What to Do When the CEO Allegedly Lies? A Look at Yahoo’s Resume Scandal

Someone padding a resume?  “I’m shocked, shocked…,” as Captain Renault might have said (for those unfamiliar with the reference, see the movie Casablanca).

Well that’s just one of the issues confronting Internet giant Yahoo!, currently embroiled in a nasty proxy fight with activist investor Dan Loeb of Third Point. Recently it has been revealed that CEO Scott Thompson misrepresented his educational credentials, and the media is abuzz with headlines shouting “Should Yahoo’s CEO Be Fired for Lying,” as in this CNN Money piece. In a letter addressed to Yahoo’s board, Mr. Loeb writes:

Six days have passed since Yahoo! acknowledged the fabrications in Chief Executive Officer Scott Thompson and Director Patti Hart’s resumes. Since then, the following has occurred: (i) shareholders have been told that Mr. Thompson’s errors were “inadvertent”, (ii) Mr. Thompson made a classic “I’m sorry you feel that way” non-apology without actually accepting responsibility, (iii) Ms. Hart announced she will not seek re-election to the Board presumably due to her leadership of the botched CEO hiring process but intends to serve out her term, and (iv) the Board has formed a special committee to conduct a “thorough review” into Mr. Thompson’s academic credentials.

Mr. Loeb is calling for other changes at Yahoo! including placing Third Point’s entire slate of directors on the board replacing both Mr. Thompson and Ms. Hart as well as appointing an interim CEO, possibly from within the company’s ranks.  Such a change would mark the fifth time in five years that Yahoo! has changed CEOs.

Of course, questions have been raised during this entire affair many focusing on the board’s responsibility in this matter.  Yahoo! has announced that its board has formed a special committee to investigate the issue. 

The questions are fairly simple:  Does Mr. Thompson hold the degree he claims to have?  What process did the board rely on to vet Mr. Thompson’s background?  Who oversaw that process?  What happens next?

Typically, when hiring top talent, there is an extensive background check usually handled by an outside firm with a specialty in the area (I suspect that checking an academic accreditation is not something you would need to engage Sherlock Holmes for).

If Mr. Thompson is found to have misrepresented his background, he must leave as he might have lost credibility with investors, employees, among other constituencies.

We live in an era of transparency, an era in which the chances of getting caught in a lie have magnified immensely thanks in large part to power of the Internet.

The lesson here is fairly straightforward:  Board members must take an active role in vetting executive candidates and should insist upon a thorough investigation of the person’s background to avoid reputational damage, loss of valuation as well as the distractions that come from dealing with a crisis.

P.S. My good friend and certified “ethicsmeister” Bill McKibben has penned a blog on the doings of media baron Rupert Murdoch.  A worthwhile read which can be found here:  http://ethics-central.blogspot.com/