Apple Board’s ‘Steve Jobs Dilemma’




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Corporate Governance And Apple

As of 2011, Apple had seven members on its board. Other than Jobs, all the directors were independent under the applicable NASDAQ and US Securities and Exchange Commission (SEC) rules. The board leadership structure was such that there was no Chairman. Instead it had two independent Co-lead Directors. According to Apple, the board believed that this structure ‘enhanced the Board’s oversight of, and independence from, management, the ability of the Board to carry out its roles and responsibilities on behalf of the shareholders, and the Company’s overall corporate governance.

It also allowed the CEO to focus on operating and managing the company and to leverage the experiences and perspectives of the two independent Co-lead Directors. The board had three standing committees – Audit and Finance Committee (Audit Committee), Compensation Committee, and Nominating Committee – each of which operated under written charters adopted by the board. As per NASDAQ and SEC rules, the Chairs and all committee members were independent (Refer to Exhibit III for profiles of the directors and to Exhibit IV for the members of the committees).

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Job's Health Raises Governance Concerns

According to analysts, the secrecy Apple maintained on Jobs’s health problems in 2009 was further proof of how deeply entrenched the culture of secrecy was at the company. The information of a liver transplant performed on Jobs in 2009 was kept from public knowledge despite its relevance to workers and investors. On January 14, 2009, Jobs sent out a memo to announce that he would be taking a six-month leave of absence until the end of June 2009. .....

Jobs Goes On Indefinite Leave Again

Jobs’s health remained an ongoing concern for the company and its investors since 2009. In January 2011, Jobs, then 56, took unexpected leave again.13 In his January 17 e-mail to company employees, Jobs, wrote, “I will continue as CEO and be involved in major strategic decisions for the company. I have asked Tim Cook to be responsible for all of Apple’s day to day operations. I have great confidence that Tim and the rest of the executive management team will do a terrific job executing the exciting plans we have in place for 2011.......

Clamor For Succession Plan

Apple started facing criticism from investors again after Jobs took another indefinite leave of absence in 2011 for health reasons.51 Some investors asked Apple’s board to have some type of succession plan in place to allay their fears.49 Central Laborers’ Pension Fund (CLPF) , which owned more than 11,000 of Apple’s shares, had filed a shareholder proposal entitled ‘Amend the Company’s Corporate Governance Guidelines to adopt and disclose a written CEO succession planning policy’.......

Company's Response

Apple had always been tight-lipped on Jobs’s successor26, maintaining that these demands were not in the best interests of the company. The company had throughout maintained that it had a succession plan in place but would not disclose it. Apple said that it had a governance policy that included an annual board review of succession planning for senior executives, including the CEO. The company contended that CLPF’s resolution would “give competitors an unfair advantage” by publicizing the company’s “confidential objectives and plans......

The Showdown

At the AGM, the shareholders rejected the proposal that called for the board to amend its corporate governance policy to adopt a CEO succession planning policy and to disclose it. All the seven members of the Apple board were re-elected. However, the shareholders voted to adopt a majority voting standard for director elections.61 According to Anne Simpson, head of corporate governance, CalPERS, which had voted in favor of the CEO succession plan proposal, “Shareholders have spoken up and have sent a message loud and clear to the board.....

Should The Board Have A Rethink?

Analysts felt that the near-term outlook for Apple was strong. They noted that though Jobs played a key role at Apple, market reaction to his need to take sick leave in early 2011 was less extreme than some analysts had suggested it might be.70 According to a ChangeWave survey, of the 3,091 respondents, 93% said they would continue to buy Apple products, compared to just 18% the previous time Jobs had taken a break. According to RBC Capital Markets analyst Mike Abramsky, the familiarity of the departure and the promise of new products coming down the pipeline later in 2011 might have given consumers “higher comfort” with Jobs’s absence.....

Exhibit

Exhibit I: Apple: Product Timeline
Exhibit II: Apple’s Key Financials
Exhibit III: Apple’s Board of Directors
Exhibit IV: Board Member of the Committees
Exhibit V: Apple’s Three-year Stock Chart (June 2008 – May 2011)


 

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