Power Sheet – March 25, 2016

Starboard Value Fund’s Jeff Smith pulled the trigger yesterday on his threatened attempt to wage a proxy fight at Yahoo, and he’s firing a large-caliber weapon – attempting to replace the entire board of directors. It’s the latest action in what is widely regarded as a war between Smith and Yahoo CEO Marissa Mayer. It is that for sure, but the proxy fight also highlights another important leadership story in this situation and many others, a story that’s often overlooked. It’s the leadership of the board.

Yahoo is one of two examples that are in the news, the other being the bidding war over Starwood Hotels and Resorts. In both cases the behavior of the board and the board chairman is centrally important because both boards made similar momentous announcements in the past 12 months. Last April Starwood’s board said it would “explore a full range of strategic and financial alternatives to increase shareholder value.” Last month Yahoo’s board said that “exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders.” Translation in both cases: We’re for sale.

When that happens, the board’s job is to represent the interests of the shareholders, and only those interests, with ferocious tenacity. Fortunately, both these companies have non-executive chairmen, which reduces the potential conflicts inherent in the old model of the CEO-chairman. But I’ll bet you can’t name the chairman of either company. At Starwood it’s Bruce W. Duncan, a longtime real estate executive and investor; at Yahoo it’s Maynard Webb, a veteran tech entrepreneur and executive who’s also on the boards of salesforce.com, Visa, and other companies. As both boards consider potential sales, breakups, or spinoffs, their job is to get the best possible deal for shareholders.

Duncan and the Starwood board have seemingly done a good job. After their announcement they negotiated with many suitors and reportedly scuttled a near-final deal after Marriott’s Arne Sorenson called at the last minute with a better offer. Then Wu Xiaohui of China’s Anbang Insurance lobbed in an even better deal -- which Starwood’s board quickly accepted. And when Sorenson responded last week with a still higher bid, Starwood’s board accepted it. The board isn’t fighting with any potential acquirer; it’s doing its job of fighting for its owners.

At Yahoo we know only that no bids have been made public, but Smith’s letter to shareholders yesterday raises questions about the process. “Despite what appears to be strong interest from large strategic and financial buyers, as referenced in the media,” Smith writes, “nearly two months have gone by since Yahoo officially publicly announced its intention to pursue strategic alternatives for the Core Business, and it seems little progress has been made.” Smith suggests that Yahoo’s board is dragging its feet and says the issues “cast doubts…as to whether the process is genuine.”

Yahoo has not responded, and for now we cannot assume Smith is right. But we may eventually find out. In the meantime, these stories remind us that while CEOs get all the attention, boards are sometimes where the most important leadership is or isn’t happening.

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What We're Reading Today

Microsoft considers helping bidders for Yahoo  

Microsoft has met with many of the private equity firms considering buying Yahoo's internet business and signaled it might help fund a purchase. Satya Nadella's company wants to ensure any new owner of Yahoo remains friendly to Microsoft. But some observers believe Yahoo's board isn't serious about selling. Starboard Value has begun a proxy fight to replace the board which, if successful, would likely end Marissa Mayer's reign as CEO. Re/Code

Volkswagen gets an extension

U.S. District Court Judge Charles Breyer ruled that Volkswagen has until April 21 to provide a solution that regulators accept. If Matthias Müller's company can't devise a fix for the 600,000 U.S. diesel vehicles with emissions-cheating software, then Judge Breyer would begin class-action trial proceedings against VW and advance a suit brought by the Justice Department. Breyer had set a deadline of yesterday, but VW and regulators couldn't find a fix that brings the cars into compliance with emissions standards. Fortune

Playboy considers a sale

The company has hired investment bankers and begun searching for potential buyers. Playboy Enterprises CEO Scott Flanders saw interest in the company, private-equity-owned since 2011, after it put the Playboy Mansion up for sale earlier in the year. He recently transformed the magazine, removing most nudity. Most of the company's value is in licensing its brand.  NYT

Ackman now part of Valeant probe

Activist investor and Valeant board member Bill Ackman has been asked to provide information on the the company's drug pricing. The U.S. Senate Special Committee on Aging is investigating Valeant's strategy of buying niche drugs and significantly increasing their prices. It has asked Ackman's Pershing Square Capital Management to provide documents related to the pricing strategy. Ackman has long supported Valeant, even as its stock price has crumbled under anger about pricing and questionable accounting. Reuters

Building a Better Leader

American Airlines boosts flight attendants' pay 6%...

...before being contractually required to. Its labor deal obliges American to give the boost once United Airlines agrees to a new deal with its attendants. Those negotiations have dragged on, prompting American's action. Fort Worth Star Telegram

To become the CEO, display these four traits

General ability, execution skills, charisma, and strategic skills separate CEOs from the rest, a new study finds. Fortune

Robots may not take your job after all

It hasn't happened for most of us yet. The fear comes from technological evangelists who say the rise of technology is inevitable, but promising tech has often fizzled. Strategy+Business

Business Decisions

Troubles at Nest 

The smart-home company bought by Google over two years ago hasn't released any significant new products since the purchase. A security system hub prototype with 130 engineers working on it has been killed, resurrected, and changed multiple times because of Nest co-founder and CEO Tony Fadell's indecision, insiders say. His obsession with Steve Jobs also highlights how a CEO who acts like a product tyrant can go very wrong. Fortune

Why Uber launches in China first

CEO Travis Kalanick said the company launches many services in China first because U.S. releases get copied in China, leaving Uber behind there. He also said the company is funding Chinese growth partly from the $1 billion of profit it earns in its top 30 cities globally. Kalanick wouldn't provide a timeline for turning a profit in China. Reuters

Businesses decry North Carolina's new anti-discrimination law 

The state passed a measure that bans local government efforts to protect workers from discrimination based on sexual orientation or gender identity. Doug Parker's American Airlines, Ginni Rometty's IBM, and Dan Schulman's PayPal all have offices in the state and condemned the law. ABC News

Up or Out

Robert Goldfarb has resigned as head of the Sequoia Fund, due in part to its outsized investment in Valeant Pharmaceuticals. Fortune

Fortune Reads and Videos

Inside the IRS's tech problems

The agency still uses Microsoft software that the company stopped updating years ago. Fortune

Chipotle co-CEOs' pay is cut sharply...

...because of the E. Coli outbreak. Steve Ells and Monty Moran still made almost $14 million each last year but didn't receive new shares. Fortune

Steve Kerr and Steph Curry lead in different ways

One uses dry wit while the other leads by example, spending hours in the gym. Fortune

Apple starts producing original entertainment... 

...with a show about mobile apps. Will.i.am is involved. Fortune

Happy Birthday

Alphabet CEO and Google co-founder Larry Page turns 43 tomorrowBiography

House Minority Leader Nancy Pelosi turns 76 tomorrow. Biography

Former Supreme Court Justice Sandra Day O'Connor turns 86 tomorrow. Biography

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