By Dominic Jones
LAST week was an interesting one for people who believe that corporations are entering a new era of openness where once jealously guarded pretences are being stripped bare to reveal the “authentic” soul of the company.
Both Time Warner Inc. and Yahoo Inc. stood naked in front of millions when their internal management workings were laid bare in the pages of the Wall Street Journal, the New York Times and a scores of blogs and websites.
First up, Time Warner, which fired Jonathan Miller, head of the company’s AOL division on Wednesday. This sparked the public spectacle resignation of Jason Calacanis, a blog entrepreneur who ran AOL’s Netscape division.
Calacanis wrote a long and emotional ode to his ousted mentor on his personal blog calling it “a very sad day.” As for his own resignation, the outspoken Calacanis, who sold his Weblogs Inc. network to AOL last year, offered a terse “no comment” to his blog readers after the popular TechCrunch blog reported he had quit.
After widespread speculation rippled across the blogosphere for several hours, Calacanis chose to confirm his departure from AOL to the New York Times. In that brief interview, he broke what many would regard as a taboo against questioning your former bosses in public.
Calacanis told the Times that he was “perplexed” by the timing of Miller’s firing. “Why now,” he asked, a reference to AOL’s recent improved performance amid a difficult transition from a subscription-based to an advertising-driven business.
Likely To Become More Common
Commenting on the unusually public nature of the events, ZDNet executive editor David Berlind said in a blog post that such public airing of the corporate dirty laundry was likely to become more common.
“The veil of secrecy that often cloaks corporate culture — especially during times of change — is about be blown away by a new generation of open communicators one of which is Calacanis,” said Berlind.
If he is right, the public undressing of corporations is likely to have profound implications for how investors assess companies. It brings an unprecedented level of raw transparency to an area that has always been carefully dressed up and manicured. That’s a good thing.
“Your Stock Is A Short”
You can see that in the reaction of Roger Ehrenberg, a 17-year veteran of Wall Street and former President and CEO of DB Advisors LLC, a wholly-owned subsidiary of Deutsche Bank AG.
Writing on his blog Information Arbitrage, Ehrenberg, who now runs a company that aims to glean profitable insights from deep in the Web for traders and hedge funds, also questioned the timing of the AOL chief executive’s axing. Quoting the New York Times story as well as Calacanis’ blog post he wrote:
“In short, I believe the signal it sends is really, really bad, and will only serve to damage the nascent recovery happening over at AOL and the value of an asset that is critical to the Time Warner stock price.
“What did Jon Miller help create at AOL? CULTURE. What skills did he both display and cultivate in others? LEADERSHIP. This is a guy you show the door? And at a time so critical to the business unit’s turn-around? If you are a high-quality and sought-after employee at AOL today, are you inclined to stay under new management? I know I wouldn’t. I’d be pissed, depressed and utterly lacking in confidence about Time Warner management’s vision and efficacy. Unless I am missing something deeply profound in the facts about which I am aware, this change only serves to reinforce the series of missteps promulgated by Time Warner management over the past several years. It is all about culture and leadership, boys, and if it is these two attributes which you seemingly feel are so unimportant then you deserve neither Jon nor Jason in your firm. Or the top employees that were previously under their wings. And your stock is a short. Because any management team seemingly so out-of-touch with its employees and the market deserves little support – and neither does the stock.”
Now you won’t read that in your typical Wall Street research report. At least not yet. But these things have a habit of filtering up and sideways, as we can see from a second technology sector stalwart, Yahoo! Inc.
Yahoo! Inc.’s Peanut Butter Manifesto
Late on Friday afternoon, a four-page internal memo started doing the rounds among industry watchers and media. Dubbed the Peanut Butter Manifesto by the Wall Street Journal, the company has confirmed that the memo is by Brad Garlinghouse, a Yahoo senior vice president.
In broad strokes, Garlinghouse lays out a vision for the Web company to become leaner, more focused and hungry to win. He suggests a 15% to 20% staff reduction and compares the company’s current business strategy to “spreading peanut butter across the myriad opportunities that continue to evolve in the online world.
“The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular,” Garlinghouse says, before adding: “I hate peanut butter. We all should.”
At least one commentator, venture capitalist Paul Kedrosky, suggested the memo was “written with full knowledge it would be forwarded outside the company.” It also was suggested that the memo is a power move by Garlinghouse and senior management allies ahead of the retirement of CEO Terry Semel, who is 64.
According to the Journal, the memo has gained support from Yahoo COO Dan Rosensweig, who along with CFO Sue Decker could be made co-presidents in anticipation of Semel’s farewell. Rosenweig has asked Garlinghouse, a second-tier executive at the company, to head an internal committee to investigate the issues he raises.
It’s Good To Be Naked, Says Yahoo! PR
The Yahoo! memo is interesting because it is not formal company strategy, yet it signals a change of direction and renewed focus. If investors — who have seen the stock drop more than 30% over the past year — buy into it and bid up the stock, it could become the company’s de facto strategy.
By exposing the Peanut Butter Manifesto to the market without officially endorsing it, Yahoo! management can, at low reputation risk, gauge reaction to it from analysts, investors, employees and other stakeholders. The widespread commentary on blogs and in the media, and likely security analyst reports, will provide potentially valuable feedback to the company.
What I found particularly interesting was the spin that Yahoo!’s PR people put on the memo going astray and ending up on the Journal’s front page. A Yahoo spokesman told MarketWatch that the memo “highlights that we have an open, collaborative culture and a senior management team that is intensely committed to helping Yahoo fulfill its potential as an Internet leader.”
So having your internal management frustrations brought out in public is now officially a good thing. It demonstrates an open and collaborative culture in which people are committed to a common goal.
That will be news to many companies outside of the technology sector. For them, this kind of stuff is foreign and subversive.
However, this is an era where the Chairman of the SEC gets 10 times more media coverage from a comment on a CEO’s blog than the agency does from a formal press release. I increasingly expect that companies outside of the technology sector will take a page from the tech companies’ book.
They’ll start stripping down their facades in public as well. They might not go so far as the AOLs, Yahoos, Suns and Microsofts of the world, but they will be happy to show a little skin if that’s what shareholders expect.
This memo suggests that much more clarity is needed from Yahoo’s CEO. It appears to be time for Terry Semel to retire and I would suggest that Susan Decker take over.
Jerry Yang and David Filo are critical at this crossroads for Yahoo!:
http://breakoutperformance.blogspot.com/2006/11/open-letter-to-jerry-yang-and-david.html
Cheers,
Eric