The departure of Steve Jobs as Apple’s CEO is likely to trigger some major changes for the company’s board. Rather than acting as mere advisers to one of the world’s great visionary leaders, the board may have to take more control, be less deferential to the new CEO Tim Cook than it was to Jobs, and meet more often. “Over time that board is going to have to step up to greater responsibility and a more traditional role,” said Jim Post, a professor of management at Boston University School of Management.
Jobs, after a lengthy battle with a rare form of pancreatic cancer and other health problems, on Wednesday said he could no longer fulfill his duties at the world’s most valuable technology company and handed the CEO reins to his long-time lieutenant Cook.
Initially at least, the board will be chaired by Jobs himself, though there are questions over whether he will be in that position long, or play a major role, given the state of his health. The creation of a chairman’s position is a first step in restructuring the board. Apple was one of the few US companies that lacked a chairman, raising concerns that there was no one to balance the power of the CEO.
The company had defended the lack of a chairman, saying it was in the best interests of the company and shareholders for the CEO to instead interact with two co-lead directors, Art Levinson and Andrea Jung. That leadership structure “enhances the board’s oversight of and independence from management…and the company’s overall corporate governance,” Apple had said in a proxy statement in January.
BOARD’S LIGHT TOUCH MAY CHANGE:
Yet Apple’s corporate governance had raised questions. “You could ask how much control Jobs has exercised over the board and some would argue that it was quite a lot,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The problem is we just don’t know much about Apple, it’s pretty opaque.”
There were signs that Jobs has at times kept the board in the dark. Over the past two years, for example, board members have confided to friends their concern that Jobs, in his quest for privacy, wasn’t being forthcoming with directors about the true condition of his health. The board doesn’t, on the surface at least, appear to have been the most active. According to executive search firm Spencer Stuart, it met just four times in 2010 — a year in which the company launched the iPad, and faced growing concerns about Jobs’ health, as well as a public relations black eye over antenna issues on the iPhone 4. By comparison, boards in the S&P 500 index overall met an average of 8.6 times. That may change now that Cook is in charge.
“The board has to be thinking hard about the new responsibilities that they’re going to have to step up to,” said Post from Boston University. For example, it may be challenged to hang on to Apple’s leadership team, which was held together in some part by Jobs’ magnetism, Post said. In Jobs’ three health-related absences in recent years, Cook has taken over the helm.
But the 50-year-old Alabama native, a former Compaq executive and an acknowledged master of supply-chain management, remains largely untested in Wall Street’s view. He wasn’t even on the Apple board before this week — also unusual for someone who had been the No.2 executive in a company. Overall, he is being viewed as a safe bet to run Apple’s sprawling empire, but it would be difficult to find many people who think Jobs won’t be badly missed.
COOK MAY FACE TOUGH QUESTIONS:
Cook’s biggest test will come after the launch of the products that are in the pipeline for the next year or so — which are seen as having the Jobs’ imprint on them. If product development slows after that, it will be up to the board to begin asking tough questions of Cook, corporate governance experts said. The board is not lacking experience. But whether some of its members, mainly CEOs or former CEOs, have much time to commit to their Apple roles is another question. For example, co-lead director Jung also runs Avon Products Inc, the world’s largest direct seller of cosmetics with 40,000 employees, and serves as a director or trustee for other organizations. Another director, Millard Drexler, is chief executive of retailer J. Crew Group, while director Al Gore, the former US Vice President, serves as partner of venture capital firm Kleiner Perkins Caufield & Byers and chairs another investment management firm.
The board is also smaller than average, with just eight members, up from seven before this week’s change, versus an average of 10.7 members for S&P 500 companies, based on the Spencer Stuart data.
Of course, the light touch has not raised many eyebrows while Apple has been prospering — its shares have risen more than five-fold in the past five years — but it would be surprising if such an astonishingly smooth ride could continue. Corporate governance pioneer Robert Monks pointed to Microsoft Corp as an example of how the star quality can dim. Its shares have slipped in the past 10 years even as sales and earnings have climbed. “There comes a time when the magic isn’t there and they become ordinary companies…then you begin to worry about governance,” he said.
