Investors need to be concerned when directors seem more like a chorus of cheerleaders than a boardroom of independent guardians.
The eyes of investors, which, heretofore, have been focused almost entirely on Apple CEO Steve Jobs, are now turning to the company’s directors. It is a long overdue scrutiny. Two years ago, in the wake of Apple’s stock option backdating scandal, we expressed concerns about the structure of its board, which at the time was a seven-man operation.
Since raising the point -and we were the first to do so- Apple has added one woman to the board. But it remains a small and rather weak example of modern corporate governance practices. It met only five times in 2008, a period when many companies were facing the likelihood of recessionary consumer pressures. Official records do not even properly name the officer who chairs the board. We all know that was Steve, but why the problem formally disclosing that fact?
The board seems to have taken little notice of the need for succession planning, even though the company’s founder and CEO has a record of serious health problems. The reason seems obvious: Steve did not want that process to move forward. All its appearances and statements suggest that the culture of Apple’s board is one of unswerving deference to Steve Jobs. Look at its January 5th press release concerning Steve’s first disclosure about his health and the wording seems more consistent with the actions of a chorus of cheerleaders than a boardroom of independent guardians. It’s pretty obvious that the board failed to do any due diligence before issuing this statement. Shareholders may well have been made more vulnerable to precisely the kind of sudden loss of value that happened yesterday as a result.
Last week, Apple’s directors gave a glowing proclamation of support for Steve that accompanied his first health statement. They have had nothing to say since he revealed yesterday that his health issue is more “complex” than previously claimed and announced his leave of absence for six months. He said at that time that he had turned the reins of power over to Tim Cook, Apple’s COO. But one might think that it is the board’s role to decide and announce who heads management, however temporarily. The fact that it did not also confirms a systemic weakness in Apple’s boardroom which may well imperil the long-term health of the company.
This, on top of its stunning silence on the sudden reversal in the health of the company’s CEO, says a lot about the board -and a lot more about the need for its directors to change the way they govern the company.