It is rather interesting to watch Apple’s slide and read the speculation about what Cupertino needs to do to turn itself around.
Granted, Apple is still one of the most profitable companies in the world, even if it has lost more value in the past several months (nearly $300B) than most corporations are worth.
For example, HP, which is a much larger company, boasts a total market cap of only $43B. Meaning, you could almost buy 8 HPs at its current worth for the amount of value Apple has lost and, as an investor, you’d probably be far happier having invested in HP over the last 6 months than in Apple.
Hell, you’d be happier had you hid your money in a hole in your yard. Bernie Madoff, who was put in jail for losing $64B actually looks damn good against the Cook’s near 5X bigger loss. Yes, Cook did it legally but this is still an incredible amount of value to have lost in such a short period of time. I mean it took Madoff nearly a decade to lose a 5th as much as Apple has lost in an impressive 3 months. Given JCPenny just ousted Apple alum Ron Johnson as CEO for losing a tiny fraction of what Cook has lost, why is Cook still CEO?
This goes to the core of the problem and unless it’s fixed Apple isn’t coming back.
At the Core of Apple’s Problem
Steve Jobs was an iconic leader but he wasn’t known for sharing and was deathly afraid of someone being hired to replace him. He almost was fired again in the early 2000s for messing with his stock options and this likely made him even more paranoid. Now even in companies where such deep paranoia doesn’t exist, it is somewhat rare to see a top executive truly mentor a replacement. Thus, it shouldn’t come as a huge surprise that Jobs didn’t really share much of his secret sauce for success with anyone, including Cook.
But even if he had I’m not sure Cook would have understood, simply because the two men are about as opposite as you can get. Remember, Jobs was a micromanager, he studied heavily both how to influence people and seemed to intuitively understand the “magic” that surround a premium brand like Porsche. In contrast, Cook is a delegator, he was a logistics guy and understands how to compete on price, he came from Compaq and there is nothing, other than his time as COO at Apple, which connects his background to a premium brand.
In fact, logistics (supply chain), generally favors folks who understand how to get vendors to compete on price - but even there word is that Jobs often stepped in and closed the most aggressive deals, or held vendors’ feet to the fire, personally. Now that’s the nature of a micromanager.
So Cook never had the skills needed to run Apple but that isn’t the core of the problem because it was the Apple board that appointed Cook and keeps him on the job, as they haven’t replaced or supplemented him with someone more qualified. Someone that understands that selling a premium product in stores like Walmart will destroy that premium value. I mean, when you think of Apple, does your head immediately connect with the stereo typical Walmart buyer and say “now there is a good fit!?” Well, it probably does for Cook, although he is all about volume. Still, Apple can’t be successful as a volume seller, the margins are too tight, and they need to continue (if they are to hold valuation) as a premium provider.
So the key problem that must initially be fixed is this: Apple needs a board made up of people who understand how to manage a premium brand. As you may recall, Jobs wanted a board that would leave him alone and prevent poundings by the US Government (Al Gore). So with Jobs gone, the company clearly needs a board that knows how to replace or emulate him with a team. Until that fix is made, even if Cook were fired tomorrow, chances are they’d pick someone even worse and we’d have a decade-long CEO spiral like HP.
Wrapping Up: Fixing the Board
If you don’t fix Apple’s board before Cook is replaced, and unless Apple starts to recover soon he is toast, the next CEO will likely be worse. The screwy thing? This will likely force a replacement of the board but the now less qualified CEO will have a huge vote and likely pack the board with folks that support them. This will not fix Apple, but rather, only leave the less qualified CEO in place longer and we’ll have a death spiral with successively worse CEOs and less qualified boards. But who assures the qualifications of the board? I mean other than the board itself? The CEO, but if both of them are increasingly less qualified, unless a miracle happens, each change will be progressively worse.
So at the core of Apple’s problem is the fact that we really don’t have a good process to fix a bad board. Of course, this isn’t just Apple’s problem, it is a national issue, and that is why so few companies last more than a couple of decades. This came up when I had a review of IBM, the only century old tech company, and we realized that only a small handful of companies that were around at IBM’s 50th anniversary still exist today.
If we want companies like Apple to be around and thrive, somehow we need to find a way to assure the quality of their boards because, if we can’t, they won’t. With IBM, we have an example of how this can be done, but no one seems to want to look at how IBM does it. Amazing, huh?