Steve Jobs and the CEO succession issue

In its current jittery state, it doesn’t take much to send the stock market reeling. Nor does it take much to pull the rug out from under a single stock. Case in point, on the heels of a less-than-enthusiastic quarterly forecast, a rampant rumor (largely on Internet blogs) regarding the health of CEO Steve Jobs sent Apple stock tumbling in pre-market trading on July 22. At one point, it was down nearly 20 points (12 percent) before recovering much of the lost value in the afternoon.

Still, the speculation and price fluctuation drove two separate stories in the next day’s Wall Street Journal. The key issue, of course, is not so much Jobs’ health as the fact that Apple has no succession plan in place. And in the absence of such a plan, legitimate concerns about a CEO’s health can reek havoc with a company’s near-term prospects, especially in a volatile stock market.

Steve Jobs is an avid vegetarian and so usually does look pretty gaunt. But his 2004 bout with pancreatic cancer hasn’t been forgotten. Some people are now speculating that he's having a relapse. On July 21, Apple’s Chief Financial Officer Peter Oppenheimer declined to answer an analyst's question about Jobs' health, calling it “a private matter.” Fair enough, but that simple comment was probably the impetus behind all the subsequent buzz.

As CNET opined on the story in the midst of the July 22 stock price tumble, “there is no universal standard for how companies are expected to disclose the health issues of their executive officers, the way there are standards for how companies are required to disclose material financial information. Corporate-governance experts generally agree that a company's board of directors has the responsibility to determine whether the health of its CEO is affecting his or her ability to run the company. Likewise, CEOs have a responsibility to be honest and up-front with the board of directors over the true state of their health.”

This is an issue facing all public companies and, as the Journal points out, continues to be a concern for the Securities and Exchange Commission (SEC) – which to date has taken a mostly laissez faire attitude. The SEC to date seems to be saying that, so long as the board is kept informed and there is no unusual (i.e., suspicious) insider trading going on, then it's probably ok.

The current rumors at Apple, in fact, mirror something that I noticed a month ago when Apple rolled out the new iPhone 3G and iPhone 2.0 software at the Worldwide Developers' Conference in San Francisco in June. I've watched videos of several of his appearances, in their entirety, at MacWorld and such the past few years. One glaring difference last month was how he yielded the stage to other people – giving them more time than usual.

When Jobs and Apple introduced the first iPhone at MacWorld in January 2007, Eric Schmidt, Jerry Yang and Stan Sigman, CEOs of Google, Yahoo and Cingular, respectively, briefly took the stage in turn. But last month, two Apple senior executives took the microphone to discuss at length the new features of the iPhone 3G and the new software: Phil Schiller, senior VP for Worldwide Product Marketing, and Scott Forstall, senior VP for iPhone software. (Schillar, incidentally, is often cited among some bloggers as a possible successor to Jobs.) It's very unusual for Jobs to give the stage to any other Apple people. So it got me wondering then.

Nobody at Apple asked me, but if they did, my counsel would be two-fold:

Number one, in cases like this, silence is not golden. Better that Jobs be seen in public, looking hale and hearty (assuming that's the case), even if a bit underweight. I know he's a private guy, but if he cares for the near-term future of his company, it would be good for him to be seen a bit more than usual, for instance dropping in unannounced at a couple of Apple Stores, or offering himself up for selected one-on-one interviews, such as with Charlie Rose. Give the interviewer the chance to ask the health question. Then, answer it honestly.

On the other hand, if in fact he is suffering a relapse or some other unrelated health problem, then this counsel goes out the window. Silence would then be the best approach for the time being.

Secondly, regardless of Jobs' state of health, Apple’s board has been remiss in not addressing the succession issue long ago. This is a company - like Oracle and Dell - that is built around one man's genius and creativity. And it is in danger of losing its raison d'etre if it were to lose him suddenly. The board, then, should step up and develop a succession plan and be very public about it. Sure, Jobs is the heart of Apple and whenever he finally announces his retirement, for whatever reason, the stock will undoubtedly plunge. But a strong succession plan and successor will alleviate much of the damage.

All too often, boards are too passive on this subject. Cases in point: GM and Oracle. Who will succeed GM’s CEO Rick Wagoner? Hasn't he adequately demonstrated his inability to address the core challenges facing GM? Isn't it time for a fresh approach? And why can't Oracle’s Larry Ellison dampen his ego a bit to select a successor who will stick around long enough to actually succeed him?

In the opposite case, look at GE. Few people ever lost sleep over succession issues at GE. It's part of their culture to cultivate future leaders, and CEOs announce their coming retirement well ahead of time to help the board identify their successor. Apple would do well to emulate the GE model.