This Poison Pill is Just What the Doctor Prescribed

It is unusual for me to use this blog for comments on current affairs, digital or otherwise. This blog is usually used for technical posts about open standards and social applications. But after reading the New York Times letter to Jerry Yang I had to point out just how completely ridiculous the arguments against the company and the so called ‘poison pill’ are. I was disappointed that a newspaper like the New York Times echoed some of these idiotic views and printed such an unbalanced and childish letter, even if it’s only on its editorial page.

Nobody needs me to explain how the stock market works and the risks involved. The fact that in the past 6 months alone we’ve seen such huge losses for shareholders of MSFT and GOOG proves my point. Making short term shareholder value such a critical issue makes the Times’ entire letter completely lose its credibility (oh the poor firemen!). Also, the argument about losing executives while factually true, is much less significant when viewed with the other more prominent departures across the industry.

But that’s not what I think everyone is getting so wrong.

The argument about the ‘poison pill’ – the severance plan put in place by Yahoo!’s board – shows a complete disregard to the people behind Yahoo!’s accomplishments. The plan isn’t about preventing or scaring Microsoft away, it is about retaining the thousands of talented engineers and product managers while other corporations and insane billionaires dominate the headlines with their plans. It is about being able to keep employees focused on their job and hire new talent. It’s the insurance plan allowing people to go back to their work and ignore the noise.

The common claim is that the plan, by providing a generous payout for employees, encourages them to leave as soon as a merger is announced. But it fails to recognize the powerful impact it has on employee morale and sense of security. Without the plan, I would not have joined Yahoo! – a move that would have been extremely risky, like say, running into a burning building. What the plan creates, is a trial period of 2 years in which employees can give the new entity a chance, see if they can benefit from it, and take their time if they want to consider something else. It tells them that for their willingness to ride along, the shareholders are willing to assume most of the risk – where is actually belongs.

In my case, the plan guarantees me 6 months’ salary with health benefits for me and my family – you know, the stuff that actually matters to people whose last name isn’t Icahn. It assures me that if my job is eliminated or if the condition of my work are significantly changed, I can take my time looking for another job. It takes away the immediacy of having to deal with this situation. Once people start to worry and begin looking for a new job, they usually don’t stay long regardless if the merger happens or not.

The people complaining about the plan are not Microsoft but some of Yahoo!’s shareholders. My guess is that Microsoft got the point everyone else seems to miss which is that with this ‘poison pill’ Microsoft would have been better off. It would have forces Yahoo!’s employees to at least stay until the merger is final and starting to take effect as the plan requires an actual change (a “good reason”). In addition, it would have given them 2 whole years to figure out how to keep Yahoo’s employees.

What the plan does is to assure Yahoos that there is no need to make rush decisions, and that they will be better off waiting for such a transaction and judge by themselves how it will affect their work. If Microsoft can deliver the goods, none of this would matter – people will stay under the new management and the plan will simply expire.

Putting the potential damage to Microsoft at $2.4B is also silly. Had Microsoft bought Yahoo! and everyone cashed out and left, the damage to Microsoft wouldn’t have been $2.4B but the full forty-something billions they were going to pay. Yahoo! without its people at the hands of Microsoft isn’t worth much. While the brand is extremely valuable, we have seen many examples in the past decade alone of powerful brand names losing all their worth.

Microsoft is claimed to have proposed $1.5B for employee retention post merger. Let’s assume this is just for Yahoo!’s employees, not the thousands of Microsoft own employees affected by the merger. They never made their plan public, which might have avoided the need for Yahoo!’s own plan. I’ve experienced 2 mergers over the past 10 years and in each, as soon as the merger was announced, the entire focus of present and future management was to make sure the employees were happy. Microsoft never bothered to address Yahoo’s employees in any way that actually meant something. They forced Yahoo!’s management to deal with it themselves – hence the plan.

The idea that Yahoo! should risk losing a large number of engineers while waiting for a potential deal is idiotic and is the true risk to shareholder value. Obviously the shareholders complaining have very little interest (if any) in Yahoo!’s long term wellbeing. After all, what is a web company worth without its most scarce and valuable resource – its people. To suggest that the plan will encourage employees to leave in case of a merger is silly. The plan gives them a reason to join and stay a little longer. People don’t leave a job they are happy with and excited about for a couple of months of severance. They leave because it sucks.

So to all my friends and family who keep sending me articles about Yahoo! and keep asking if I’m worried, the answer is no. I couldn’t be happier. We’ve got one of the most important and promising projects to work on and I’m excited to be part of it. The people I work with are happy and would just like to go back to work.

2 thoughts on “This Poison Pill is Just What the Doctor Prescribed

  1. Nice Post. It’s good to get the inside story. People sometimes jump to considering if something is good or savvy based on just a couple of factors that are easily apparent from the outside. Your perspective is really useful for understanding the situation on the ground. Over the years I’ve wondered why I have anything to do with Yahoo. Almost with effort quite a few yahoo services have become part of my life. If they would have in fact merged with MicroSoft I probably would have tried to cut all ties I have with them. It’s not that I hate MicroSoft it’s just that I don’t trust them. But now, with Yahoo’s plan to take care of their employees (this make a difference to me), the retention of their independence, and basically their good services I’ll probably stick around.

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