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02 Sep. 2011 | Comments (0)

The resignation of Apple CEO Steve Jobs and his succession to Chair raises a couple of issues for all public companies regarding the creation and implementation of a succession plan. While it was no surprise that Jobs, who has been fighting a long-term illness for years, stepped down when he did, the whole process is one that almost everyone in the corporate governance space has had their collective eye on. The interest in the situation at Apple isn’t so much centered around the controversy over whether the board should have disclosed the news of Jobs health [caption id="attachment_1316" align="alignright" width="77" caption="Steve Jobs, Chair of Apple"]Steve Jobs, Chair of Apple[/caption] and the company’s succession plan, but how a company with so much success due to one person can remain on top as it gives the reins to a new leader. My take is there are two issues here: whether or not a CEO succession plan needs to be disclosed to shareholders and how the succession plan for a successful company with a charismatic founding CEO should be handled to maintain that company’s competitive advantage. While the Apple board may have not been forthcoming with its succession plan over the past five years, it became apparent right after Jobs tendered his resignation on Aug. 24 that there was one in place. (Of course, the board had been prepared for this eventuality since Jobs had been on medical leave twice.) And one that was highly thought out and already being weaved into the culture enterprise-wide. Exhibit A: Jobs’ letter of resignation disclosed on the Apple web site on Aug. 24. In less than 200 words, he sums up the bottom line of the succession plan: COO Tim Cook becomes CEO and he becomes chairman of the board. His being elevated to chairman may yet become another controversy for the innovative high-technology company. The board also issued a press release simultaneously where the Independent Co-lead Director Art Levinson announced Jobs’ ascendency to the chairmanship of the board. “Steve’s extraordinary vision and leadership saved Apple and guided it to its position as the world’s most innovative and valuable technology company,” said Art Levinson, Chairman of Genentech, on behalf of Apple's Board. “Steve has made countless contributions to Apple’s success, and he has attracted and inspired Apple’s immensely creative employees and world class executive team. In his new role as Chairman of the Board, Steve will continue to serve Apple with his unique insights, creativity and inspiration.” It is definitely too early to tell whether or not the Apple succession plan will be deemed a success. For one thing, the history of founding executives remaining on as chairmen is a bit mixed. There have been cases where the chair undermines the new CEO and doesn’t really pass the baton to his or her successor. As for Apple, it is not clear what the timetable is for Jobs. While he may be ill, there has been no disclosure as to how long he will stay on as chairman. The disclosure issue is one Apple’s board has been dealing with for nearly two years when the Central Laborers’ Pension Fund submitted a shareholder proposal written by the Laborers’ International Union of North America (LIUNA) asking for a written CEO succession planning policy. While shareholders ultimately voted down the proposal, it did get 30 percent of the vote. But it wasn’t as if the board ignored the point raised in the shareholder proposal. In its 2011 proxy statement, it made the following statement: “The company takes succession planning seriously, and the board has adopted a comprehensive process to ensure continuity and maintain the superior quality of its management team.” The Apple situation was unique and important enough to be included as a case study in The Conference Board’s inaugural 2011 CEO Succession Report. The report, which was co-authored by Matteo Tonello, director of corporate leadership research for The Conference Board, and Jason Schloetzer, assistant professor at the McDonough School of Business at Georgetown University, states that the Apple board argued that adoption of the shareholder proposal would give competitors an unfair advantage by revealing confidential strategic information. (For more about the 2011 CEO Succession Report, click here.) The report goes on to point out that LIUNA vowed to keep up the fight for disclosure of the CEO succession plan policy at Apple. The report quotes Terry O’Sullivan, LIUNA general president: “We’ll continue to demand that Apple’s board behaves responsibly and does right by its shareholders. It’s good for the company, investors, and the economy for Apple to demonstrate that it’s prepared.” As for measuring the success of the succession plan for such a charismatic founding CEO as Jobs, time will tell. But if you look closely, you can see the board and management have taken the time to collaborate on the plan. For one thing, the person they named to succeed Jobs is Tim Cook. He has already been eased into the position over the past couple of years as COO, having filled in when Jobs was on his two leaves of absence. In fact, that model of having a successor elevated to the COO position before taking over has become a model used by many companies. Most recently, that was the case at Campbell Soup Co. when new CEO Denise Morrison served a year as COO before formally replacing CEO Doug Conant. Apparently, Apple takes succession planning one step further. According to a recent blog post from Josh Bersin, principal of research and advisory firm Bersin & Associates, Cook has been working with Jobs and other executives to create an Apple University that is meant to “capture the essence of Steve Jobs’ management philosophies.” The idea behind the university approach is to keep the company running under Jobs leadership model long after he leaves the company. Maybe that’s the ultimate succession plan. But alas you have the right leader who is willing to walk away from the company first. At Apple, time will tell.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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