Steve Jobs' spectacular performance as Apple's CEO, along with the cult following the company has built over the years, make it very difficult to doubt his methods. But a fascinating analysis of the composition and mindset of Apple's board reveals what could be an Achilles heel for Jobs: too many board-level CEOs with too much empathy for their peer's position.
Steve Jobs' spectacular performance as Apple's CEO, along with the cult following the company has built over the years, make it very difficult to doubt his methods. But a fascinating analysis of the composition and mindset of Apple's board reveals what could be an Achilles heel for Jobs: too many board-level CEOs with too much empathy for their peer's position."Since his return in 1997, Jobs has constructed a board around him that is very CEO-friendly," writes investment manager Eric Jackson on SeekingAlpha.com. "The majority of his directors are active CEOs. This board has taken a hands-off approach and let Jobs run his business. The results speak for themselves. Yet, this lax governance has led to problems. Jobs should use [Eric] Schmidt's board opening to appoint an outsider non-CEO, not the insider [COO Tim] Cook or yet another active CEO."
The fly in the ointment, Jackson says, is that the three active CEOs on Apple's board-Schmidt was a fourth-were not probing enough and demanding enough because, as CEOs themselves, they identified too closely with Jobs' issues and consequent stances, and failed to step up and make hard calls against some decisions that the near-mythical Jobs had made.
Jackson, who has a PhD in Strategic Management from Columbia University, lays out the challenge while also heaping considerable praise on Jobs and Apple for their accomplishments:
I salute Jobs and the entire company for their results. Yet, I'd remind Apple investors that performance like this brings power. Jobs evaded blame in 2001 in a stock-option back-dating scandal that might have claimed other CEOs. He also announced a six-month leave of absence from Apple earlier this year, without disclosing what he was being treated for. Just because you're a titan of business doesn't mean you shouldn't have to answer to someone.
And Jobs would have had to answer to someone on the board, Jackson argues, if the board were not half-filled with active CEOs empathetic to Jobs' point of view. On top of that, I wonder if some of them were also a bit in awe of Jobs and his accomplishments as well as his mystique-were some board members, whether active CEOs or not, simply too uncomfortable to challenge someone who's been called the world's best CEO of the past decade?
Drexler, Jung, Levinson and Schmidt are all current CEOs, making them naturally sympathetic to Jobs' position at Apple. I'm sure they are all professionals who take their Apple role seriously, but they likely operate by a "golden rule" of sorts: "Ask Steve questions, as you would like to be asked." In other words, don't make him uncomfortable or challenge.
CEO sympathy would also impact questions of executive compensation and granting stock options. Having more current CEOs on your board has been found to predict greater CEO control and executive pay.
Go back to the stock-option back-dating issue of 2001, which involved Jobs. At that time, he was granted 7.5 million Apple shares with an exercise price of $18.30. Later, it was alleged that the exercise price should have been $21.10, which would have led to additional taxable income for Jobs of $20 million.
Jackson offers a nicely detailed timeline of key events leading up to that back-dating kerfuffle, and also questions the level of scrutiny applied by two additional board members who are not active CEOs but who have been on Jobs' board for more than a decade.
Intuit chairman William Campbell and former IBM CFO Jerry York "have served on this board for 12 years now, which, in my estimation, greatly hinders their independence and ability to question Jobs and Apple with a true arm's length perspective," writes Jackson.
This is a great piece for anyone interested in strategic corporate governance, Apple, or the superstar CEO who some believe is the top chief executive of the decade but who very well might have a CEO-sized blind spot.
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