After the CEO, Yahoo needs to fire its board

There is one place Yahoo can easily finish first: the company with the worst and most ineffectual board with the spine of a centipede. I have not been a fan of Yahoo’s board for a long time and nothing really has changed my mind. Even before the firing of Carol Bartz, Yahoo’s board has been taking actions befitting a coalition government. Yahoo’s stock performance only proves that fact. From a high of $ 33 a share in October 2007, Yahoo is now down to $ 13.50 a share. Ouch!

J.P. Morgan analyst Doug Anmuth in a note to his clients this morning argued that more than Bartz, shaking up the board will be a sign that Yahoo is serious about change. “Yahoo!’s Board has generally been viewed as slow-moving and more passive; any kind of shake-up here will suggest greater interest in value creation, in our view,” he wrote.

And despite the firing of Bartz, Yahoo is not even close to being out of the woods yet. In fact the company is on the verge of falling flat, nose first. Earlier this morning I was chatting with Ben Schachter, Internet Analyst with Macquarie Securities about Yahoo. “I think that the core business is in even worse shape than expected,” he said. “Also, no one’s talking about it now, but I think the search business is going to face a structural and rapid decline.” And if this continues then Yahoo’s high-margin display business is going to decline pretty sharply. Firing Bartz doesn’t change that.

Why? Like everything else, let’s blame it on the iPhone and Google. Search consumer behavior is steadily shifting to mobile and that limits the opportunities for also-rans like Yahoo. Google has done a good job of positioning itself on mobile and so has Microsoft via Bing. Yahoo’s mobile strategy is at best foggy. In other words, if there is a future for Yahoo, then it involves a complete and strategic overhaul. It needs to become a highly focused company. The Peanut Butter Manifesto made interesting reading and identified some core problems but in the end it didn’t really offer any answers.

Forget the past, invent the future

What Yahoo needs to do is be honest with itself and divest everything that links it to the past of the Internet. It needs to sit down and see what are the core assets that help the company move forward. Whether it is Yahoo Japan or its Alibaba stake, it is time for Yahoo to lock in the gains. Those Asian assets are the reason why Yahoo has a market capitalization of around $ 17 billion. (See the graph from J.P. Morgan.) If Yahoo can sell off those two assets, the company becomes attractive to private equity buyers like Silver Lake Partners, the big technology buy out firm.

Yahoo has a lot of assets, starting with 600 million folks who still believe in the company. I am one of those and still use My Yahoo page for keeping track of things like cricket scores, my fantasy league and even weather and political headlines. A lot of small businesses love Yahoo’s shopping platform, however aging that might be. And now it needs to bet the farm on the future. I think anyone who takes over as the CEO should come in with eyes wide open and one condition — fire the board.

Start a board makeover.

Yahoo has a nine person board and it is time for Yahoo to go for a complete facelift. With the exception of Brad Smith, CEO of Intuit, Jerry Yang, Co-founder and Chief Yahoo needs to infuse new blood on the board and bring on folks who have a deeper understanding of the changes around and ahead of the company.

Here are the kind of people I am thinking Yang should be calling — Paul Maritz of VMWare, Sheryl Sandberg of Facebook, Verizon CEO Ivan Seidenberg and Paul Jacobs of Qualcomm. They can bring insights into cloud, social and mobile landscapes. To get a better grip on Silicon Valley and early stage innovation, Bill Gurley of Benchmark Capital and Reid Hoffman of Greylock Capital are two names that come to mind.

Now beyond tech, Yang should be looking at folks like Mickey Drexler of J.Crew or American Express CEO Ken Chenauth and Ford CEO Alan Mullaly. They would bring vital insight into retail, money and transportation in the era of “connectedness.” And to top it off, Yang should get former News Corp. president Peter Chernin, who started his own entertainment company, to sign on as the chairman of the board.

And then go shopping

When all this is done, the company needs to buy a few key companies in order to build for the future. Hulu would be a good asset to add and so will smaller social sharing applications. These could include startups like Foursquare and Flipboard that help Yahoo understand that in the world of mobile, the very idea of media is not constrained to web-pages and banner ads. What do you guys think?