Steve Jobs: Apple's Greatest Liability

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It's Apple week! We're examining the world's largest tech company from all angles. Stay tuned to all week for full coverage.

As a die-hard Apple (Nasdaq: AAPL  ) fan, I completely acknowledge that CEO Steve Jobs, with his incredible charisma and peerless ability to give consumers what they want, has been instrumental in the company's incredible revival over the past decade. 

But while I trust Jobs to make phenomenal products that I'll love using, I'd never trust him with my investing dollars. Here's why.

1. He's secretive
I'm not complaining about the fanatical secrecy Jobs maintains regarding Apple's upcoming products. However dictatorial it may come across, it's ultimately good for Apple's business. (Perhaps he's learned from a teenage incident, recounted in co-founder Steve Wozniak's autobiography, in which Jobs completely ruined an elaborate high school prank he and Wozniak had cooked up because he couldn't resist boasting about it.) But Jobs' apparent desire to control every morsel of information about himself and Apple extends into darker, more dubious territory as well.

Jobs has suffered two major health scares since he regained the CEO spot at Apple. In both cases, he either withheld this serious information from his shareholders, or misled the press and the public for years until he was forced to come clean.

In 2004, he didn't announce to the public that he'd successfully beaten a rare and mercifully treatable form of pancreatic cancer until the danger had passed. Two years later, when Jobs delivered the keynote at Apple's annual Worldwide Developer Conference looking unusually gaunt, Apple's PR began sending out a string of ever-changing excuses that persisted for more than two years. Finally, in early 2009, after Jobs announced he was suffering from a "hormone imbalance," the near-emaciated CEO announced his health problems were more complex than he'd thought, and took a six-month leave. Months later, we learned that Jobs had actually received a life-saving liver transplant.

If Jobs was frightened for his own health, or embarrassed by his own frailty, I can sympathize. But shareholders needed to know this information. Jobs not only didn't tell them, but also allowed Apple representatives to flat-out lie about his condition. If he wouldn't announce that his life was in danger, what other materially important information might he decline to reveal?

2. He's sulky, and sometimes selfish
In 2006, Apple and Jobs were embroiled in a stock-option backdating scandal similar to what tarred large swaths of Wall Street. Back in 2001, when his existing stock options were underwater, Jobs had strong-armed Apple's board into issuing him a whole new set of options, backdated to give him an instant $20 million paper profit. (In fairness, he later swapped those options for restricted stock that bore a lesser value.)

Mysteriously, it was accused that prior meeting notes were either altered or fabricated to justify the new grant -- a big legal no-no. Nancy R. Heinen, Apple's former general counsel, settled with the SEC for $2.2 million over the incident, without admitting fault. Jobs claimed no knowledge of any wrongdoing, and while he and Apple settled a shareholder lawsuit regarding the grants out of court, he was never charged with any crime.

This whole mess is suspect enough -- but the reason Jobs pushed for the new grant in the first place casts him in an even worse light. In a 2008 interview with the SEC, excerpted in a Forbes article the following year, Jobs sulked that he'd felt underappreciated by the board. "Everybody likes to be recognized by his peers," Jobs said in the interview. "I felt that the board wasn't really doing the same with me." Jobs would have preferred it, he said, if the board had spontaneously offered him the new grant, instead of forcing him to ask.

Jobs' remarks seem to display a third-grade petulance, and a massive, fragile ego, that don't exactly scream "responsible governance." It's wonderful to have a genius at the helm of your company -- but sometimes, it's even better to have an adult.

3. He clings to cash
Apple's cash hoard currently hovers around $40 billion -- not unprecedented, but certainly far larger than Apple would seem to need. The company makes few acquisitions, and most of its buys to date haven't required anywhere near that much cash. Yet despite its pile of loot, Apple doesn't yet pay a dividend. All that money just sits around, earning decent returns, but doing shareholders very little good.

Why maintain such a miserly grip on the company's bank accounts? I've got a theory that seems to fit, given Jobs' well-documented love of Apple -- and monumental ego. After being ousted from Apple in 1985, Jobs returned in 1996 to find the business he built teetering on the brink of death. His leadership revived it, but I've begun to suspect over the years that Jobs views Apple as his legacy. I think he's holding on to all that cash as a safeguard against future disaster. By keeping Apple's bank accounts preposterously fat, Jobs can increase the chances that Apple will endure as a monument to his accomplishments long after he's gone.

That's all well and good, but the amount of cash on Apple's books long ago passed the threshold for sensible reserves. The money doesn't belong to Jobs; it belongs to Apple's shareholders. If Jobs can't find a suitable use for it that addresses Apple's real, present needs and concerns, the least he could do is return it.

