January 15, 2009 10:51 pm

Apple acts on uncertainty over Jobs absence

At the peak of its game and with no big new product transitions under way, Apple can run perfectly well without Steve Jobs during his planned leave of absence to the end of June.

But the poor health of its iconic leader also raises deeper questions that will leave a dark cloud over its stock price and could start to eat into its longer-term business prospects unless the board acts quickly to resolve the uncertainty.

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Those were the immediate reactions in Silicon Valley and on Wall Street following Wednesday’s news that the man credited with bringing Apple back from the brink over the past decade in one of the most spectacular second acts in business history had stepped aside to deal with a health problem whose seriousness is uncertain.

Tim Cook, Apple’s chief operating officer and now its interim chief executive, would be a rock-solid stand-in at the helm of the company, according to Apple watchers.

Since joining from Compaq Computer as one of Mr Jobs’ first hires after he returned to the company, Mr Cook has become the perfect management complement, bringing a tight grip on operational details to match Mr Jobs’ strategic and creative talents.

“He makes the trains run on time,” says Michael Gartenberg, a consumer technology analyst, adding that Apple’s management was likely to function well in Mr Jobs’ absence.

With its main product line-up recently refreshed and in good shape – thanks to the launch of the iPhone and a shift of the entire Macintosh computer line to Intel chips and new aluminium cladding for the laptops – Apple’s most immediate prospects lie in gaining market share, not introducing more hit new products, according to analysts.

However, the uncertainty over Mr Jobs’ health could have more insidious effects, some warn. For example, his outsized public standing has helped Apple to attract talent and given a lift to its stock price, both of which could now suffer, said Marshall Goldsmith, a management author and expert on leadership and succession.

“The big challenge Apple faces is that something that has been to its benefit suddenly becomes to its detriment – you cannot have an iconic CEO who has driven the value of the company, and then say ‘oh, if he leaves, it doesn’t matter’.”

The absence of Mr Jobs, even if it turns out to be temporary, will also raise deeper questions about the management team he has built.

One concerns the quiet transition in Mr Jobs’ core leadership team that has been under way in recent years and which until now has received relatively little attention.

The small group of close lieutenants that Mr Jobs relied on to turn Apple round has seen a number of changes, and though executives such as Mr Cook provide a strong backbone to the company’s management, the new group has yet to settle down fully. The former core team included Fred Anderson as chief financial officer, Jon Rubinstein as head of the iPod division, Phil Schiller as head of marketing and Jonathan Ive in charge of design.

Of these, Mr Anderson, left to join private equity firm Elevation Partners, while Mr Rubinstein quit to try to turn round the struggling Palm – a move that showed its first sign of success last week, when Palm generated surprisingly strong acclaim for its own iPhone-like device at the Consumer Electronics Show. Tony Faddell, who was elevated at the time of Mr Rubinstein’s departure, also stepped aside late last year. In his place Apple said it would appoint Steve Papermaster, like Mr Cook a former IBM executive, but that appointment has been clouded by a legal tussle with IBM over a non-compete clause in his employment contract.

How well Apple will handle its senior departures will not be known for some time, according to some observers. “The people who replaced them are talented but there is considerable evidence that they aren’t extraordinary,” said one person with ties to the company.

A second management question thrown up by Mr Jobs’ leave of absence is succession. Mr Cook is seen as the only internal candidate with a realistic shot at the top job, yet his low public profile and close identification with the company’s businesses process rather than its product design and marketing have left a question over his suitability to lead a company that has thrived on its ability to create consumer “buzz”.

“Certainly he would be on the shortlist for a replacement for Steve Jobs, but Apple could go in any number of directions,” said Mr Gartenberg.

With the prognosis for Mr Jobs’ health unknown, this is simply too important a question to be left unresolved, according to some observers. The company’s board should already have started the search for a permanent replacement as CEO, said John Coffee, a law professor at Columbia university and corporate governance expert. Apple did not respond to requests for comment.

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