[4 July 2007]
SAN FRANCISCO—In the world of technology, the words “Apple” and “innovation” have become practically synonymous. In one area, however, the maker of personal computers and consumer electronic devices has shown an inability to think different.
And that area is not an insignificant one: It’s the composition of its top leadership.
Chief Executive Steve Jobs, who co-founded Apple in Cupertino, Calif., more than three decades ago, has seen his identity grow so intertwined with that of the company that, to many, Jobs is Apple and vice versa. Especially given the company’s turbulence during his decade-long absence, Apple faces an extraordinarily difficult task in succession planning.
So far, the company has given few if any signs that it has even begun.
Apple wouldn’t make Jobs available for this story, and a spokesman said the possibility that Jobs would leave the company in the foreseeable future was remote.
“Jobs casts a long shadow,” said Neil Sims, vice president of the technology practice at Boyden, an executive recruitment company. “What he brings to Apple is the encouraging of innovation, and that’s a hard thing to replicate in a CEO.”
Apple’s own history has established Jobs’ importance to the company. In the early 1980s, Jobs led the company in its development of the first line of Macintosh computers. The machines helped to revolutionize the industry, pioneering an easy-to-use operating system and the mouse-keyboard interface that is now a given in computer design and use.
In 1983, Jobs himself recruited an outsider—former Pepsi executive John Sculley—to run the business. Two years later, that decision came back to haunt Jobs as the Apple board backed Sculley in the ouster of Jobs from the company.
Apple went through two CEOs over the next 12 years. During this time, the company’s Mac line lost considerable market share to Windows-based PC clones. New products such as the portable Newton handheld device also failed to garner broad interest among consumers.
By the time Jobs returned to the company in late 1996, Apple’s shares had foundered, closing the year just a little over the $4 mark, on a split-adjusted basis—flat with their level when Jobs left the company.
Apple investors have certainly benefited from Jobs’ second coming. He led the company in resurrecting the fortunes of its fabled line of Macintosh computers as well as in the launch of the iPod, which has garnered a majority share of the market for digital music players.
On Oct. 23, 2001, the day Apple unveiled the iPod, Apple’s stock closed at a split-adjusted price of $8.41. Shares closed last year around the $85 mark—that is, up 900 percent. The stock has surged close to 50 percent since then, following the introduction of plans for its iPhone, which went on sale June 29.
“Replacing Jobs would be a big risk,” said Shaw Wu, an analyst at American Technology Research who covers Apple’s stock.
At 52, Jobs is not exactly nearing retirement age. But a brush with cancer three years ago and a probe by the Securities and Exchange Commission over the past 12 months have raised the specter of an Apple without Jobs at the helm—a notion that has proved frightening to investors.
Wu said he believes the company could find an acceptable and qualified replacement within its own executive ranks, but, he conceded, “Apple’s stock would be negatively impacted at first.”
Investors got a glimpse of that scenario last year, when the company came under the scrutiny of regulators probing its accounting for stock options. In August of last year, Apple’s shares fell 11 percent during the week that followed the company’s acknowledgment of an internal probe into the options matter, which fueled initial fears that Jobs would have to step down.
Though the SEC said it does not plan to bring any action against the company, the issue may return to haunt Jobs. Former Apple Chief Financial Officer Fred Anderson cooperated with federal investigators and said Jobs had been warned about the backdating of options.
Industry analysts and executive recruiters say it is precisely because of Apple’s success under Jobs that the company needs to proceed carefully and thoughtfully when it comes to replacing him—when the time arrives. “For one thing, Steve created the Apple culture, and that needs to be sustained,” said Steve Watson, chairman of the executive-search firm Stanton Chase International. “If I was on the Apple board, I would look for management skills at the lower levels at Apple and bring in some of those people to learn the operations at the higher company levels.”
Wu, of American Technology Research, pointed out that Jobs has not single-handedly developed all the products that have propelled Apple to its current success. The issue is showing Wall Street that Apple has a deep bench, Wu said. “Jobs signs off on everything, but he is surrounded by a lot of talent that’s made Apple what it is.”
If Apple were to promote from within, two executives are considered best positioned for the company’s top job.
One is Tim Cook, who was named Apple’s chief operating officer in October 2005 after serving for three years as the company’s executive vice president of worldwide sales and operations. Cook’s current duties include leading Apple’s Macintosh division, as well as working with Jobs to set Apple’s overall direction. Cook also took over the running of Apple’s day-to-day operations for several months in 2004 while Jobs recovered from successful pancreatic-cancer surgery.
No one who follows Apple doubts Cook’s qualifications as an executive, but little is known about his marketing and branding experience—and those are two of the most critical aspects of Apple’s entire operation. “If you plan to make him the heir, steps should be taken to develop him to take over and meet the expectations the market will have for Apple’s image,” said Nate Bennett, a professor of management at Georgia Tech. “That’s going to be a tough act to follow.”
Another Apple insider who might vie for the company’s top job is Philip Schiller, Apple’s senior vice president of worldwide product marketing. Schiller is known for his media friendliness. He often makes himself available for rounds of interviews at Apple events or when Apple releases new products.
Schiller is also one of Jobs’ main foils in demonstrating new Apple devices at the annual Macworld and developers conferences. And during Jobs’ recovery from cancer, Schiller took Jobs’ place at the Apple Paris Expo, delivering a keynote address and publicly unveiling a redesigned version of the iMac computer.
Additionally, Schiller is known for his role in the development, marketing and promotion of Apple’s products; for selling the company to the public; and for helping to develop the Apple culture—all viewed as crucial for anyone who eventually takes over a company as brand-self-aware as Apple.
The past experiences of Apple and other high-tech giants in replacing CEOs show that a new face doesn’t necessarily translate into great returns for investors.
Microsoft Corp. didn’t look far when on Jan. 13, 2000, it handed its hyper-enthusiastic president, Steve Ballmer, the CEO reins held until then by co-founder Bill Gates. The company’s stock closed that day at a split-adjusted price of $29.11 a share. Since then, Microsoft’s stock has pretty much treaded water.
Ballmer has remained Microsoft’s CEO, and, while the company’s shares haven’t set the world afire, Microsoft has branched out with its Xbox game consoles and Zune media player, and it remains one of the most influential technology companies.
On March 4, 2004, Dell Inc. named its president and chief operating officer, Kevin Rollins, to replace Dell founder and namesake Michael Dell as CEO of what was then the No. 1 PC company in the world. On that day, Dell’s stock closed at $32.26.
After almost three years in which Dell’s earnings and revenue growth slowed, and Hewlett-Packard Co. overtook Dell as the world’s top PC seller, Dell fired Rollins on Jan. 31 and re-appointed Michael Dell as CEO. Dell’s stock has risen almost 12 percent since that move, but shares are still 18 percent below their level at the time of Rollins’ appointment.
While Microsoft and Dell have had mixed results promoting a new CEO from within their companies, H-P has surged since it went outside the fold to name Mark Hurd to its top executive spot.
Since Hurd was appointed on March 29, 2005, to replace the embattled Carly Fiorina, herself an outsider when hired to run H-P, the company’s stock has climbed 107 percent to $45.18. Hurd led H-P through a restructuring that shed more than 10,000 jobs, and the company has added the title of world’s No. 1 PC maker to go along with its long-held place as the top printing company.
In the case of Jobs, the trick is to find someone who can maintain the vision that has sustained the company, according to Rick Lash, director of leadership and technology management at the Hay Group, a global management consultancy.
Jobs “is a culture all to himself,” Lash said. “The challenge for a new leader is to maintain that culture of vision. The problem could be that, once there, a new leader could lose that vision.”