Yang’s departure could be a turning point for Yahoo

By Richard Waters

Three years ago, when he stepped aside as chief executive of the internet group with which his name is intimately connected, Jerry Yang had a message for the Yahoo faithful: “I will always bleed purple.”

Mr Yang could hardly have come up with a more graphic way to express his love for the company he founded, along with fellow graduate student David Filo, on an idea for an index of websites that the two cooked up together in 1994.

Despite giving up the top job, however, Mr Yang remained on Yahoo’s board and had a powerful behind-the-scenes influence. Carol Bartz, who was forced out as chief executive last September, came to believe that Mr Yang was undermining some of her own efforts to turn round the company, according to people who know her. And when it came time to consider new strategic options after she had left, Mr Yang was the one who was sent out to talk to private equity firms about taking a stake in the company, though people close to the Yahoo board have insisted that he only did so under strict supervision from his fellow directors.

Whether you consider this meddling by a founder who cannot bear to hand over the reins or constructive intervention by a director who knows Yahoo better than anyone depends a lot on where you sit.

If it happens to be in Silicon Valley, where founder mystique is a powerful force, then you are likely to feel that not only did Mr Yang have a right to interfere, he probably had a better sense of what was needed at Yahoo than most of the others on the board. That could make his resignation from the board this week a turning point in the company’s history.

Silicon Valley venture capitalists like Michael Moritz of Sequoia Capital, an early backer of Messrs Yang and Filo, as well as Google founders Sergey Brin and Larry Page argue that it is hard to overstate the value to a tech company of a founder.

It is partly a matter of vision. However much a company grows, according to this view, there is still an original idea and core set of values on which it was founded. At times of stress, tapping back into these is often a route to salvation.

But it also comes down to passion. No professional manager can ever match the sense of purpose felt by a founder. Supporters of this view will note that Mr Yang was still fighting for the company he created long after professional managers (and former chief executives) Terry Semel and Ms Bartz had departed.

When does this passion become too much of a good thing? That is a question that has come to assume outsized importance, given how the latest crop of internet entrepreneurs has taken to formally enshrining their founder control.

Google started the trend, coming up with a dual-class voting structure ahead of its 2004 stock market listing that will keep control firmly in the hands of Messrs Brin and Page. The search company’s highly profitable business and unconventional approach to life made it hard for outside investors to resist the idea. But what began as Google exceptionalism has now come to be seen by many entrepreneurs as a birthright. The likes of LinkedIn, Zynga and Groupon came up with lopsided voting arrangements ahead of their 2011 initial public offerings to give their founders protection against outside influence, whatever happens.

For now, as they race to cash in on business ideas that are producing growth rates that would once have seemed unimaginable, this hardly seems a pressing issue. Yet internet fortunes can turn remarkably quickly. Also, founders such as Andrew Mason at Groupon and Mark Pincus at Zynga have already attracted controversy – Mr Mason for his bullish touting of his company’s IPO and Mr Pincus for a tough management style. Should their boards ever decide that these founders have not grown into the well-rounded chief executives they had hoped for, what could they do to re-exert control?

The tech industry’s prevailing belief in founder control is also set to be tested by a handful of prominent cases where founders have retaken control of their companies in moments of crisis, or at least, of growing competitive pressure.

Mr Yang was a case in point, having stepped up to try to revive Yahoo after it lost the search wars to Google. Michael Dell’s return to the company that bears his name has also been slow to produce results. The latest to step forward was Larry Page at Google, who took the reins from Eric Schmidt last year, a situation that partly echoes that of Mr Yang, who had taken a back seat to more experienced managers before being deemed to have “grown up” enough to take the top job.

With Steve Jobs’ death, the generation of founders that came of age with the rise of the PC industry has largely passed. It is time for a new crop to prove that the fate of their businesses is best left firmly in their own hands. If they stumble, it would deal a long-lasting blow to the idea that Silicon Valley’s founder-led approach is still the best way to build world-beating companies.

Richard Waters is the FT’s West Coast editor.