Yahoo investor Starboard Value LP has nominated nine directors to overhaul the web portal's board.
The hedge fund wrote a letter to Yahoo's shareholders this morning saying the current board has "failed to deliver results".
It said significant board changes are needed to "hold management accountable".
Starboard said in the letter that it currently owns around 1.7 per cent of outstanding shares of Yahoo, making it one of the largest shareholders.
It said the stake represents a $570m investment.
The letter, signed by Starboard's managing member Jeffrey Smith, said: "We believe the board clearly lacks the leadership, objectivity, and perspective needed to make decisions that are in the best interests of shareholders."
Starboard said it has been "extremely disappointed with Yahoo’s dismal financial performance".
Yahoo said in a statement that it had noted the letter and would "review Starboard’s proposed director nominees and respond in due course".
Yesterday, eMarketer forecast Yahoo's worldwide net digital ad revenues to fall 13.9 per cent to $2.83bn this year. This compared with a nine per cent growth forecast for Google and 31 per cent for Facebook.