Activist investor and hedge fund manager Daniel Loeb has thrown the first punch to the head in what is shaping up to be a gloves-off proxy fight with struggling Internet company Yahoo. In disclosing misinformation on the resume of Chief Executive Scott Thompson on Thursday, Loeb made clear his intentions. "If misrepresentations were made, they would confirm yet again that Yahoo! is in dire need of a complete corporate governance overhaul," he said in a letter to the Yahoo board that was also released publicly.

An overhaul is what Loeb tried and failed to accomplish in March when Yahoo refused to appoint him and three of his candidates to the board, opting to seat its choices. With a 5.8% share of Yahoo, Loeb, chief executive of Third Point, believes he has the clout to go head-to-head with the company board.

Despite knowing Loeb is serious, Yahoo left the weapons locker open, and Loeb grabbed a bazooka. On its website and in Securities and Exchange Commission filings, Yahoo said Thompson graduated from Stonehill College near Boston with a degree in accounting and computer science. Loeb said he couldn't have the latter, because Stonehill did not offer a computer science degree until 1983, four years after Thompson graduated. The college confirmed to several media outlets that Thompson only had a Bachelor's of Science in Business Administration.

No matter how the proxy battle plays out, it will certainly draw shareholder attention to executives' performance. Loeb is sure to use each stumble as a clarion call for change.

On a roll, Loeb didn't stop there. He also pointed out that board member Patti Hart, who chaired the search committee that found Thompson, also had untruths in her resume. Loeb said she had a bachelor's degree in business administration from Illinois State University, not a degree in economics and marketing.

Yahoo acknowledged the misinformation and seemed to use smoke to evade the attack. According to Yahoo, Thompson's mistake was an "inadvertent error," and Hart had a specialty in economics and marketing.

Loeb's disclosures are intended to taint Yahoo's credibility with shareholders by showing the company did a poor job in vetting the new CEO. In addition, he is raising the question of whether the company is in compliance with SEC regulations.

"Should our concerns about Mr. Thompson's record be accurate, that would call into serious question whether the board failed to exercise appropriate diligence and oversight in one of its most fundamental tasks - identifying and hiring the chief executive officer," Loeb said.

Loeb's success in packing the 14-member board with his supporters rests in convincing other shareholders to join him in changing Yahoo management and strategy. Loeb's best ally is Yahoo's stock price, which fell 1.72% Thursday, to close at $15.40. The stock fell another 1.5% late Friday morning, to $15.18.

"As we have asserted repeatedly and forcefully, as Yahoo!'s largest outside shareholder and a voice for our fellow investors, we believe the Yahoo! board requires fresh, outside perspectives from individuals who have no connection to a failed regime and have the expertise to address the serious challenges facing the company," Loeb said.

No matter how the proxy battle plays out, it will certainly draw shareholder attention to executives' performance. Loeb is sure to use each stumble as a clarion call for change. Fully 70% of Yahoo shares are held by institutional and mutual fund owners.

The downside is the distraction to management. If executives are busy duking it out with Loeb, they are spending less time working on strategy to raise the stock price, which has fallen more than 15% during the past 12 months. Reversing that trend is what Yahoo really needs.

Photo by superfluity.