Who Will Replace Steve Jobs?

I'm sure that Genentech chief executive Arthur Levinson thought he was being helpful when he responded to investor concerns about CEO Steve Jobs' health raised at yesterday's annual meeting of Apple (Nasdaq: AAPL  ) shareholders.

Or maybe not. "We believe we have met all disclosure obligations," Dow Jones reports Levinson as telling shareholders. "Nothing has changed. Succession planning is something this board takes up regularly. You can assume we will do that responsibly."

You'd think so. Levinson has been seated on Apple's board since 2000 and, today, is co-lead director. I absolutely do expect Levinson and his peers to do the right thing.

The right thing
Here, that means disclosing a succession plan as soon as possible. Trouble is, Apple may not have one.

At least that's what investors believe. Rewind to January with me. Within two trading days of Jobs disclosing a six-month medical leave, Bloomberg reported that the Securities and Exchange Commission was investigating whether Apple had violated rules in how it disclosed Job's condition, and the stock fell to a new 52-week low, $78.20 a share.

If ever there was an argument for a succession plan, that's it. But there's also the practical reality that technology products take years and hundreds of millions in research and development to create. Apple's R&D budget has consumed more than $1.17 billion over the last 12 months. Shouldn't Jobs be working in tandem with an eventual successor in spending those dollars?

The pressure to compete is immense. Not only does the iEmpire face Microsoft (Nasdaq: MSFT  ) in operating systems and entertainment and Hewlett-Packard (NYSE: HPQ  ) in PCs, but also Research In Motion in smartphones. It can't be easy managing an organization with so varied a list of peers and products.

A history of successful successors
Corporate history is filled with stories of CEOs who handpicked their successors out in the open, before they left, with excellent results.

Jack Welch named Jeff Immelt his successor at General Electric (NYSE: GE  ) in November of 2000, a year before his retirement. Not only was Immelt given time to transition out of his gig as CEO of GE Medical Systems and into the top job, but the other candidates, Bob Nardelli and Jim McNerney, were freed to pursue other management jobs. Today, Nardelli leads Chrysler, and McNerney leads Boeing (NYSE: BA  ) . Immelt is still a fixture at GE.

Lou Gerstner announced in January of 2002 that he would step aside for current IBM (NYSE: IBM  ) chief Sam Palmisano in March of that year. But the transition had been underway for at least 18 months; Palmisano was named Big Blue's president and chief operating officer in July of 2000.

Some will point to Warren Buffett's reluctance to publicly name a successor in defense of Jobs and Apple and their recalcitrant stance when it comes to disclosure. Fair? Maybe. I do think there's a difference, though.

Berkshire Hathaway's (NYSE: BRK-B  ) competitive advantage is cooked into the brains of Buffett, Munger, and the investing team at Berkshire. That could change materially with a change in personnel. Thus, revealing a successor too early is, in a way, giving away competitive information.

Now, what if Apple were to name Tim Cook or star product designer Jonathan Ive as Jobs' successor tomorrow? Would that reveal anything competitively about Apple? I doubt it.

On the other hand, there are two huge advantages to naming a successor as soon as possible. First, it would settle investor uncertainty. We hope for the best when it comes to Jobs, but we also don't really know if he'll be back in five months, as planned. That makes it very difficult to assign a meaningful risk premium to the stock, obscuring its true value.

Second, a plan would allow Jobs and his successor to work closely together. Shouldn't that be the goal? Apple is loaded with talent, but Steve's management of that talent is a key reason that Apple's yielded the results we've enjoyed over the past 12 years. Codifying the process would help any successor to evaluate and make changes as needed while also preserving proven practices.

I believe Mr. Levinson when he says that he and the board are pursuing responsible succession planning regularly. Thank you for that, Mr. Levinson. Just remember when you're done that disclosure isn't a right.

It's a responsibility.

Apple and Berkshire are Stock Advisor selections. Berkshire and Microsoft are Inside Value picks. The Fool owns shares of Berkshire Hathaway. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Tim had stock and options position in Apple and stock positions in IBM and Berkshire at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Berkshire and is also on Twitter as @TheMotleyFool. It also invites you to tune into its disclosure policy.


Read/Post Comments (5) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2009, at 5:35 PM, Fred3x3 wrote:

    Why would anyone assume that a company that evidences such extraordinary control over every aspect of its products and operations would not have a plan of succession in place?

    Considering how thoroughly Apple plans everything, from product conception, through marketing, launch and support, that assumption makes no sense at all.

    This is a company that pays attention to every detail. It has a culture of perfection. It most certainly knows its way into the future.

    That pathway is likely to be as elegant and well conceived as the iPhone, the App Store, iTunes, the latest MacBooks, Mac OSX itself and everything else that Apple touches.

  • Report this Comment On February 26, 2009, at 6:23 PM, TMFMileHigh wrote:

    Hi Fred3x3,

    The assumption is based entirely on Mr. Levinson's comments. You don't say that you are regularly discussing succession planning if there's already a plan in place. You just say, "We have a plan and we will revisit it as often as we need to."

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 27, 2009, at 12:33 PM, toraab wrote:

    I just Can't understand people who evaluate the aapl stock based on what's happenning with steve jobs.

    I trade aapl at histocky.com and i know when to get in or when to go out and I have no idea who is running the show there.

    I only do my trades according to the price.

  • Report this Comment On February 28, 2009, at 5:21 AM, Fred3x3 wrote:

    Hi Tim,

    I stand by my statement regardless of what Levinson said or how you choose to interpret it. It's your statement that I take issue with. You wrote:

    "The right thing

    Here, that means disclosing a succession plan as soon as possible. Trouble is, Apple may not have one."

    I think common sense says otherwise. And, I think you really do know better.

    Would Apple's directors and Steve Jobs himself put their fortunes to risk by not having a succession plan? Steve Jobs has stared death in the face. Would he leave at risk the value of his children's inheritances?

    There are many who raise the question of succession over and over again. It feeds the anxiety that permeates the market these days and thus serves to further erode share value. Common sense doesn't rule the market. Fear does and will for some time to come.

    If you and others must continue to feed investor anxiety, why not balance it by also reminding your readers of some of the many, very positve things about Apple, including its enduring culture of excellence, its mometum and increasing market share, etc.

    That would be more responsible.

    Fred

  • Report this Comment On February 28, 2009, at 1:56 PM, rbar0909 wrote:

    Apple is secretive about everything. Why wouldn't they be secretive about a succession plan as well? There's absolutely no reason to think that there isn't one in place.

    -RB

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