Case Study 10.1: Publicized Conflict at Yahoo In the Age of Information, many big companies will eventually suffer a publicly aired scandal, but it seems that Yahoo has had more than its share in recent years. To name a few: the public, bitter ousting of CEO Carol Bartz in 2011; the unpopular moves by current CEO Marissa Mayer to halt work-from-home privileges and her decision to rate employees on a bell curve. The most recent commotion came in January 2014 when Mayer ousted Henrique De Castro from his position as COO.

De Castro was brought on as her second in command, and he walked out with a much-talked-about $58 million severance—after just 15 months on the job. De Castro was a former vice president of Google’s Partner Business Solutions group, and Mayer, also an ex-Google exec, lured him from Google with a hefty pay bump and more powerful title. His job: to turn around declining ad revenue as Yahoo’s de facto top ad man and liaison to marketers on Madison Avenue as the company continued to lose bids to rivals Facebook and Google. There are indications, however, that Mayer did not know quite what she was getting into by hiring De Castro. “Interestingly, despite giving off the impression they did, the pair actually did not work closely at Google, according to dozens of sources there,” wrote Kara Swisher in Re/Code. “Therefore, Mayer did not seem to grok the many signals that De Castro had a troubled time there near the end of his tenure.” Moreover, De Castro’s performance reviews by Google peers were mixed; he “was a polarizing figure at Google, where Mayer had hired him from [and] quickly became the same polarizing figure at Yahoo,” Swisher added.

As COO with Yahoo, De Castro was charged with nurturing clients, fixing broken relationships with them, and building business. Yet according to Google ex-colleagues quoted by Business Insider, De Castro was known as smart and effective but was “not well-liked by people under him” (a sentiment later echoed by his fellow Yahoo-ers). His enemies were many, it seems, and he made a number of incautious public statements—not good characteristics in someone charged with smoothing over troubled relationships. Moreover, he wasn’t bringing in the dollars his under-the-gun CEO needed, and pressure was mounting. Within the first couple of months, “he and Mayer had developed a tense relationship that many in meetings with the pair found it hard not to notice,” wrote Swisher, quoting a Yahoo insider as saying “They just did not get along and did not hide it at all,” adding that “it was really awkward.’” De Castro had also reportedly been fighting for power with Ned Brody, the new sales head, M&A head Jackie Reses, and marketing head Kathy Savitt. “In other words, everyone inside the Mayer inner circle.”

Although De Castro’s performance reviews by Google peers were mixed, his time at Yahoo was decidedly disappointing. He achieved little in terms of boosting ad revenue, and his time was marked by tensions, including with Mayer herself. No top Yahoo-er earned a full bonus given the company’s financial troubles that year, but others among the top brass were granted between 83 percent and 92 percent of their target bonuses. De Castro, however, was left out in the cold. Industry watchers began to openly speculate that De Castro was on his way out with his conspicuous absence from the Consumer Electronics Show in early January 2014, where giants like Yahoo typically tout their latest and greatest and court new advertisers. In a company memo announcing De Castro’s departure later the same month, Mayer wrote, “Overall, I am confident that the leadership team, our direction, and these changes will enable even more successful execution.” Conspicuously absent was any praise for De Castro’s brief tenure.

Why did Mayer hire De Castro? According to sources who spoke to Business Insider, the reasons were twofold: she believed he was responsible for building Google’s advertising business from zero to billions, and she thought he was the driving force behind the brand advertising success of YouTube. Others saw De Castro as having little to do directly with Google’s growth, mainly sailing in on the coattails of others and being in the right place at the right time. Did Mayer’s reputation suffer for her decision? Many saw De Castro’s departure as a smart and necessary move, but Mayer had hand-selected him and paid him well. Some called for Mayer herself to resign, while others were willing to give her more time in the job to turn the company around. Mayer has taken some responsibility for the mess, saying, ““I think it was the right time for us to go our separate ways. . . . There were issues there that I potentially created, and it was important to me to fix them.” And though Mayer may have made a mistake in hiring De Castro, she’s certainly done a lot right in her two years as CEO: she oversaw the acquisition of 37 companies including Tumblr; she launched a tidal wave of new, critically acclaimed products; and she added to Yahoo’s brand cachet and credibility by hiring celebrity journalists like Katie Couric and David Pogue, former tech writer for the New York Times. On Mayer’s watch, Yahoo’s stock has more than doubled. Her leadership has not been without controversy, but it hasn’t been without achievement, either. As the Motley Fool suggested, “Time to move on and focus on what matters: winning back some of Google’s industry-leading $14.9 billion in quarterly online revenues, most of which are related to advertising.”

“Conflict among team members, in and of itself, is not the enemy,” wrote Ilan Mochari in Inc. “The enemy is when conflicts become personal. One of the signs of a healthy organization is when members of the top team can openly disagree with each other without their relationships becoming tense.” With De Castro and Mayer, that became impossible, and when paired with De Castro’s disappointing sales performance, it resulted in one of the most expensive—and embarrassing—executive partings in Silicon Valley history.

Case Questions

1. Explain whether the ousting of former CEO and COO, as well as the employee standards reform, have been functional or dysfunctional conflict for Yahoo.

2. Explain what type of conflict made DeCastro less than suitable for the position of COO at Yahoo.

3. Describe why trust will be an important factor for Yahoo as a company.