In a letter to Apple employees released Monday morning, Steve Jobs informed his team that health issues have forced him to take a leave of absence from his day-to-day duties as CEO of the company. Tim Cook, who capably managed Apple in 2009 when Mr. Jobs had a lengthy medical absence, will again assume responsibility for day-to-day operations. Mr. Jobs will remain involved in “strategic decisions” for the company. No time frame was given for Mr. Jobs to return on a full time basis.
While Apple shareholders and customers no doubt wish Mr. Jobs a speedy recovery, the present situation bears an uncomfortable similarity to the events that unfolded almost exactly two years ago. On January 5, 2009, Mr. Jobs announced that a “hormone imbalance” that led to significant weight loss necessitated a leave of absence and that he did not wish to elaborate further on the condition. One week later, he indicated that the situation was “more complex” than anticipated and required a six month leave.
Rumors of the nature of Mr. Jobs’ illness immediately spread like wildfire and anonymous sources were quoted in articles indicating that a liver transplant may be required. At the time, Mr. Jobs refused further comment telling Bloomberg reporters “Why don’t you guys leave me alone–why is this important?”. Months later, sources confirmed that Mr. Jobs had indeed received a liver transplant. He returned to Apple in June 2009.
Shareholders Demand Disclosure
In light of Apple’s poor disclosure of Mr. Jobs’ health issues in the past, Monday’s announcement seems inadequate. Perhaps anticipating this type of event, a shareholder proposal was recently submitted for consideration at Apple’s upcoming annual meeting. Proposal #5 in Apple’s proxy statement calls for amending Apple’s corporate governance guidelines to adopt and disclose a written CEO succession planning policy:
RESOLVED: That the shareholders of Apple, Inc. [sic] (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s Corporate Governance Guidelines (“Guidelines”) to adopt and disclose a written and detailed succession planning policy, including the following specific features:
•The Board of Directors will review the plan annually
•The Board will develop criteria for the CEO position which will reflect the Company’s business strategy and will use a formal assessment process to evaluate candidates;
•The Board will identify and develop internal candidates;
•The Board will begin non-emergency CEO succession planning at least 3 years before an expected transition and will maintain an emergency succession plan that is reviewed annually;
•The Board will annually produce a report on its succession plan to shareholders.
Apple’s board recommends that shareholders defeat the proposal citing, among several factors, the damage to the company that would result from explicitly naming candidates for the CEO position ahead of time. Specifically, doing so could result in other companies attempting to recruit candidates on Apple’s short list and CEO hopefuls within Apple who are not on the list could become discouraged and leave the company.
Board’s Credibility Seriously Damaged in 2009
While the board’s criticism of the shareholder proposal contains some valid points, the trouble is that the board has lost significant credibility due to inadequate disclosure of the succession issue in 2009. Mr. Jobs is one of only a handful of CEOs who are considered truly irreplaceable by shareholders and the public.
When Mr. Jobs was named Fortune’s CEO of the Decade in 2009, Larry Ellison had the following to say:
Larry Ellison, a CEO known to dislike the topic of succession, says of his friend, “He’s irreplaceable. He’s built a fabulous brand. He’s got a wealth of products. Whenever he leaves, I hope he retires in good health and he’s sailing off in his yacht in the Mediterranean. But they’re going to miss him terribly, because it’s a consumer products company. The product cycle is so fast.”
In 2009, Warren Buffett who has given considerable thought to succession at Berkshire Hathaway (NYSE:BRK.A), made the following comments regarding disclosure at Apple:
If I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell the Berkshire shareholders about it. I work for ‘em. Some people might think I’m important to the company. Certainly Steve Jobs is important to Apple. So it’s a material fact. Whether he is facing serious surgery or not is a material fact. Whether I’m facing serious surgery is a material fact. Whether (General Electric CEO) Jeff Immelt is, I mean, so I think that’s important.
It is understandable that Mr. Jobs and his family would like some degree of privacy in the midst of health issues. Most of us would have the same desire to be left alone under similar circumstances. However, as a high profile CEO who is widely considered to be irreplaceable, Mr. Jobs and Apple’s board have a duty to shareholders to be more forthcoming regarding succession issues. Giving the board the benefit of the doubt seems like a stretch given the lack of disclosure in 2009.
Hopefully Mr. Jobs will be back at work soon designing products that will delight customers and enrich his shareholders, but failing to plan for the worst and clearly communicate such plans to shareholders is simply irresponsible.
Disclosure: No position in Apple.