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Commentary

Starboard Wants to Blow Up Yahoo’s Board and Add People Who Are Too Busy

Mar 24, 2016

Wouldn’t it be great if you had the power to suggest a new boss for your CEO, aka your company’s board of directors? At Yahoo (yhoo), all voting investors—including employees who vote their shares—will likely get that chance this year.

After months of saber rattling at Yahoo, investor Starboard Value (which holds just a 1.7% stake in the tech company) finally laid out its alternate candidates for Yahoo's board on Thursday. And they didn’t just recommend one or two. They suggested names for all nine board positions.

Too bad they didn’t pick a better roster.

Sure, all the people Starboard named are qualified to serve on Yahoo's board. But not without changes to their resumes: some of them would need to resign from boards they're already on to devote the time and attention Yahoo needs. And even with those changes, Starboard's recommendations raise some independence concerns.

Twenty-two percent (i.e. two) of the board members recommended are women. That's hardly revolutionary – except that current Yahoo CEO Marrisa Mayer isn’t one of them.

One of Starboard’s nominees, Tor Braham, has M&A experience. That could be valuable. But he already sits on three boards. These days, holding four board seats is considered too much, particularly if one of the companies, like Yahoo, is struggling. Braham sits on the board of NetApp, which is also struggling. “NetApp has faced some difficulties adjusting to changing company purchasing habits in light of cloud computing,” Fortune reported in February. The company announced it would be laying off 12% of its workforce.

Another Starboard nominee, Dale Fuller, has technology expertise “including start-ups and legacy businesses,” Starboard wrote. But he too sits on three boards already.

Eddy Hartenstein has strong media experience, having served as CEO of the Tribune Company, DirecTV, and LA Times Media Group. That could be important to Yahoo. But he sits on four boards, and he's the lead director of one of them. It’s true one of those boards seats could be going away. He’s currently a SanDisk board member – but that company is being acquired by Western Digital. While Western Digital has announced that current SanDisk CEO Sanjay Mehrotra will be joining the new board, no other announcements on the other board members have been made, a spokesperson for SanDisk told me. And Western Digital confirmed that no other announcement on board memberships have been made.

Rick Hill, a nominee with technology expertise, serves on the boards of three other companies.

Jeff Smith, CEO of Starboard Value, is also a problematic nominee to Yahoo's board. In addition to running a company while sitting on two other boards, Smith is on the Advance Auto Parts board with another Starboard-Yahoo nominee, Brad Buss. That kind of relationship, also known as a board interlock, can create a lack of independence in board thinking. And Brad Buss is already serving on three other boards and their audit committees, one as chair. That means he already has a full plate. Starboard Value did not return a request seeking comment for this article.

In January, the Wall Street Journal called out Yahoo because its compensation committee had only two members. Three to four members is usually ideal, as having just two members can create less robust discussion.

Yahoo appointed two new board members two weeks ago, to replace a pair of directors who resigned in December, bringing the board size to nine, the number in Starboard’s slate. But beyond the recent additions, Yahoo’s board could use a real refresh.

Yahoo wrote on Thursday that “The Board’s Nominating and Governance Committee will review Starboard’s proposed director nominees and respond in due course.” That committee, according to the current Yahoo website, includes Sue James, a retired E&Y partner, and Lee Scott, former CEO of Walmart (wmt).

Looking at Yahoo’s board, David Filo, a Yahoo co-founder who currently holds the title "Chief Yahoo," not only sits on the board but, according to the website, “is involved in guiding Yahoo’s vision, is involved in many key aspects of the business at a strategic and operational level, and is a stalwart of the Company’s employee culture and morale.” That sounds like a management role, and that could impede the company and board's moves forward. Since he’s been involved with the company for over 20 years, perhaps it is time he stepped away.

These days, companies in decent health often limit a CEO's outside board memberships to one. For those in distress, zero should be the norm. As CEO of a struggling company, Yahoo CEO Marissa Mayer’s membership on the boards of Walmart and Jawbone likely represents a distraction Yahoo cannot afford. And although there was no timing overlap between Mayer joining Walmart's board and Lee Scott's tenure at the retail giant, it doesn't look great. Yahoo did not respond to a request for comment for this article.

A few of Starboard's candidates would be excellent additions to Yahoo’s board, should they quit one or two of their current board seats. And it's time for a few Yahoo veterans to step down.

It’s certainly great to have a choice of board members at any company. But it would be nice if investors had better choices. Perhaps one day all the stars will align.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.

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