Apple Succession Plan: Nobody's Business?

Ask Apple (AAPL) about succession planning for CEO Steve Jobs and you'll quickly get the message: We have a plan, but we're not sharing it with you.

Now, Apple may need to start sharing more. News that Jobs will take a leave of absence because of health problems and turn day-to-day operations to Chief Operating Officer Tim Cook has renewed concerns that the company and its board haven't been forthcoming enough about plans for Jobs' permanent replacement. "When there is some sort of disruption at the company, it's the obligation of the board to let everybody know they are on top of it, and that everything is in good hands," says Nell Minow, co-founder of The Corporate Library, a corporate governance research firm.

Leadership experts say uncertainty over Jobs' health underscores the need for clear communication of a well-defined succession plan by Apple's star-studded board of directors, which includes Genentech (DNA) CEO Arthur Levinson and Google (GOOG) CEO Eric Schmidt. The board now ought to release a "better, clearer announcement" about Jobs' health situation, Minow says. Apple declined to comment for the story, and board members, all of whom were contacted by BusinessWeek, either didn't respond to requests for comment or declined to comment.

Not every company needs to go public with its planning, governance experts point out. But greater clarity may be essential in the case of Apple, a company whose image is so intricately tethered to a charismatic CEO who was sidelined in 2004 after treatment for a rare form of pancreatic cancer. Concerns over his health were heightened in recent months as Jobs appeared visibly emaciated during public presentations. In December, Apple said he wouldn't be making a keynote presentation at a January conference.

Complex condition

Jobs released a statement on Jan. 14 saying he would take a leave of absence until the end of June—though he would retain the CEO title—after learning "health-related issues are more complex than I originally thought." He added that his moves had the board's full backing. The remarks came just a week after Jobs said doctors determined the cause of his weight loss to be "a hormone imbalance" for which the remedy is "simple and straightforward." He added that even those remarks were more than he wanted to disclose about his health and that he didn't intend to revisit the issue publicly.

Until recently, Jobs and Apple considered the chief executive's health a private matter. As long as Jobs was able to carry out his duties as CEO, Apple didn't feel compelled to say much, if anything, about his condition. That has changed dramatically now that he's taking a leave, experts say.

An early step to greater disclosure, says Yale School of Management senior associate dean Jeffrey A. Sonnenfeld, is to get a medical expert to publicly explain the facts around Jobs' health. CEOs "do not have the luxury of privacy when it comes to their health," Minow contends. "Their shelf life is of crucial concern to the board and to the enterprise."

Beyond reassuring the public over Jobs' health, Apple and its board must also ensure that Jobs does his best to transfer to Cook the goodwill he has amassed with investors and the rest of the public, says Dave Ulrich, a human resources expert and professor at the University of Michigan's Ross School of Business. "In a logical CEO succession, Steve Jobs would have gone out with him, let Tim begin to do the speaking, and then that 'relationship equity' is transferred," says Ulrich. "In this case, it looks like that is going to be difficult."

Microsoft's Model

Some governance experts and technology industry executives point to Microsoft (MSFT) as an example of effective succession planning. Like Apple, Microsoft was led by an iconic chief executive, Bill Gates. But Microsoft was methodical about grooming a successor to Gates, anointing Steve Ballmer as the clear heir apparent when he was made president in 1998. After Ballmer became Microsoft's chief executive in 2000, the disruption was minimal.

Another reason the transition went so smoothly is that Microsoft kept Gates around in a high-profile position. Although he stepped down as chief exec in 2000, Gates retained the title of chairman and created a new position of chief software architect for himself, a job he held until mid-2008.

Apple could consider a similar move, carving out a role for Jobs that lets him impart his vision but removes him from the daily line of strategic decision making. "He could still have a profoundly creative role," Sonnenfeld says.

Joe Grundfest, co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University, says Apple's board may be doing the best job it can amid difficult circumstances. If board members believed Jobs was going to be fine, they may not have seen a big need to be more forthcoming about his health or future, he notes. "One of the hallmarks of a complex medical condition is a diagnosis can change over time," Grundfest says. "If the board has told the truth, then they've handled it best as they could."

Ultimately, some leaders are so irreplaceable that no amount of succession planning will ensure a seamless power transition. "In some sense, with the charismatic person, it's difficult to prepare a successor, because they are bigger than life," says John Larrere, general manager at the management consultant Hay Group. "The next person isn't going to be bigger than life to start with."

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