By AMIR EFRATI and JOANN S. LUBLIN
Last Thursday, Yahoo Inc. Chief Executive Scott Thompson called a special meeting at the Internet company's headquarters to deal with the growing controversy over his misstated academic credentials.
Bloomberg News
Former Yahoo CEO Scott Thompson's suggestion that a search firm inserted an error in his bio backfired.
In the half-hour meeting with other senior Yahoo executives, recounted by people familiar with the matter, the 54-year-old executive said he regretted not finding an error in his public biography, which had said, wrongly, for years that he had a bachelor's degree in computer science and accounting. (He had only the accounting degree.)
Then, said the people, Mr. Thompson suggested an executive-search firm might have inserted the computer-science degree into his bio more than seven years ago—a bio he said he had never reviewed.
The blame-game move ended up backfiring on Mr. Thompson, setting off a chain of events that resulted in his resignation over the weekend and the latest black eye for ailing Yahoo. In the process, Mr. Thompson frittered away the goodwill of Yahoo's board, which hadn't wanted to replace him as recently as a week ago, said people familiar with the matter.
Dow Jones Newswires' Neal Lipschutz and WSJ's Rolfe Winkler visit Mean Street to discuss the idea that Yahoo replacing the company's CEO is just the first step in settling the company's recent stretch of upheaval.
Ultimately, Mr. Thompson's comments, some of which were disclosed on tech blogs, angered the search firm, which the CEO didn't name but which is Heidrick & Struggles International Inc. The firm placed Mr. Thompson as chief technology officer of eBay Inc.'s PayPal unit in 2005. To clear its name, Heidrick struck back by calling Yahoo and showing documents it had received from Mr. Thompson containing his inaccurate biography, said people familiar with the matter.
"The coverup became worse than the crime,'' said a person familiar with the situation.
Mr. Thompson didn't return requests for comment. On Monday, a Heidrick spokesman declined comment on whether the search firm has learned more about its recruitment of Mr. Thompson for PayPal and whether it informed PayPal about his flawed credentials.
Photos: Associated Press (Koogle); Reuters (Bartz); Bloomberg News (Semel, Yang, Thompson)
On Monday, Yahoo's stock rose 2.04% to $15.50 in a sign investors are relieved the boardroom drama over Mr. Thompson and his résumé are over.
Yahoo's new interim CEO, Ross Levinsohn, told employees during a Monday afternoon all-hands meeting that he wouldn't discuss strategy yet but said there won't be major changes following a recent reorganization initiated by Mr. Thompson, said people familiar with the matter. "We gotta move on," Mr. Levinsohn said, according to one of these people.
During the meeting, Fred Amoroso, the company's new chairman, said he wanted Mr. Levinsohn to become the permanent CEO, adding that he wasn't a "lame duck," said a person familiar with the matter. Mr. Amoroso said the company hadn't established a CEO search committee yet but may do so, this person said.
In a filing Monday, Yahoo said Mr. Thompson won't receive any severance pay and will lose his unvested equity, a move that sometimes happens when a board terminates an executive with or without "cause.'' However, Mr. Thompson will retain his make-whole cash bonus and his make-whole grant of restricted stock, which has a value of $6.5 million. Mr. Thompson had been entitled to a total of $22.5 million in potential stock awards, a $1.5 million cash bonus and a $1 million annual salary.
Yahoo's Regulatory Filing
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Much of the imbroglio should have been avoided months earlier, said people close to the matter, because Yahoo hired a firm to vet Mr. Thompson's background. The firm's name hasn't been disclosed, and it's unclear whether it turned up the discrepancies.
Another contributor to the mess was Yahoo's inability to settle differences with hedge-fund Third Point LLC, which owns about 6% of Yahoo shares and was waging a fight for Yahoo board seats. Third Point's manager, Dan Loeb, was determined to join the board, along with three other people. But then-Yahoo Chairman Roy Bostock would consider adding only two individuals, not including Mr. Loeb.
Mr. Loeb later discovered that Mr. Thompson had never earned a computer-science degree through a Google search, a person close to the situation recalled Monday. Third Point staffers then called Mr. Thompson's alma mater to confirm his major, this person added. "They didn't use a background-checking firm.'' Mr. Loeb disclosed the finding on May 3.
Yahoo board members were alarmed by the news and by findings that the error had appeared in historical press articles about him and on Yahoo's and other corporate websites, said people familiar with the matter. Mr. Thompson immediately told board members and colleagues that he was innocent and hadn't noticed the error until Mr. Loeb pointed it out.
Within the next few days, Yahoo director Patti Hart, who chaired the CEO search committee that recommended Mr. Thompson, said she planned to leave the board. Her decision was voluntary, people close to the matter said.
On May 8, Yahoo launched a probe over the issue of Mr. Thompson's academic record. At the time, Yahoo directors didn't want to get rid of Mr. Thompson, believing it would be too disruptive to the company, said people close to the situation.
Meanwhile, Mr. Thompson disclosed he had been diagnosed with thyroid cancer, said people familiar with the matter. "Nobody dwelt on [the cancer]'' because the bigger issue was whether Mr. Thompson had deceived Yahoo about his academic credentials, one of the people said.
Mr. Thompson continued to try to clear the air. At the May 10 meeting with staffers, he said that "people who know me" knew he would never lie about his credentials, and that he planned to remain CEO. He then suggested the search firm had inserted the error in his bio, said people familiar with the matter.
Heidrick, which Yahoo had used for its CEO search but which was prevented from vetting Mr. Thompson for Yahoo because of its previous PayPal assignment, then called Yahoo. It also sent the company emails containing Mr. Thompson's inaccurate biography, which he had sent to Heidrick some time before it wooed him for PayPal.
A day later, after Mr. Thompson was told about the material Heidrick had disclosed to Yahoo, he agreed to step down and began telling colleagues, said a person familiar with the matter. He also disclosed the severity of his cancer to the board, said another person familiar with the matter.
By then Yahoo's board had informed Third Point that Mr. Thompson would be leaving and that it would be willing to bring on Mr. Loeb and two other directors of his choosing, said people familiar with the matter. Yahoo and its lawyers from Skadden, Arps, Slate, Meagher & Flom LLP huddled into the night with Mr. Loeb's lawyers from Willkie Farr & Gallagher LLP to hash out an agreement, which was finalized Saturday.
Yahoo announced Mr. Thompson's departure on Sunday. Mr. Thompson took part for some of Sunday's conference call with the board, but he was excluded from the portion of the executive session in which directors confer without the CEO. It was hard to judge Mr. Thompson's emotional state because "he didn't say more than a few words,'' said one of the people familiar with the matter.
