Levinsohn, who was hired by Thompson predecessor Carol Bartz and was considered for the CEO opening when she was fired, was appointed global head of media by Thompson. He surely has been vetted upside down and sideways by now so why go interim? Starting another CEO hunt at this point when you have a qualified in-house candidate just prolongs the drama and raises another series of questions when the focus should be on answers.

Picking CFO Tim Morse as interim, as the previous board did, would suggest a business-as-usual tone without anything dynamic behind it. Going with Levinsohn, even on an interim basis, gives them a salesman who can pitch Yahoo inside the company and out.

The changes include an immediate replacement of Roy Bostock as head of the Yahoo board by Fred Amoroso. Amoroso was leading the investigation into Thompson’s credentials and how the board that was in place in January chose him as CEO either without picking up on a discrepancy in his credentials or passing it by.

The new board will include Loeb, CEO of Yahoo’s largest institutional investor hedge fund Third Point, and two of his nominees: Harry Wilson and Michael Wolf. Former NBCU CEO Jeff Zucker withdrew as a nominee. The changes were first reported by AllThingsD and detailed in a company press release Sunday afternoon.

Thompson’s explanation eroded

The Yahoo board that was in place through this weekend stuck with Scott Thompson as CEO as long as it could — and there was strong sentiment for finding a way for him to stay. It seemed unlikely that he could stay after Patti Hart, the head of the search committee, announced she was leaving. (Loeb’s group also showed that Hart’s description of her degree differed from reality.) He was given a chance to explain how he wound up claiming an unearned degree in computer science; that explanation included blaming a junior headhunter for introducing the error and then maintaining he had never read any of the materials that referenced the degree in the intervening years. Unfortunately, those materials included at least one Yahoo SEC filing that he signed.

I’m told that any remaining support for him eroded completely when the search firm produced files that undercut his claim of how the false degree claim started. The frustration and dismay from rank-and-file Yahoos added to the sense that Thompson couldn’t stay.

Hart, Bostock, VJ Joshi, Arthur Kern and Gary Wilson had planned to leave the board at the annual meeting. Instead, they have all resigned now, making it very clear that a new board is in charge.

Closest to a clean slate

That new board can’t be worse than the old one and the variations of it over of the past few years. It is the closest Yahoo has come to a clean slate in a long time,  and it now includes no one tainted by the Microsoft failure. Can it be better? One test will be how quickly it wraps up the CEO question.

In the meantime, Levinsohn has to deal with a layoff round of 2,000 started by Thompson, the re-org that kicked in at the beginning of the month, and a lot of skittish employees wondering why they shouldn’t leave. He has to manage the Microsoft search negotiations, as well as the Alibaba negotiations, and decide how to handle Thompson’s aggressive patent stance, including the lawsuit against Facebook.

All of it will be harder to do from an interim position.

And, as Om pointed out earlier, none of this changes the challenges Yahoo faces as an aging Internet company.

One more note: Now we’ll see how Dan Loeb functions inside the tent instead of as the outside activist with a sharp way with words. He doesn’t have enough votes on his own to force action but from here out he has the recognition and official voice he wanted — and the responsibility.

Update: And, yes, because it can get stranger … WSJ is reporting that Thompson told the board and several colleagues before resigning that he has thyroid cancer and that it contributed to his decision to step down.

Separately, the Yahoo board said it has appointed a three-person special committee to investigate its CEO’s academic credentials — you know, the kind of thing that’s supposed to happen before you appoint a CEO, not after. The committee’s mission:

To conduct a thorough review of CEO Scott Thompson’s academic credentials, as well as the facts and circumstances related to the review and disclosure of those credentials in connection with Thompson’s appointment as CEO.

All three members are independent directors new to the board: Alfred Amoroso is the chairman; John Hayes and Thomas McInerney are the other members. They’ve hired their own counsel, formal federal prosecutor Terry Bird. The timeline? The special committee and the board promise that they ”appreciate the urgency of the situation” and handle the review “in an independent, thorough and expeditious manner.” This announcement comes five days after Loeb’s revelations and the promise of an investigation. Meanwhile, it looks like Yahoo’s leaders want to try a business-as-usual approach (whatever that is) while the inquiry goes on.

The official reason for Hart’s makes sense. Why wouldn’t the board of International Game Technology would prefer its CEO’s energies go toward running that company rather than co-starring in Yahoo’s latest soap opera? But Hart’s decision carries a lot more baggage than that. When Loeb went public last week with the allegation that Thompson could not have the degree in computer science claimed on his Yahoo bio and in SEC filings, Loeb also pointed to a claim in Hart’s bio that didn’t match her actual degree. Hart claimed a bachelor’s degree in marketing and economics from Illinois State University but her actual degree was in business administration.

