Scott Thompson Needs to Watch His Swagger

NEW YORK ( TheStreet) --There's a fine line between self-confidence and arrogance as a CEO. I think Yahoo!'s ( YHOO) Scott Thompson is walking the razor's edge.

It's healthy to be self-confident as a CEO. If you didn't think you could do a good job, you wouldn't get the job in the first place.

If you're arrogant, you think you're smarter than your direct reports and your competitors. That means you probably begin to develop blind spots around strategic decisions you make.

Yahoo! CEO Scott Thompson

Being arrogant as a CEO can be especially dangerous if you're an outsider coming into a new industry -- and yet you still think you're smarter than your management team and the rest of the industry. Then, you make bold decisions, with little input from knowledgeable others, which could really sink your company.

I think it's bonkers, by the way, that Larry Page decided that Google ( GOOG) should buy Motorola Mobility ( MMI) and then keep that business (as they seem determined to do). They have no idea how different that business is going to be from the ad business and seem destined to make lots of blunders. Time will tell.

Scott Thompson could be at risk of being a little too arrogant in his first 90 days on the job at Yahoo! It's a mistake that Thompson's predecessor, Carol Bartz, made in her first year and she never really lived that down.

It seems like Scott is falling into the same trap.

Consider this:

1. He reportedly insulted a bunch of Yahoo!'s top ad agencies, including Interpublic, last month when he said all Yahoo!'s partners needed to add value.

2. He reportedly inserted himself into the Alibaba discussions and iced them -- at least for the time being. Business Insider said he claimed he knew how to deal with Jack Ma because he'd had some dealings with him before at PayPal.

3. He gave the green light to sue Facebook -- which I agree with by the way.

4. He's put Yahoo! employees on notice that they have to add value.

5. He appears to have blown off Dan Loeb, according to Loeb, with "insouciance" instead of trying to work out a settlement to avoid a proxy battle.

In my view, there's a big danger for Thompson showing too much swagger without it being clear that he really understands the problems facing the company.

Thompson's defenders might say that Yahoo! could use some swagger as it's been struggling for many years. But recall that's exactly what happened in the first year of Carol Bartz' tenure. The press was very positive on her tough talk. "Finally, an adult is in charge at Yahoo!," seemed to be the underlying tone of articles covering Bartz at the time.

Yet, a couple of short years later, the same press was describing Bartz as more of an out-of-touch buffoon, who "clearly didn't have any consumer Internet background." We never heard any complaints of that before.

Any time an outsider comes in as CEO, part of the reason they are hired in the first place is to see the company with fresh eyes. They are expected to challenge the company's conventional wisdom. They are expected to make bold moves, because the status quo has clearly not led the company to the expected results.

However, this rope yielded to the new CEO can become a noose if he/she doesn't have a good sense of the problems and intricacies facing the company.

I fear that Thompson's a little too over-confident in his sense of the company for a guy who has only been on the job for a little over two months.

If I were him, I'd make sure I do the following in short order:

1. Find a win-win solution with Dan Loeb, bringing him on the board with his representatives and avoiding a distracting proxy battle.

2. Find a win-win solution with Jack Ma. Thompson's dealings with Alibaba on behalf of PayPal by no means prove he knows how to deal with Ma. The bottom line is that every day that goes by, Alibaba's value goes up. That puts pressure on Ma. However, U.S. investors are not giving Yahoo! any credit for the Alibaba stake currently. Thompson should engage with Ma to sell back say a quarter of Yahoo!'s stake in Alibaba in exchange for clarity around the stake and a path to an Alibaba IPO.

3. Get on with the layoffs, but ensure you're cutting fat and not muscle. The cuts should extend to full-time contractors as well as full-time employees, as the true headcount has been underestimated by this trick for some time now.

Thompson obviously wanted this job to be CEO and get out from under John Donahoe's shadow at eBay ( EBAY). In my view, he still can be a great success at Yahoo! After all, expectations are so low, it won't take much to exceed them. Yet, the biggest danger facing him is himself and overestimating his own prowess and abilities. Find a few smart lieutenants around him at Yahoo! -- whether on the board or the management team -- and shut up and listen more.

At the time of publication, Eric Jackson was long YHOO.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

More from Technology

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

3 Must Reads on the Market From TheStreet's Top Columnists

3 Must Reads on the Market From TheStreet's Top Columnists

Jim Cramer: Okta Is a Very Expensive Stock

Jim Cramer: Okta Is a Very Expensive Stock

Here's Why Tesla's Solar Shakeup Makes Sense

Here's Why Tesla's Solar Shakeup Makes Sense

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A