. Often, new leaders want to bring in their trusted advisers and remove some existing executives.

In a statement, Bostock thanked Bartz for “her service to Yahoo! during a critical time of transition in the company’s history, and against a very challenging macro-economic backdrop.”