Loeb was responding to Yahoo’s claim during a proxy battle that it had carefully vetted all of the possible candidates for the board and had determined that only one of his four candidates qualified — and he was not one of them. When Yahoo admitted an “inadvertent error” in Thompson’s bio, Loeb demanded his firing and Hart’s resignation by noon Monday. He didn’t get either.

But now he has Hart’s resignation, whatever the reason offered. He may yet get Thompson to leave or be fired but the Yahoo board appears to be doing everything possible to avoid another change in CEOs. Thompson is at the beginning of a major reorganization and is in the process of laying off 2,000 employees.

No comment from Loeb yet on Tuesday’s actions.

They probably shouldn’t use Yahoo CEO Scott Thompson as a template. Thompson could have ‘fessed up when his resume padding was revealed by Third Point CEO Daniel Loeb during a proxy battle. He could have explained why he decided to claim a phantom degree in computer science or to let it stand if it started as a mistake by someone else.

In the past, that was best accomplished by telling your story to an interviewer who would be tough but fair. Today, he easily could have gone direct via a blog post or a memo. He even could have gone Kanye by taking it to Twitter.

With the right explanation and tone, a sincere apology and possibly some kind of penalty like a cut in pay, Thompson and the Yahoo board might be able to escape major fallout from this tornado.

Instead, Thompson is channeling the Wizard of Oz, first ducking behind a company statement about an “inadvertent error” and promise of a probe, then telling fellow Yahoos in a terse e-mail posted at All Things D:

I am sure you have seen the reports of questions raised regarding my undergraduate degree. As we said yesterday, the board is reviewing the matter and, upon completion of its review, will make an appropriate disclosure to shareholders.

In the meantime, Thompson urges everyone to ignore the yipping dog, pulling the curtain back to reveal a mere mortal operating a machine rather than an all-knowing wizard. (Taking this analogy all the way, that would make Loeb Toto but not gonna go there.)

… I’m doing what I hope all of you are doing — staying focused on our customers, our shareholders, our team and moving Yahoo! forward, fast.

True, Thompson has much more to focus on: getting a vital Ali Baba stake sale done; dealing with the aftermath of laying off some 2,000 employees and executing the massive re-org that started May 1. It’s hard to believe anyone involved at the company wants to go through another CEO switch at this point. It’s even harder to believe Thompson or anyone else on the board wants to be perceived as giving into Loeb’s demands that he be fired by Monday at noon.

Kara suggests the current board will turn the whole problem over to the new one, which places any resolution weeks out and ostensibly gives Thompson time for a win with a sale of at least part of the Ali Baba stake:

What do I really think? I think this cursed board will maintain its 100 percent score of doing the wrong thing at the right time.

But from another perspective, the anemic response and lack of any admission of personal responsibility so far may force swifter action.

If Thompson ends up joining the ex-Yahoo CEO club due to this, it won’t be because of the false degree claim. It will be over the way he responded.

Update: Dan Lyons weighs in with the “so what, take”:

Here’s the thing. The people howling about Résumégate don’t really care about Thompson’s credentials. They just want the guy out, for different reasons, and they see this résumé business as a pretext to get rid of him.

The head of hedge fund Third Point, which is the largest institutional investor in the Sunnyvale company, is waging a proxy battle with Thompson and Yahoo directors over seats on the board. On Wednesday, Thompson stressed a lack of qualifications for Loeb and some of his candidates to be on the Yahoo board — so Loeb went public Thursday afternoon with the allegation that Thompson couldn’t have a computer science degree since it wasn’t offered when he went to Stonehill. Yahoo admitted to an “inadvertent” error and removed the offending line from Thompson’s online bio and promised a probe.

It’s going to be a lot harder to make the problem disappear.

“At a bare minimum, Mr. Yang must declare whether he is a buyer or a seller – he cannot be both,” Loeb writes. Loeb has no respect for Yang as a negotiator, “particularly given his ineptitude in dealing with the Microsoft (NSDQ: MSFT) negotiations in 2008.”

It’s a toss up as to which irks Loeb most: Yang, whom he calls “inept,” as a negotiator at all or Yang negotiating while he is a member of the board. Either way, Loeb is opposed to any private equity deal — and wants two seats of his own on the board.

Yahoo’s board insists it is working in shareholders best interests and that Yang is only part of a 9-person strategic review committee.

