Starboard Value raises red flag: Ex-CEO

Yahoo's board battle
Yahoo's board battle

Starboard Value is seeking to overhaul Yahoo Inc.'s board, including a company founder, but its intention screams "terrible governance," according to former Office Depot CEO Steve Odland.

"Activists play an important role, particularly in companies that are underperforming or where their boards are unresponsive," he told "Power Lunch." Still, "they are essentially enacting a nonpremium takeover of the company," noting that building a company board that lines up with a specific leader's idea raises concerns.

Starvalue holds 1.7 percent of Yahoo shares. The activist hedge fund's discontent comes as it perceives Yahoo has failed to deliver a turnaround for the company.

In the last year the stock has plunged 21 percent, but has held up 5 percent year to date. Yahoo traded slightly lower on Wednesday.

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A more favorable approach, however, would be changing a "couple" of positions in the board, as small changes could have an "enormous impact," the former executive told CNBC.

A major pressing issue in this proxy fight remains that activist investors aren't necessarily long-term investors.

"The long-term shareholders need to speak up here and make their opinions known," Odland said. "You can't just have short-termism wagging the tail; you've got to have the long-term shareholders weigh in as well."

But, investors remain divided over what the "core issues" with Yahoo are. Recently, Erick Jackson, managing director at SpringOwl Asset Management and Yahoo shareholder told CNBC that the search engine company should oust Marissa Mayer, its CEO. Meanwhile, Larry Haverty, whose firm holds the stock, considers the core business should be sold, as overthrowing the c-suite could do more harm than good, he said.

Conversely, Starboard is no stranger to displacing a company's board in efforts to propel the stock higher, as it did in the case of Darden Restaurants.

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"We are not fans of Yahoo's board and the management team that's had almost four years now to execute their turnaround plan; they really haven't," Jackson, a long-term investor, told "Closing Bell."

"It's a great thing that Starboard has filed these nominees, and all shareholders like us win when we have choices."