The Costanza Proposal: Why Scott Thompson Should Start Doing the Opposite of His Instinct

By Sarah Lacy , written on May 7, 2012

From The News Desk

For our younger readers -- and Nathaniel and Trevor -- there's an episode of "Seinfeld" where the hapless George Costanza decides his life is going so horribly that he should start doing the opposite of every instinct.

His first act, if I remember correctly, is ordering the opposite of what he usually gets at the coffee shop, which leads to meeting a gorgeous girl who made the exact same order. Going against his instincts, he goes up to talk to her and tells her he doesn't have a job and lives with his parents. In a reaction that could only be scripted by Larry David, she's intrigued. No matter how crazy it seems, he continues in this fashion, eventually getting a job with the Yankees. It's at this point he says something like, "This is no longer an experiment, Jerry. This is my religion."

I don't usually suggest that CEOs model their jobs after implausible sitcom plots, but I think it's about time Yahoo's Scott Thompson adopt "The Costanza Doctrine."

Tempted to lie on your resume? Do the opposite.

Ready to scrap a complex three-way Asian asset deal that's taken years to negotiate? Do the opposite.

Have an idea to bring in outside consultants to craft a turn around plan for Yahoo? Do the opposite.

Decide to alienate most of your senior management team in favor of those consultants, leaving you with few allies inside the company? Do the opposite.

Fire the brightest minds in social networking? Do the opposite.

Go after the hottest company in the space with a shameless patent lawsuit? Do the opposite.

Want to double-down on the patent troll strategy, going after the feel-good open source movement too? Do the opposite.

Now, according to both the Wall Street Journal and comments during Yahoo's last earnings call, talks are back on to sell the Chinese assets of the company. It's not a tactic to distract from resume-gate. This has been going on for weeks, and we hear real progress has actually been made. This time, he's cutting out all the confusing tax-evading complications of the deal, and dealing to sell only the Chinese assets, not the Japanese ones. According to the Journal, that's because they can't agree on the valuation of the Japanese assets, so Thompson is just going ahead with the Chinese deal.

Once again, Scott "Costanza" Thompson, do the opposite.

It's obvious why Thompson is doing this. A two party transaction where Yahoo just sucks up the tax liability is the only hope of a quick deal, and he needs to deliver something to shareholders this month if he hopes to keep his job. But -- in case anyone still cares about the actual company -- it's a foolish move in the short term.

There is a reason that these parties spent so much time, not to mention money on lawyer, banker and accountant fees, on the three-way deal. The generally accepted assumption is that the Yahoo Japan assets may be at the peak of their value, given the property's growth rates and market potential. But in China, the largest Internet companies are only getting bigger as the market keeps growing. Given Jack Ma just took the only publicly-held part of his empire private again, there's massive upside potential in Alibaba.

In fact, sources close to the situation say that the main reason Softbank CEO Masayoshi Son was willing to suck up the relatively high-priced purchase of the Japanese assets was to get more share of the Chinese assets. When it came to the Chinese assets, Yahoo's former board members were exchanging a plum, long-term growth asset for a short-term reprieve of Wall Street. You can question the logic in that -- and activist shareholder Dan Loeb has. But at least it was using that trump card to offload the slower-growing Japanese assets at a good price.

Instead, Thompson has decided to just sell part of the Chinese assets in the name of simplifying the admittedly laboriously complex transaction and getting a win for shareholders. He has to do something. But it's coming at the price of leverage.

Of course, if Dan Loeb has his way and Thompson is out of Yahoo, this could be the fifth altar trip for the three parties that gets scuttled because internal politics have now changed who is negotiating for Yahoo.

To be fair, a lot of this mess predates Thompson. As I've written before, there's something cursed about the Yahoo CEO job, something toxic in the way the company and its board operates that would set almost anyone up for failure.

Perhaps the most important time Thompson should have done the opposite of his instincts was when his instincts told him the Yahoo CEO job was a career-making move.