Loeb isn’t the first to acquire a stake in Yahoo and try to leverage it into results. Remember Carl Icahn? He left in 2009 after a proxy fight, saying Yahoo no longer needed an activist on the board. (Then again, he listed hiring Carol Bartz as an accomplishment that made him feel better about leaving.)

But Loeb wants the chance to be part of the board’s decision on the company’s future:

Given the Board’s inability – or perhaps unwillingness- to properly solicit true strategic alternative bids, let alone to negotiate them, Third Point demands that we be awarded two board seats – those created by the vacancies of Chairman Bostock and Mr. Yang, or two newly-created ones. We are prepared to assume these positions immediately.

Here’s the full letter:

——————————————————————————-

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Members of the Board of Directors:

As you are aware, Third Point LLC (“Third Point”) manages investment funds that are, collectively, the second largest shareholder of Yahoo! Inc. (“Yahoo” or the “Company”).

We are deeply concerned by news reports that you are considering a leveraged recapitalization that will allow private equity firms to gain substantial equity positions that will, when combined with Jerry Yang’s and David Filo’s ownership, effectively establish a controlling position in Yahoo. More troubling are reports that Mr. Yang is engaging in one-off discussions with private equity firms, presumably because it is in his best personal interests to do so.

The Board and the Strategic Committee should not have permitted Mr. Yang to engage in these discussions, particularly given his ineptitude in dealing with the Microsoft negotiations to purchase the Company in 2008; it is now clear that he is simply not aligned with shareholders. At a bare minimum, Mr. Yang must declare whether he is a buyer or a seller – he cannot be both. If we are correct and he is effectively a buyer, corporate ethics require him to recuse himself from any further discussions on behalf of the Company. He should also be requested by the Company to promptly leave the Board and join Mr. Filo in solely an operating capacity.

In our view, a leveraged recapitalization makes no sense and its only purpose would be to put substantial equity stakes into friendly hands to entrench management and transfer effective control without payment of a premium or even, it appears, a shareholder vote. Nothing can excuse such an action, and shareholders will not be bought off with a dividend of our own money while value is destroyed.

Moreover, such a transaction would undermine the basic tenets of free markets, including democratic voting, accountability and fairness. We do not blame our friends at the private equity firms rumored to be involved for trying to get the best deal possible for their investors; we have great respect for these firms and their leaders – Jim Coulter of Texas Pacific Group, Jonathan Nelson of Providence Equity Partners, Glenn Hutchins of Silver Lake, Henry Kravis of KKR and Stephen Schwarzman of Blackstone.

However, we at Third Point are also in the value-maximizing business. We will not tolerate any transaction which appropriates for insiders opportunities that duly belong to current Yahoo shareholders. However, we would welcome the prospect of any of these firms’ presence on a reconstituted Yahoo Board of Directors and work on a long-term strategy for the Company should it be necessary for us to pursue a proxy contest next year.

If you, as board members, undertake the current course of action, Third Point will hold you personally responsible for such a flagrant violation of your duty of loyalty. Any transaction with a third party who assists members of management and the board in protecting their jobs, and/or involves the effective sale or transfer of control without payment of a control premium, will likewise be subject to scrutiny.

Given the Board’s inability – or perhaps unwillingness- to properly solicit true strategic alternative bids, let alone to negotiate them, Third Point demands that we be awarded two board seats – those created by the vacancies of Chairman Bostock and Mr. Yang, or two newly-created ones. We are prepared to assume these positions immediately.

Sincerely,
/s/ Daniel S. Loeb
Daniel S. Loeb
Chief Executive Officer
Third Point LLC

——————————————————————————-

And Yahoo’s response:

——————————————————————————-

“Yahoo’s Board of Directors’ objective is, and always has been, to serve the best interests of all the company’s shareholders. The Board’s comprehensive strategic review is being properly managed for the benefit of all shareholders and is guided by outside counsel for the independent directors and investment bankers retained separately by the Board. The Board of Directors (eight independents and Mr. Yang) controls the strategic review process and has directed its Transactions and Strategic Planning Committee (comprised of four independent directors) to manage the process day-to-day and report regularly to the Board.

“News reports based on rumor and speculation are just that. The Board’s comprehensive strategic review process is still underway, with a wide range of options under active consideration. We can assure all Yahoo shareholders that whatever the outcome of the strategic review process may be, it will serve the best interests of all the company’s shareholders.

“Mr. Yang is one of 9 directors with the exact same fiduciary duties and motivation as all of his fellow directors — to serve the best interests of all the company’s shareholders. The Board and the Transactions and Strategic Planning Committee initiate, direct, and oversee any work Mr. Yang undertakes in relation to the strategic review process.”