The Chief Legal Yahoo

Michael Callahan on negotiating with Microsoft, Google and Icahn

Published in Corporate Counsel Edition® - 2009 — March 2009

Yahoo had a rough year. First the company stock took a dive, inspiring Microsoft to jump in with an unsolicited takeover bid. Then billionaire investor Carl Icahn complicated matters by launching a very public proxy battle. Months of relentless negotiating ensued, and Microsoft finally withdrew its offer. Yahoo emerged, winded and weary, but standing alone. Meanwhile, shareholders were losing faith.

The saving grace, a partnership with Google, fell apart when the rival search engine backed down amid federal antitrust investigations. Soon after, Yahoo co-founder Jerry Yang announced he would resign as CEO. As we went to press, former Autodesk executive Carol Bartz was appointed Yang's successor, and there was still speculation that some entity—maybe Microsoft, AOL or a private equity firm—would step in. Whatever the outcome, Yahoo will be a much different company than it was a year ago.

Michael Callahan, Yahoo's general counsel, executive vice president and corporate secretary, was there through it all. He spent most of 2008 in meetings with Yahoo's executive team and external advisers, strategizing on how to respond to Microsoft CEO Steve Ballmer and Icahn. Although the talks were sometimes grueling, he says, "each day through the process I was truly excited. It was difficult at times but never in a way that would make me not want to be a part of it. Being able to serve Yahoo at a time like that was both professionally and personally rewarding."

The primary goal was to maximize shareholder value. "What I've come away with," he says, "was that the board and management team stayed true to that plan throughout the process." Still, he acknowledges disagreement over whether shareholders would have fared better with Microsoft's $33-per-share offer. That argument will be up for endless debate.

What isn't, however, are his colleague's impressions of Callahan's ability to negotiate. "Michael was calm, focused, reassuring and competent throughout the entire proceedings," says Ron Olson of Los Angeles' Munger, Tolles & Olson, who provided representation to Yahoo's independent directors. "He was somebody a great number of people turned to for judgment and input as they proceeded."

Jon Woodruff, co-head of Goldman Sachs' global tech banking division, describes Callahan as "very sensible and even-keeled. Someone you want to be in a foxhole with."

Callahan landed in Sunnyvale, Calif., in 1999, when Silicon Valley appeared invincible. He was drawn to Yahoo's "ability to keep in touch with people around the world, to be part of the way the world will next be communicating," he says. Starting as a corporate and securities lawyer, he was named general counsel and senior vice president in 2003, just eight years out of law school.

It was a fast-track path that started in the late '80s when he attended Georgetown University's School of Foreign Service. While pursuing a degree in international affairs and Arab studies, he took up a sport that would inform his professional career.

"Rowing taught me the value of perseverance and that nothing could be substituted for hard work," says Callahan, who grew up in Woodbury, Conn. "The sport combines the physical and mental stamina of cross-country with the finesse of tennis, and also has a strong camaraderie element."

Callahan was hired to coach the freshman lightweight rowing team after graduating in 1990; but since the $1,000 salary wasn't enough to live on, he took a second job as a corporate and project finance paralegal in the Washington, D.C., office of Skadden, Arps, Slate, Meagher & Flom. It wasn't long before he enrolled at the University of Connecticut School of Law.

Upon graduating in 1995, he joined Skadden's Boston office, known for its representation of global technology companies. Three years later, he transferred to the firm's San Francisco office.

"All the things in Silicon Valley were pretty exciting," he says. Indeed, soon after arriving on the West Coast, he decided that he wanted be at the center of the action: the tech companies themselves.

He started at Electronics for Imaging, serving as corporate counsel and in business development. But he had his eye on Yahoo, which was attracting the best talent from around the world. Less than a year later, Callahan was there.

Fast-forward to early 2008, when Microsoft threw its $44.6 billion curveball. Although the Redmond, Wash., software giant later sweetened the offer, Yahoo ultimately rejected the $33-per-share price. Still in the picture, however, was Icahn, who owned nearly 5 percent of Yahoo's stock and fought for control of Yahoo's nine-member board. The issue was resolved with an agreement that increased the board to 11 members and gave Icahn three seats—one for himself and for two members recommended by Icahn. Callahan won't comment on the negotiations.

Sitting in a Yahoo conference room, the trim, graying 40-year-old appears relaxed and speaks with a quiet confidence. He looks fit enough to still row—which he does, along with playing a regular game of tennis. He manages about 200 lawyers and professional staff, and oversees all Yahoo legal affairs, dealing with public policy and intellectual property, collaborating on corporate strategy with senior management and the board and responding to day-to-day legal matters. "Fortunately, he has the ability to focus quickly on what is important at the time," says Ken King, head of Skadden Arps' San Francisco and Palo Alto offices.

For his part, Callahan says, "I'm generally pretty detail-oriented. I enjoy the technical aspects of being a lawyer." He believes that "communication skills for an in-house lawyer are truly the holy grail. High-level executives ask themselves, ‘Why am I listening to this person? How can he solve my problems?'"

Despite being a stickler for detail, Callahan doesn't get bogged down in minutiae, says Kent Walker, Google's general counsel. "Mike understands the distinction between the big points that are fundamental to Yahoo and those on which he can be more flexible. ... He advocates vigorously for Yahoo, which is important, but he doesn't want to burn any bridges."

Walker and Callahan worked together last summer, when their companies were negotiating a search advertising partnership. The deal fell apart, though, when Google opted out in November, citing antitrust objections from the Department of Justice.

Callahan often makes trips to Washington, D.C., and Brussels to talk with lawmakers and regulators. "Yahoo has operations on the ground in 24 countries," he says. "We're in a borderless business in a world with borders, so the application of foreign law is a real challenge."

China, by restricting Internet access to citizens, posed a contentious challenge in 2006. Yahoo was reprimanded by U.S. lawmakers and human rights organizations for providing information to Chinese authorities that led to the arrest of dissidents. One was journalist Shi Tao, who was sentenced to 10 years in prison for e-mailing a Communist Party document to a pro-democracy Web site overseas. Tao, who remains imprisoned, used a Yahoo account to send the document.

In November 2007, Callahan accompanied Yang to a U.S. House of Representatives hearing, where they defended Yahoo's conduct. Yahoo, they contended, must respond to lawful requests by Chinese authorities for information about Internet users. Yet during the hearing, Yang publicly apologized to the families of the dissidents, who sat right behind him and Callahan.

Yahoo, Microsoft and Google, together with other Internet companies and human rights groups, collaborated to develop a voluntary code of conduct for operating in countries with restrictive Internet policies. Callahan oversaw senior staff—or "Yahoos," the company term for employees—working on the project, and was involved in direct discussions with participating organizations. The code went into effect last fall.

Although Yang resigned his CEO post just a few months ago, Callahan says, "it's unique that after almost 15 years, Yahoo's founders are still leading the company."

Reflecting on the future of the company, he says, "Yahoo has a one-of-a-kind combination of assets. It is a leading global brand, has cutting-edge advertising platforms, huge scale and audience, a talented work force, and innovative technologies. As the growth of online advertising continues, we are well-positioned to leverage our brand, audience and offerings more effectively than ever before."

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