Eric Schmidt's exit creates an opening for Apple to make COO Tim Cook a director. Next it needs members to help face the challenges of its fourth decade
Now that Google (GOOG) CEO Eric Schmidt has left Apple's board, the path is clear for the company's next likely director, Chief Operating Officer Tim Cook, to join. Apple (AAPL) is firing on all cylinders now. But the challenges that will face the company in the next decade—which include managing its larger size, reckoning with Internet-based computing, and growing overseas—will require more fresh blood on the board.
Schmidt left, as I argued should happen more than a year ago, because of broadening competition between Google and Apple. That will likely open the door for Cook to become a director, rewarding him for his stewardship.
With Apple in its fourth decade and heading toward $50 billion in sales sometime in the 2010s, the company will need further governance changes in the years ahead. In talks with academics, board recruiters, and various industry sources, a few themes have emerged.
Apple will need on its board an executive who has run a $100 billion company—someone like former IBM (IBM) CEO Lou Gerstner or an executive from a diversified company such as Procter & Gamble (PG) or General Electric (GE). It could use someone from the social media world such as Netscape founder Marc Andreessen, as well as a director who understands cloud computing. An executive steeped in emerging markets would help, too. Former Infosys Technologies (INFY) CEO Nandan Nilekani comes to mind.
Big-Company Board Vet York Is 70
For all the expertise of Apple's executive team and current board, there's hardly anyone experienced at operating or governing a company as large as Apple is on the verge of becoming. Given Apple's centrality to a growing number of industries—among them computers, cell phones, and recorded music—the company punches above its weight in influence.
The one board member who has worked at supersized companies—IBM, Ford (F), and General Motors veteran Jerome York—is 70 years old and will be required to retire in five years under Apple's bylaws.
Other current directors lack experience at such large companies. I'm thinking of Arthur Levinson, former CEO of Genentech, which was a $13 billion concern before it was acquired by Roche this year, or Avon Products CEO Andrea Jung (AVP), whose company runs about $10 billion in sales.
Cook is the operational whiz who deserves nearly as much credit as CEO Steve Jobs for bringing Apple back from its near-death experience in the '90s. Without Cook whipping Apple's supply chain into shape, Jobs' design and marketing genius might have been wasted. Cook has been described by people close to the company as one of the few executives who can say "no" to Jobs. As Jobs' de facto successor, Cook should be a member of the board in any event.
What about less orthodox picks? The next order of business for the board should be recruiting a director who knows how to run a consumer products powerhouse such as Apple has become. Consider that in 2001, Apple's revenue was $5.4 billion. You know what happened next: The iPod, a resurgent Mac business, and the iPhone propelled sales to a more-than-sixfold increase, to $32.5 billion, in fiscal 2008.
Consumer Brands? P&G's Panayotopoulos
Yet Apple's hyper-growth can't go on forever. Markets become saturated, consumer tastes change in unexpected ways. Was it clear in 2001 that the music industry was about to change fundamentally and that CD sales would wither, in part because of a tiny white slab called the iPod?
As a consumer-focused company with global growth ambitions, Apple will want on its board an executive with a lot of experience nurturing consumer brands around the world. Stephen Mader, managing director of board services at Korn/Ferry International (KFY), suggests someone like Dimitri Panayotopoulos, head of P&G's global household products division. In a three-decade career with P&G, Panayotopoulos has run operations in places as varied as Switzerland, Egypt, and China. Earlier this year he was considered a possible successor to retiring CEO AG Lafley.
Vivek Wadhwa, a Duke University professor and senior research associate at Harvard Law School's Labor & Worklife Program, says the iconoclastic Gerstner would fit well on Apple's board. When Gerstner became IBM's CEO in 1993, the company lost $8 billion on sales of $62 billion and investors were clamoring for a breakup. By 2003—a year after Gerstner left the post—IBM earned $7.6 billion on $89 billion in sales.
Gerstner showed a flair for reversing the tide of stagnation and focusing on technology services and software instead of computer hardware, which qualifies as the kind of "different thinking" that would be quite at home at Apple.
Another important mission for Apple in the next decade is international growth. Its geographic strength lies in North America and Western Europe, but emerging markets such as China and India should probably figure more prominently in the company's thinking at some point.
Getting the iPhone into China, which could happen very soon, is a great first step. India could also prove astonishingly important. Yes, it's a price-sensitive market. But many urban Indian consumers love new technology and have latched onto premium Western brands as status symbols.
For Social Media Guru? Marc Andreessen
An executive who understands the Indian market could be a guiding hand in Apple's board room. How about former Infosys CEO Nilekani (now serving as a government minister)? Or Mukesh Ambani, head of Reliance Industries, whose retail subsidiary sells Apple gear in India?
Apple at some point may also need to tap more deeply into the world of social media as it expands its ambitions in music and movie distribution. I asked readers of the Byte of the Apple blog for suggestions, and Andreessen was a common refrain. He founded Netscape and sold it to AOL for $4.2 billion in 1998, then founded Loudcloud (later renamed Opsware), and sold it to Hewlett-Packard (HPQ) for $1.7 billion in 2007.
Today, Andreessen is a co-founder of social networking company Ning and a newly minted VC. You'd have to look pretty hard to find someone with a better track record of innately understanding where technology is going—and beating others to the punch.
Apple's board could also stand to get younger. By the middle of the next decade, Gen Y will be in its 30s. Facebook CEO Mark Zuckerberg could be Apple's voice for that generation if he proves his managerial acumen by then.
Apple will turn 40 years old in 2016. Come to think of it, there's another guy who may be looking for a new gig around then. He's one of the few people alive who can boast the same oratorical flair as Jobs. He'll be in demand for corporate engagements and is guaranteed to have an outstanding Rolodex. He even gave the Queen of England an iPod. His name? Barack Obama.
Now, about that BlackBerry…