4. Apple will be (mostly) fine without him
If Jobs stepped down as CEO today, I have no doubt shares would plummet. His vision, his leadership, and his personal magnetism have been essential to the company's success. But part of Jobs' success has involved finding the right people to help him run Apple. And even if he goes, Apple will still have two of the many talented, dedicated people who helped Jobs elevate the company to the top of the industry: Jon Ive and Tim Cook.

Ive is the genius designer behind every major Apple product since the iMac. Admirers hail him for caring as much about how Apple's products are manufactured as how they ultimately look. Ive's string of form-and-function triumphs include the aluminum unibody structure of Apple's MacBook Pro line, and steel band that both reinforces the iPhone 4's chassis and serves as three different wireless antennae for the device.

Cook is Apple's chief operating officer, in charge of Macs, service, support, and the company's supply chain. Thanks to him, Apple's become one of the most efficient manufacturers in the electronics business, using contract factories to maintain lean supply chains and high profits. He ran Apple in Jobs' stead during the CEO's 2004 and 2009 health-related absences, and if the company didn't exactly flourish during those periods, it still performed well. He's been known to start work at 4:30 a.m., and hold Sunday night meetings with his staff to prepare for even more meetings on Monday.

Both men are young, healthy, and notably fanatical about their chosen fields. Both are devoted to Apple, and share Jobs' obsession with detail and perfection. But both Ive and Cook are also conspicuously humble and publicity-shy, living lifestyles far smaller than their considerable means might suggest. In short, they seem to mirror all of Jobs' best qualities, and none of his weaknesses.

Stevemageddon? Not so much
Will Apple be the same without Steve Jobs? Certainly not. Will it enjoy the same phenomenal heights of success? Maybe. But would it be governed by calmer, stronger, more responsible people, whose behavior suggests they hold far more shareholder-friendly philosophies? Absolutely.

In short, feel free to retire any time, Steve. The company will be in good hands without you -- and so will your investors' money.

Steve Jobs: Help or hindrance to Apple's success? Sound off in the comment box below.

More Apple Week Foolishness:

Fool online editor Nathan Alderman is donning his flame-retardant suit as you read this. He holds no financial position in Apple, although he's devoted to his MacBook and iPod. The Fool's disclosure policy doesn't need stock-option grants to feel loved.

Read/Post Comments (13) | Recommend This Article (17)

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 June 18, 2010, at 4:36 PM, BabyGoat wrote:

    Dear Nathan,

    Three questions:

    1.- Have you ever created anything worthwhile that gives you the moral authority to criticize Jobs´ ways?

    2.- Do you realize that never trusting Jobs with your investing dollars makes you look like an ____!

    3.- Do you realize that maybe because he is secretive, selfish and cash conscious could be the reasons Apple is so successful?

    Just wondering...

  • Report this Comment On June 18, 2010, at 5:18 PM, daveshouston wrote:

    There are many natural enemies in our world: Republicans and Democrats; Lion Seals and Penguins; Jihadists and Israelis; etc.

    In business, the most classic natural enemies are the entrepreneur and the bureaucrat. Their goals and vision are diametrically opposed. The Entrepreneur's attention is focused on product and market opportunities. He is an agent of change. He wants to create products and/or services that change everything.

    The Bureaucrat detests change. He loves budgets and budget compliance. His idea of how to run a company is to create budgets and punish deviations.

    Companies are founded by visionary entrepreneurs like Steve Jobs. They get the whole thing going with their product and marketing ideas. Customers respond.

    But they really don't care much about accounting or legal or HR or any of the other typically bureaucratic functions in a modern corporation. Their style of management is 'fast and loose.' They value speed, flexibility, and innovation above all else.

    When the company succeeds, and grows rapidly, things tend to get screwed up. There are no procedural manuals, no salary administration, no job descriptions, very little accounting, and no legal department. This creates an opening for the bureaucrats. Someone like John Sculley gets hired to 'clean up the mess.'

    The Bureaucrats will do their level best to force out the founding entrepreneur. That's what happens at most companies. It happened at Apple.

    Since Bureaucrats focus their attention internally on matters like accounting, procedures, policies, personnel, legal, etc. the company no longer leads in the market place. Decline is inevitable.

    Apple is the rare exception because the founding entrepreneur somehow miraculously managed to return.

    Entrepreneurs are my heroes. I don't much care for bureaucrats. I hope Steve Jobs lives forever. If not, I think he learned from his Pepsi Cola experience and this time has surrounded himself with like thinking entrepreneurs.

  • Report this Comment On June 18, 2010, at 5:25 PM, geoslv wrote:

    Apple do the same without Jobs? NOT. Some of you never learn.

    It is also obnoxious to blame Jobs if others don't deal properly with him.

  • Report this Comment On June 18, 2010, at 5:53 PM, lemisanthrope wrote:

    What is indeed obvious is that, with Jobs, the company ascended (twice), and without, descended. Your analysis is obviously cooky (a financial term). If the existing people are so wonderful, then why?

