With another CEO out, Yahoo’s turnaround stalled

For the second time in eight months, Yahoo is without a permanent CEO. The latest development is bringing more trouble for a company struggling to regain its stature in the industry.

The company announced Sunday that Scott Thompson, Yahoo’s CEO since January, has left the company. Thompson, 54, had been under heavy fire over the past few weeks since a discrepancy was revealed in his IT credentials on his resume and the company Web site, along with documents filed with the U.S. Securities and Exchange Commission.

With Thompson out, Ross Levinsohn, who has been serving as the company’s head of global media, will step in as interim CEO while the board searches for a permanent replacement.

Thompson’s departure from Yahoo comes nearly a week after the company announced that a special three-member committee had been set up to investigate the CEO, his academic credentials and the circumstances surrounding his hiring. Thompson’s resume claimed that he had a degree in computer science when he does not.

The company had initially issued a statement calling it an inadvertent mistake.

“It looks like Thompson’s mythical computer science degree is moving from ‘innocent mistake’ into ‘intentional misrepresentation’ territory,” said Dan Olds, an analyst with The Gabriel Consulting Group. “It would be hard for any CEO to stay in place under those circumstances, but factor in Yahoo’s highly public struggles to remain relevant in the industry and keeping Thompson as CEO becomes impossible.”

Despite the investigation, the Wall Street Journal reported Monday that Thompson might have agreed to leave after informing the Yahoo board that he has thyroid cancer. Citing unnamed sources, the Journal said he is beginning treatment.

The turmoil has come just as Yahoo, once an Internet pioneer, has been fighting to regain its position as a top-tier company along with the likes of Google and Facebook, the current online leaders. Former CEO Carol Bartz left the company last September. Now Thompson, her successor, is out eight months later.

The recent developments and bad publicity has been a distraction from the company’s job at hand, say industry analysts.

“This is, of course, a huge distraction that pulls attention away from Yahoo’s attempt to define their role in the industry,” said Olds. “It just cements in people’s minds that Yahoo is a bumbling company that can’t even hire a new CEO right. The effect on internal morale is just as harmful.”

Yahoo needs all hands on deck to execute their turn-around plan. That means Yahoo’s workers need to believe in the company and its future.

“Employees can’t be feeling great about the competence of the Yahoo board and upper management these days – which makes their tasks doubly hard,” Olds said.

Rob Enderle, an analyst with the Enderle Group, noted that the company had no choice but to be rid of Thompson, but that won’t make it any easier for the company to recover from its latest brouhaha.

“Initially it will stall the turnaround efforts and it will now be far more difficult to get someone qualified,” Enderle said. “However, Thompson wasn’t really qualified either, with no Internet publishing or turnaround experience, and the new board might be better focused on their search. But anyone smart enough to turn Yahoo around may also be smart enough to avoid the job in the first place.”

Patrick Moorhead, an analyst with Moor Insights & Strategy, said the turmoil around Thompson is a big setback for the company, but it could end up being a benefit in the long run.

“Thompson’s removal will be a good thing for Yahoo in the long term,” he said. “He didn’t exactly demonstrate strategic capabilities, as his first decisions were layoffs, not setting strategic direction as it should have been. He really put the cart before the horse, which hurt employee morale and investor confidence.

“This now gives the board a chance to find the best leader — one who can set a solid strategic direction and inspire and motivate employees to execute on it,” Moorhead said.

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