Case Study 10.1: Publicized Conflict at Yahoo In the Age ofInformation, many big companies will eventually suffer a publiclyaired scandal, but it seems that Yahoo has had more than its sharein recent years. To name a few: the public, bitter ousting of CEOCarol Bartz in 2011; the unpopular moves by current CEO MarissaMayer to halt work-from-home privileges and her decision to rateemployees on a bell curve. The most recent commotion came inJanuary 2014 when Mayer ousted Henrique De Castro from his positionas COO.
De Castro was brought on as her second in command, and he walkedout with a much-talked-about $58 million severance—after just 15months on the job. De Castro was a former vice president ofGoogle’s Partner Business Solutions group, and Mayer, also anex-Google exec, lured him from Google with a hefty pay bump andmore powerful title. His job: to turn around declining ad revenueas Yahoo’s de facto top ad man and liaison to marketers on MadisonAvenue as the company continued to lose bids to rivals Facebook andGoogle. There are indications, however, that Mayer did not knowquite what she was getting into by hiring De Castro.“Interestingly, despite giving off the impression they did, thepair actually did not work closely at Google, according to dozensof sources there,” wrote Kara Swisher in Re/Code. “Therefore, Mayerdid not seem to grok the many signals that De Castro had a troubledtime there near the end of his tenure.” Moreover, De Castro’sperformance reviews by Google peers were mixed; he “was apolarizing figure at Google, where Mayer had hired him from [and]quickly became the same polarizing figure at Yahoo,” Swisheradded.
As COO with Yahoo, De Castro was charged with nurturing clients,fixing broken relationships with them, and building business. Yetaccording to Google ex-colleagues quoted by Business Insider, DeCastro was known as smart and effective but was “not well-liked bypeople under him” (a sentiment later echoed by his fellowYahoo-ers). His enemies were many, it seems, and he made a numberof incautious public statements—not good characteristics in someonecharged with smoothing over troubled relationships. Moreover, hewasn’t bringing in the dollars his under-the-gun CEO needed, andpressure was mounting. Within the first couple of months, “he andMayer had developed a tense relationship that many in meetings withthe pair found it hard not to notice,” wrote Swisher, quoting aYahoo insider as saying “They just did not get along and did nothide it at all,” adding that “it was really awkward.’” De Castrohad also reportedly been fighting for power with Ned Brody, the newsales head, M&A head Jackie Reses, and marketing head KathySavitt. “In other words, everyone inside the Mayer innercircle.”
Although De Castro’s performance reviews by Google peers weremixed, his time at Yahoo was decidedly disappointing. He achievedlittle in terms of boosting ad revenue, and his time was marked bytensions, including with Mayer herself. No top Yahoo-er earned afull bonus given the company’s financial troubles that year, butothers among the top brass were granted between 83 percent and 92percent of their target bonuses. De Castro, however, was left outin the cold. Industry watchers began to openly speculate that DeCastro was on his way out with his conspicuous absence from theConsumer Electronics Show in early January 2014, where giants likeYahoo typically tout their latest and greatest and court newadvertisers. In a company memo announcing De Castro’s departurelater the same month, Mayer wrote, “Overall, I am confident thatthe leadership team, our direction, and these changes will enableeven more successful execution.” Conspicuously absent was anypraise for De Castro’s brief tenure.
Why did Mayer hire De Castro? According to sources who spoke toBusiness Insider, the reasons were twofold: she believed he wasresponsible for building Google’s advertising business from zero tobillions, and she thought he was the driving force behind the brandadvertising success of YouTube. Others saw De Castro as havinglittle to do directly with Google’s growth, mainly sailing in onthe coattails of others and being in the right place at the righttime. Did Mayer’s reputation suffer for her decision? Many saw DeCastro’s departure as a smart and necessary move, but Mayer hadhand-selected him and paid him well. Some called for Mayer herselfto resign, while others were willing to give her more time in thejob to turn the company around. Mayer has taken some responsibilityfor the mess, saying, ““I think it was the right time for us to goour separate ways. . . . There were issues there that I potentiallycreated, and it was important to me to fix them.” And though Mayermay have made a mistake in hiring De Castro, she’s certainly done alot right in her two years as CEO: she oversaw the acquisition of37 companies including Tumblr; she launched a tidal wave of new,critically acclaimed products; and she added to Yahoo’s brandcachet and credibility by hiring celebrity journalists like KatieCouric and David Pogue, former tech writer for the New York Times.On Mayer’s watch, Yahoo’s stock has more than doubled. Herleadership has not been without controversy, but it hasn’t beenwithout achievement, either. As the Motley Fool suggested, “Time tomove on and focus on what matters: winning back some of Google’sindustry-leading $14.9 billion in quarterly online revenues, mostof which are related to advertising.”
“Conflict among team members, in and of itself, is not theenemy,” wrote Ilan Mochari in Inc. “The enemy is when conflictsbecome personal. One of the signs of a healthy organization is whenmembers of the top team can openly disagree with each other withouttheir relationships becoming tense.” With De Castro and Mayer, thatbecame impossible, and when paired with De Castro’s disappointingsales performance, it resulted in one of the most expensive—andembarrassing—executive partings in Silicon Valley history.
Case Questions
1. Explain whether the ousting of former CEO and COO, as well asthe employee standards reform, have been functional ordysfunctional conflict for Yahoo.
2. Explain what type of conflict made DeCastro less thansuitable for the position of COO at Yahoo.
3. Describe why trust will be an important factor for Yahoo as acompany.
