What if Jerry Yang is actually right?

So now even the New York Times is telling Yahoo's Jerry Yang that he has done wrong.

He has, apparently, shafted his shareholders, shown them nothing other than contempt.

But it was one line in the article that diverted me from my coffee and thoughts of Tiger Woods' irrational passion: "Your feelings aren't supposed to divert you from your fiduciary duty."

I don't know about you, but I'm quite big on feelings. They seem, somehow, to make humans a little more, well, human. And a little less like several of the more suspect participants at the Singularity Summit, where one speaker offered that "immoral behavior is really just irrational behavior".

It isn't just Mr. Nocera, but the majority of commenters on the myriad tech sites that my handlers are now encouraging me to read, who declare that Mr. Yang's behavior has been nothing short of scandalous.

Because it is irrational.

Shareholders like to think they are owners. A rational concept.

In fact, they are gamblers. The invitation to buy a share is an invitation to gamble on every single decision taken by a company's board. And every single mental skip taken by that company's customers, competitors, world economic conditions and, hey, what do you know, critics.

Some of those shareholders enjoy exalted positions at their own companies.

Where they make rational decisions such as hiring those who they know will be no threat to their hegemony, even if they know these people will not advance the company's prospects.

Such as hiring their friends, even though they know them to be professionally deficient.

Such as reducing their headcount in order to make this quarter's figures look good, even if they know customer service will slide over the following twelve months as a result.

Perhaps they will have moved on to their next jobs by then, leaving someone else to clean up the mess.

(Credit: jurvetson)

Everyone can (and does) theorize about Jerry Yang's motivations. About his feelings, indeed. And I'm sure he has plenty.

But if feelings have no place in fiduciary duty, then every corporate decision should only be judged according to its score on the Rationality Meter.

And any number of apparently rational decisions have proved to be utterly misguided. The Ford Edsel, the Fashion Cafe and BenGay aspirin all seemed very rational at the time.

Rigorous rationality policing would mean no one would ever write books about how decisions based on feelings, sometimes said to be generated in the intestinal area, created great and lasting organizations. Yes, even public entities.

The truth is that gamblers are very accepting of others' feelings, if the results of those feelings are that the gamblers make more money.

The other important ingredient in the 'make more money' segment is the question "When?"

Perhaps the results of Mr. Yang's feelings will be that shareholders will have less value for the next six months, the next nine.

Perhaps, if shareholders hold on to their shares, an unexpected outcome will suddenly make them very rich. And, no doubt, very silent.

Rationality really doesn't have such a great sway on human development.

If you haven't already, I recommend a day spent with "The Black Swan" by Nassim Nicholas Taleb, a man who knows a thing or two about investing (and also has the ugliest home page on the web.)

At the very least, he suggests that the randomness of humanity has a far greater effect on our financial system than many would care to admit. (He is particularly loving towards economists.)

Shareholders knew something of Mr. Yang's feelings when they invested in Yahoo in the first place. Many of these shareholders are large, monied institutions.

They were surely very well-versed by the time Mr. Yang came back to lead the company again.

They were certainly entitled to remove their money at any time and put it into more rational places.

They didn't. And now they complain because Mr. Yang takes decisions that are reflective of his own personality, his own dastardly human feelings. Didn't he always?

And didn't some of these same people feel that Rupert Murdoch was mad to pay all those millions for MySpace? Wasn't he being irrational with his shareholders' money?

Now, they all admire his gut feeling.

How rational.

[patrick_i]

I second that emotion. The problem with many American investors is their outlook is so short term. Short term is a few days, long term is a few months.... Just like realtors, brokers like to "hype" a specific investment (or location) beyond what it's really worth so they can make a gain in the short term. In the end everyone loses. I think (hope) that sometime soon the way brokers and investment firms and realtors do their business will be changed and more strictly regulated. They are mostly responsible for the mess we are in now I think.

