Yahoo's board has replaced Carol Bartz as chief executive of the online media company with immediate effect.
The company has named chief financial officer Tim Morse as interim CEO less than three years after Bartz was asked to step in to help turn the company around.
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The company described the move as a "leadership reorganisation", but Bartz told employees in an e-mail that she had been fired over the phone by Yahoo's board chairman, according to US reports.
Yahoo said it is "commencing a search for a permanent chief executive officer" and will work with an executive search firm to help identify candidates for the position "as expeditiously as possible".
Board chairman Roy Bostock said in a statement that the board can see growth opportunities on which Yahoo can capitalise. "Our primary objective is to leverage the company's leadership and current business assets and platforms to execute against these opportunities. We have talented teams and tremendous resources behind them and intend to return the company to a path of robust growth and industry-leading innovation," he said.
Bostock thanked Bartz for her service to Yahoo during what he described as a "critical time of transition in the company's history and against a very challenging macro-economic backdrop".
Less than a year into the role, Bartz came under fire when the advertising revenue sharing deal she negotiated with Microsoft failed to yield expected returns and initiatives failed to achieve the same success in attracting and retaining users as competitors such as Facebook and Twitter.
More recently, Bartz has been criticised over the handling of the spat with Alibaba Group, which has managed Yahoo's brand and services in China since 2005, and for the poor second quarter performance of Yahoo's core US display ad business.
News of the board's leadership reorganisation was well received by investors, pushing Yahoo shares up more than 6% in after-hours trading from a closing price of $12.91, according to the Financial Times.
Yahoo's board has also set up an executive leadership council made up of key executives to support Morse in managing the company's day-to-day operations until a permanent CEO is appointed.
The council has been tasked with conducting a comprehensive strategic review to position the company for future growth.
Yahoo co-founders David Filo and Jerry Yang, who Bartz replaced as CEO, will also provide counsel to Morse and the executive leadership team.