  • Report this Comment On June 18, 2010, at 7:23 PM, 102971 wrote:

    Sorry but I agree with TMF. It's time for JOBS TO FIND ANOTHER jOB!

  • Report this Comment On June 18, 2010, at 10:59 PM, Superdrol wrote:

    Steve jobs is the center of Apple. Despite his actions he is necessary to runningthe company much like Warren Buffett is to Berkshire. Warren Buffett has had a long life and he is the greatest investor ever but his age and importance to the company is more risk than I am willing to take. Charlie Munger isn't exactly a teenger himself either.

    We sold off our Berkshire B stock after the split and inclusion. I wish him the best but I do not want to be anywhere near Berkshire if something happens to him. Like many investors Warren Buffett was the primary reason for investing in the company.

  • Report this Comment On June 19, 2010, at 9:22 AM, cheesepare wrote:

    Steve Jobs is one of the greatest business leaders in the history of mankind. I certainly would never suggest that he should retire. That said, I think Apple should give shareholders dividends, particularly given the stratospheric market cap.

  • Report this Comment On June 19, 2010, at 12:53 PM, KeitaiOtaku wrote:

    The strength of purpose, the vision of a leader, the aggressiveness of a true ass are all things that make Steve Jobs, a pure leader in innovation. I really hate this guy. All of my notes indicate he's an ass, because he did xyz, ran overy joe somebody, and seeks to dictate how his products are used. He's a jerk.

    But the bean-counters are worse. Anyone in the industry knows that it is an up-and-down field, that is constantly beset upon by the bean-counters to make consistent quarterly profits and improvements. Yes, if Jobs wants Apple to succeed, he needs a buffer. is 40B too much? Who knows. Maybe he wants to buy a rail-road or something.

    Or... maybe he wants to maintain share-holder value. If you just spend your cash by paying dividends, it MEANS you have nothing better to do with the money. Just acknowledging that would plunge existing shares into the ground. It would mean Apple has descended a GE-boring-like cadence of money (that the bean-counters like so much). That type of company doesn't deserve the valuation Apple currently gets.

    Yea, so I hate Jobs. But those notes? Those are right next to the entry in my portfolio.

  • Report this Comment On June 19, 2010, at 2:05 PM, LPB2010 wrote:

    Like most of these comments, I do not agree with Alderman's analysis. Though it is logical and based in some fact, the truth is that I have benefited from the way the company is run just as the nation benefited from the Clinton Administration, regardless of what one thinks of his character. Nothing goes 100% right in any institution or corporation. No human leader is 100% to our liking. Jobs deserves to have a legacy even if that means that he feels he needs to protect the company with excessive cash reserves. Again theory says that the money belongs to the shareholders -- but I have benefited from my investment in Apple more than I imagined. Why the greedy need to throw out the visionary and leader of Apple to get a few bucks more in my pocket through dividends? What would be more important to me is the grooming of new leadership. Jobs should begin to make a conscious and public effort to grow confidence in those who will become new leaders in Apple when he retires.

  • Report this Comment On June 20, 2010, at 8:37 PM, geoslv wrote:

    Nathan Alderman is pouty and petulant. He removed a previous comment of mine that criticized him.

    Now watch this comment disappear. Save it before it's gone.

    See if he tries to ban me permanently from TMF.

  • Report this Comment On June 21, 2010, at 11:52 AM, wasmick wrote:

    I could not disagree with Nat Alderman's analysis more.

    Just look at Apple stock. It's gone up.

    I don't care that Alderman has got the facts on his side nor that his analysis of some of Jobs' motives is highly plausible nor that all that dead cash sitting on Apple's balance sheet is more about vanity (or poor corporate governance) than any kind of legitimate strategy. This article is garbage. Steve Jobs is a god and Apple stock will never go down. Ever.

    Unless the market - like Nat Alderman - is a jerk.

    You've got some nerve Alderman, you're just lucky Steve Jobs isn't the president or you'd be answering for yourself in court. Lucky I say!

  • Report this Comment On June 21, 2010, at 1:08 PM, none0such wrote:

    Actually, this article is not bad. But what it comes down to, as the article alludes to, is do you want to put your money with a CEO who is a front person for the company. Think of a female CEO who also fronts for the company - not many, and if you can think of one she probably lost her job. People have issues with things like their attitude or their health, its true. But do people really fret about the health of a CEO who doesn't front for the business? There is something called a succession plan, init? Apple will do fine with or without Jobs, the issue is whether a change in management style or a major problem with the current management style will impact the company over the short term or the long term.

  • Report this Comment On January 17, 2011, at 4:08 PM, MichielVerbrugge wrote:

    Well, we'll see tomorrow what the impact of Steve's new extended holiday will be on the stock.

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