A major Yahoo shareholder passed over for a seat on the troubled Internet company's board is blasting the decision as "illogical."
Hedge fund manager Daniel Loeb described the snub as a glaring example of shoddy corporate governance in a Wednesday letter to Yahoo CEO Scott Thompson.
Loeb contends he would have been a better representative for Yahoo Inc. shareholders because he controls a 5.8 percent stake in the company through his fund, Third Point LLC. Loeb has spent about $1 billion buying Yahoo shares since September.
After Yahoo said on Sunday that it appointed three other directors who haven't been investing in the Sunnyvale, Calif.-based company, Thompson apparently further aggravated Loeb with his explanation.
Loeb says in his letter that Thompson told him he was rejected because his "experience would not be additive."
Thompson also told Loeb that Third Point's Yahoo holdings might give Loeb an incentive to recommend actions focused on short-term gains instead of strategy that would be produce better long-term returns for Yahoo and its shareholders, according to Loeb's letter.
"Only in an illogical Alice-in-Wonderland world would a shareholder be deemed to be conflicted from representing the interests of other shareholders because he is, well, a shareholder too," Loeb wrote.
Yahoo reiterated that it had been willing to add one of Loeb's preferred candidates, turnaround specialist Harry Wilson, to its board, as well as one other director acceptable to both the company and Third Point. Loeb rebuffed that suggestion.
Yahoo said in a statement that the board remains open to hearing Third Point's ideas and to working constructively with Third Point, as with all of its shareholders.
In his letter, Loeb defended his record as an investor who has held stock in other companies for several years. He also pointed out that Third Point's substantial stake in Yahoo gave him a greater incentive to do what's right for shareholders than the company's other directors.
Loeb still hopes to get his way by leading a rebellion against Yahoo. To get himself, Wilson and two other candidates elected to Yahoo's board, Loeb has launched a campaign that's likely to include brickbats similar to Wednesday's letter for several months.
Some analyst are worried the theatrics will distract Thompson as he tries to overhaul Yahoo's operations and snap the company out of a financial funk that has depressed its stock for years.
Unless a truce is reached, the dispute over the composition of Yahoo's board will culminate at the company's annual meeting.
Yahoo typically holds the meeting in June, although the company delayed it until August the last time its board faced challengers.
Yahoo has shaken things up since hiring Thompson in January by naming six new directors, including the CEO. Also in January, company co-founder Jerry Yang resigned from the board. And four other longtime directors, including Chairman Roy Bostock, will step down at the annual meeting.
Yahoo shares shed 11 cents Wednesday to close at $15.32.