April 29, 2007
@ 11:50 AM

Terry Semel, Yahoo! CEO, can't seem to get a break these days. It seems everyone has assumed his days are numbered and he will be ousted for "incompetence". I've seen everyone get into the act from the technology press like C|Net and TechCrunch to more laid back technology pundits like Jason Fried in his post I'd rather be Microsoft than Yahoo.

All of these calls for Terry Semel's head remind me of a book I've been planning to read, The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers which describes The Halo Effect as it applies to business. So what exactly is this effect? Well according to Wikipedia

The halo effect refers to a cognitive bias whereby the perception of a particular trait is influenced by the perception of the former traits in a sequence of interpretations. The halo effect is involved in Kelley's implicit personality theory, where the first traits we recognize in other people then influence the interpretation and perception of latter ones (because of our expectations). Attractive people are often judged as having a more desirable personality and more skills than someone of average appearance. Celebrities are used to endorse products that they have no expertise in evaluating.

That may have been a bit difficult to follow, so here's an excerpt from David Wolfe's review of the book that explains the Halo Effect in business

Rosenzweig argues that media is no less error-prone in divining the reasons for a company's performance than gurus who write books on company performance.

He uses two prominent case histories to support the latter claim. Cisco and ABB. He recalls for readers how before the dotcom bubble collapse Cisco's John Chambers was widely regarded as the world's best manager and Cisco itself as without surpass in its organizational structure and corporate culture. Beyond that, according to the common view expressed in media, no company operated with greater customer centricity.

Within months of the dotcom collapse the same media that had virtually canonized Chambers were ripping his reputation as a great CEO to shreds. Cisco's was criticized for lack of attention to customer needs. This was alleged to have played a major role in its downturn in revenues and consequent precipitous loss in stock value. Writers told how the company's organization was fragmented and its culture grossly defective.

Rosenzweig tells a similar story of the Swiss-Swedish power company ABB. From being one of Europe's most highly regarded company to being a favorite whipping boy in media within not very many months, ABB turned out to be another example of what Rosenzweig calls the Halo Effect.

As Rosenzweig explains it, the Halo Effect refers to the aura surrounding a company and its leadership that promotes gross generalizations about its nature. When a company is outperforming, most everyone assumes everything about the company is exemplary. When the same company is underperforming, most everyone assumes everything about the company is defective.
Rosenzweig reminds us that externalities accounted mainly for Cisco's and ABB's decline in fortune. Cisco's downturn for example was inextricably linked to its Internet customers who flamed out in droves when the dotcom bubble burst. No amount of executive brilliance could have stayed the fiscal injury inflected by the dotcom bust.

What does this have to do with Yahoo! and Terry Semel? Glad you asked. See the blog post from ValleyWag entitled Fred Vogelstein's Amnesia which contains the following excerpts

How Yahoo blew it. Semel has been Yahoo's CEO for nearly six years, yet he has never acquired an intuitive sense of the company's plumbing. Semel's vaunted dealmaking skills seem to have deserted him. At Yahoo, the marketers rule, and at Google the engineers rule. And for that, Yahoo is finally paying the price. [Fred Vogelstein, writing in Wired Magazine, January 2007]

By figuring out how to make brand advertising work online, Terry Semel is on the verge of creating the 21st century's first media giant. So far, Semel has put together one of the web's hottest winning streaks... It turns out that the riddle of how to succeed online isn't so tough after all. Semel is taking everything he learned in his analog past and marrying it to what he can see in the digital future. [Fred Vogelstein, writing in Fortune Magazine, August 2005]

Same leadership style, same company. Yet when you tweak the externalities the CEO goes from being "on the verge of creating the 21st century's first media giant" to being someone whose "vaunted dealmaking skills seem to have deserted him". From where I sit, it is unclear that Terry Semel is actually doing a bad job, it just seems that his company isn't doing as well as Google which may or may not have anything to do with him.

I wonder how many years it will take until 20% time, free lunches and all the other things that people hype up about Google are used as examples of why the company has issues when some new upstart shows up on the scene?


Sunday, April 29, 2007 4:57:16 PM (GMT Daylight Time, UTC+01:00)
"I wonder how many years it will take until 20% time, free lunches and all the other things that people hype up about Google are used as examples of why the company has issues when some new upstart shows up on the scene?"

I'll go out on a limb and say those things are bad _now_, it's just harder to see bad decisions when they're buried under piles of VC and stock-market cash.

Massive growth can paper over a lot of things that would otherwise harm a company. As long as the stock price is going up, nobody complains. It's when the growth stops and the stock stops being the Royal Road to Riches that the seams start to show...
Sunday, April 29, 2007 6:33:59 PM (GMT Daylight Time, UTC+01:00)
I'd posit that this has to do with the rather insane compensation CEOs receive. Yahoo is basically treading water, and Semel made $450 million of Yahoo so far. Of course people are calling for his head.

Sunday, April 29, 2007 10:49:18 PM (GMT Daylight Time, UTC+01:00)
Thanks for such a balanced and level headed approach to the whole thing.

More disturbing that Semel's capacity/incapacity to run the company properly is the power that such media stories have, especially since they often prove themselves to be grossly inconsistent with previous postings by the same authors.
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