Yahoo CEO search won't be quick

Jerry Yang could potentially remain CEO for months longer if a search for his replacement drags on.

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SAN FRANCISCO (Fortune) -- Tech industry watchers are already speculating on replacements for Jerry Yang, but a new chief executive for Yahoo won't likely be named until well into the new year.

Yang announced Monday that he will step down as CEO when the board names a replacement. But finding the right leader with the right skills to turn around Yahoo (YHOO, Fortune 500) won't be easy. Executive recruiters say it takes roughly four-to-six months to name a CEO if the board acts quickly. And a new executive typically gives at least a month notice before leaving his or her old employer. Yahoo has hired Heidrick & Struggles to find candidates.

Recruiters say that Yahoo's board must first decide the company's strategy is before it goes looking for a new leader. Yang stumbled in articulating that vision after taking over for Terry Semel, who molded Yahoo into a media company. Yang has described Yahoo as a "starting point" for users, a "must-buy" for advertisers, and an "open platform" for developers. Most recently, he described Yahoo as a "consumer brand."

A new CEO will need to have a clear direction of where Yahoo is headed in order to effectively turn around the company. "You can't fit the problem to the leader. That's like the tail wagging a dog," said Bob Concannon, lead tech recruiter for Boyden, which has placed executives for IBM (IBM, Fortune 500), Apple (AAPL, Fortune 500), and Palm. "You need to figure out where you want to go to find the leader to address that. At this level, a CEO is either going to really help the company or further bury it. Yahoo needs to do something because every month it gets less relevant."

The process for vetting a new executive for Yahoo is made more complicated by the makeup of the 11-member board. Shareholder activist Carl Icahn won three spots on the Yahoo board in exchange for dropping a proxy fight last summer. Icahn has actively campaigned to sell Yahoo to Microsoft (MSFT, Fortune 500), but beyond that he has remained mum on how he plans to drive long-term shareholder value for the struggling Internet company.

Said Concannon, "Candidates have to meet with all board members to get approval. I imagine Icahn will have a big voice in this process."

If Yahoo's game plan is to groom itself for a sale, the company won't have to look very far. Yahoo president Sue Decker is an obvious internal candidate to replace Yang. Headhunters say there's no need to hire an outsider if the goal is simply to divest Yahoo's assets. Said Charley Geoly, a tech recruiter with Russell Reynolds, "I would think Sue Decker is imminently qualified to execute a transaction."

Speculation about possible CEO candidates has centered around Decker, former AOL chief executive Jonathan Miller, former Yahoo chief operating officer Dan Rosensweig and News Corp. (NWS, Fortune 500) president Peter Chernin.

Analysts say that no matter who takes over for Yang, Yahoo can't rely on an outright sale to Microsoft as its exit strategy. Despite its struggles to compete with Google (GOOG, Fortune 500) in search advertising, Yahoo remains the search king's nearest competitor. Yahoo also still has $3.2 billion in cash and returns a profit margin of 13%.

"A new CEO would still have a number of moves to improve shareholder value," said Jefferies analyst Youssef Squali. Among its options are offering a major stock buyback, partnering with Time Warner's (TWX, Fortune 500) AOL to form the dominant display ad business, and selling its Asian assets. "As a board, the last thing you want to do is bring in a new CEO banking on Microsoft coming back."