Legal Commentary

The press continues to give Carl Icahn a big platform for his ongoing pronouncements about Yahoo.  Here, for example, Icahn claims that Yahoo shares are worth $34.75.  I'm not a negotiation expert, but it seems to me that putting out a public price will only weaken both Yahoo and Icahn in the negotiations.  You also have to love this Icahn quote: "Microsoft and Yahoo! are sort of a marriage made in heaven, even though they sort of hate each other.  Some marriages are good when they hate each other."  I've said this before, but I think the press should be a little more skeptical of Icahn's machinations, given how his Time Warner proxy battle ended up.  (This piece, at least, pokes a little fun.)

Icahn also expressed his outrage about the Yahoo employee severance plan that recently came to light. Calling the plan "unconscionable" and "reprehensible," Icahn said the plan was "a complete, total ... I don't want to use bad words ... a travesty. The very people Microsoft wants to keep, it will make it easier for them to leave."  Um, this may be news to Icahn, but the point of the plan is not to let Microsoft keep Yahoo employees -- it's to help Yahoo keep Yahoo employees in the face of a potential takeover.

I'm being a bit glib.  Icahn's view roughly correlates in tone, if not in volume, with the CW about the Yahoo plan.  The plan has been characterized as a just another creative poison pill that has nothing really to do with employees and everything to do with keeping out Microsoft.  Forbes has even deconstructed the Yahoo Q&A to employees about the plan, interspersing its own skeptical commentary.

Here's what's suspicious about the plan:

• It was apparently adopted in response to the Microsoft offer.
• It was apparently adopted in secret.
• Yahoo's efforts to make it seem like a genuine, employee-oriented plan now look disingenuous.

However, I think beneath the cynicism there is potential for this plan and plans like it.  Other companies could use this plan as a starting point for more beneficial opportunities down the road.

Here is what is good about the plan:

• It does address a genuine concern: employee retention in the face of a potential buyout.  In the case of Yahoo, there's a double whammy.  In most buyouts, employees fear that they might lose their jobs, and thus are more likely to jump to another company before the buyout takes place.  (And a buyout might end up not even happening.)  In Yahoo's case, however, if the employees actually keep their jobs, they will then be working for Microsoft.  (Known in some circles as "the Borg.")  So Yahoo might end up losing a bunch of employees who fear that a buyout might happen -- even if it never happens.
• Thus, the plan is designed to protect employees against the possibility of a Microsoft buyout.  They will get severance if they lose their jobs or if their job responsibilities change.  This gives the employees more power -- they have some degree of control over whether they want to keep working or instead get a severance.  (It's almost akin to a "no-trade" clause in pro sports.)  Of course, this makes the plan more expensive for any buyer, but it's not gratuitous.  It's based on a legitimate employee concern: losing out post-merger by having to do a substantially different (and less desirable) job and not being able to get the severance package.
• The plan applies to all employees.  Some have criticized this part of the plan as "nuts."  But I think it's a welcome signal that all of a company's employees have meaningful contributions to add.  Why shouldn't a company seek to retain all of its employees?  I think this plan is a welcome change from the notion that only top-level executives add value to a company.

I hope this plan is just a starting point for plans like this in the future.  There is an opportunity for employee-oriented companies (like Southwest and Budweiser, perhaps?) to create a plan like this that might be more genuinely oriented towards employee interests.  In addition, I think there's an opportunity for creative unions (such as SEIU) to seize on these plans as a win-win for employees, management, and long-term shareholders.

It will be interesting to see how pension funds such as CalPERS respond to the Yahoo severance plan.  I hope that instead of seeing it as an anti-shareholder scheme, they will focus on its positive attributes as a way of protecting their companies' "employee capital."  Hopefully there will be more to come on this.