When Yahoo (NASDAQ: YHOO) spurned Microsoft (NASDAQ: MSFT)'s offer to acquire the company last month, many shareholders were outraged. Carl Icahn has acquired a stake in the company and he's rattling the proxy fight saber. Meanwhile, Yahoo has been sued by a group of shareholders alleging that the company and its officers and directors breached their fiduciary duty in failing to negotiate in good faith with Microsoft.

Court documents unsealed in Delaware Chancery Court appear to be quite damaging to Yahoo's management. The papers show that Yahoo rebuffed a bid of $40 per share from Microsoft in January of 2007. Bloomberg quotes one of the company's more quotable shareholders, T. Boone Pickens: "Whoever's suing the Yahoo management and board of directors, if they had a $40 offer and didn't take it, they're going to want to cut their throats for being that stupid. Anybody who sued them has got a good lawsuit, I'd say. I'd hate to be on that board of directors right now.''

The shareholder lawsuit alleges that the company's CEO, Jerry Yang used his power "to delay, to refuse to negotiate in good faith and to erect roadblocks."

The complaint alleges that Yang ignored the counsel of compensation consultants in structuring change of control terms for employees, in a deliberate effort to make an acquisition difficult.

If all of this is true, Yang has got to go as Yahoo CEO. Even if it isn't true, the company's performance in recent years is pretty compelling evidence that change is needed. He is probably the number one CEO on the hot seat right now