[ChrisMatyszczyk]

Hah, thank you, Patrick,

The drive to deliver a set of numbers every quarter- and, as you say, the hype that is involved at every turn from those who seek to profit most in that very short term- means that real success is a very slippery customer.

I don't know if everyone loses, though. Those brokers and other Streety people simply don't seem to care about anything other than how they can squeeze the next few weeks. Can anyone make them?

thank you for commenting,

Chris

[smncameron66]

This is a blog post filled with inaccuracies which ultimately snowballs into a piece which makes so little sense I wonder if you reread it even once before posting.

"Shareholders like to think they are owners. A rational concept.
In fact, they are gamblers. The invitation to buy a share is an invitation to gamble on every single decision taken by a company's board."

First of all shareholders ARE owners. The fact that they are taking a risk doesn't erase the ownership stake they hold. As such they do have a right to be consulted.

Even if one was to accept that shareholders are gamblers, the game they are betting on supposedly has rules. Imagine that you bet on a football game but everyone sat down and started to play cards instead. You'd have every right to be upset. During Yahoo's IPO, if Jerry Yang had said that he would be making decisions based on his whims do you think he would have gotten as much money? Even if he doesn't have an obligation to try and make money, he should be honest about what his true intentions are.

You talk about the fact that other companies do the same thing, and I'm sure that they do. Very rarely however, do they cost investors close to the amount of money Jerry Yang has. That others get away with smaller indescretions doesn't mean that Yang is right. Sometimes size does matter.

But ultimately your article boils down to "rationality should not be expected." This is, quite frankly, the stupidest thing I've ever heard. Yes, sometimes the outcome of a venture differs from the consensus's expectations. Does this mean that anyone in a position of authority can do anything he likes? I am literally finding it hard to finds words to express the mixture of shock and awe I feel at the inanity of that statement. Should we give up trying to predict the future altogether?

Ultimatley Jerry Yang sold shareholders on the fact that he would be operating rationally, and in their best interest. Even if you think that a CEO who doesn't care about the share-holders and makes his decisions with a magic-8 ball is the way to go, why shouldn't Jerry Yang be prosecuted for fraud?

[ChrisMatyszczyk]

Hmm, I am touched that you have such strong feelings about the post.
But I wonder how touched it is to suggest that Mr. Yang should be prosecuted for fraud.
It is, I suppose for some, comforting to believe that there is a "consensus" that somehow rationally sets expectations. (Are we all members? Or is there a fee?)
But I wonder how true that is. Business is an extraordinary jungle, where rationalities are sometimes not quite what they seem. I am sure that you, too, have had that experience.
It is one thing to quit trying to predict the future. It is altogether another believing that you can somehow control it.
In so far as I can control it, I will work harder in the future to impress you. And, naturally, the consensus.
Thank you for commenting.

Chris

[jCounsel]

While many shareholders are gambling re: the outcome of the price of the shares (especially if they bought after the MS offer), if you own all the shares, you own the company. In effect, Yahoo is like Common Area in a subdivision--it is owned by the shareholders depending on how the filings at the County dictate (maybe equal shares for all owners, may be more ownership for bigger lots, ...).

A sale may be in the best interest in the short-term. However, it may not be the best result for the share-holders in the long-term. Sale or "no-sale" are simply options with economic costs. The shareholders need to determine whether they are looking for some (or potential) short-term gains or whether they think Yahoo is worth more in the long-term.

Me? I like the long-term aspects. Just as Apple seemed "down," I think Yahoo, and their employees, are capable of much better services and marketing (which has been less than stellar imho) than many other firms.

Whether Yahoo meets or exceeds my expectations or fails to do so is up to Yahoo, their Board, and Mr. Yang. That is, of course, unless my expectations change...

[ChrisMatyszczyk]

You are wise, jCounsel.
And you are extremely wise about Yahoo's marketing.
thank you for your very human perspective.


Chris