The $42 Million Mistake

2/7/14

Every company and every leader has made a bad hire...i.e., one of those people that within weeks or months clearly did not fit. They could have lacked the skills that were necessary, had a demeanor or personality that rubbed people the wrong way, or just behaved in ways that did not fit with the culture. In any case, the time came to cut that individual loose and start over again looking for the successor.

Such mistakes can't be avoided when hiring hundreds or thousands of employees each year. In addition, most of the "bad" hires present a relatively low risk. However, once we move to the senior executive level, the risk increases exponentially: evidence Yahoo!'s hire and subsequent exit of Henrique de Castro.

In July of 2012, Yahoo! lured Marissa Mayer from Google to become its eighth CEO since its founding in 1995. Consistently ranked as one of the Top 50 Most Powerful Women and having been the first woman to be listed number one on Fortune's list of most powerful business leaders under 40, she began to seek out engineering talent to drive innovative products for the company. In 2013 she hired Henrique de Castro as Chief Operating Officer, luring him from Google with a compensation package that made him one of the highest paid executives in the Silicon Valley.

Mr. de Castro's efforts to drive greater ad revenue seemingly fell flat. While rivals Google and Facebook increased their share of advertising revenue, Yahoo!'s decreased to 5.8% from 6.8% a year earlier. This prompted clashes between him and Ms. Mayer until she ultimately decided to let him go. Experts estimate that his severance package will approach $42 million.

So, $42 million in lost salary and a full percentage point loss in ad revenue. It's too early to determine the cause for this failure. Did Ms. Mayer just not know enough about his skill set and/or personality? It's doubtful since they worked together at Google. Was his skill set just wrong for meeting the challenges Yahoo! faces? Was he just not a good fit with Yahoo!'s culture? Time will tell.

On the other hand, maybe the board's mistake was not in approving the package to attract de Castro. Maybe they made a mistake a year earlier on a very senior hire. This whole situation certainly highlights the magnitude of risk boards face when making C-suite hires, particularly those from the outside.