Apple's no-win CEO succession efforts

July 25, 2011: 10:52 AM ET

If Apple board members aren't actively working on CEO succession, it's a problem. But if they are working on succession without the board's authorization, that's a problem too.

By Eleanor Bloxham, contributor

Steve Jobs

FORTUNE -- Lining up a successor to a CEO like Steve Jobs may very well be theleast coveted job inSilicon Valley. But it's a task that Apple's board will have to perform, whether they want to or not.

The Wall Street Journal recently reported, according to unnamed sources, that "some members of Apple Inc.'s board have discussed CEO succession with executive recruiters and at least one head of a high-profile technology company" and the "directors don't appear to have been acting on behalf of the full board." The Journal reported that "in an email, [Steve Jobs wrote] 'I think it's hogwash' "and "an Apple spokesman declined to comment."

For the Apple (AAPL) board, this is a no win situation. If the board isn't actively working on CEO succession, it's a problem. But if board members are working on succession in this "unofficial" way, that's a problem too.

The Apple board has been in the spotlight from a governance standpoint for a long time. Over the years, the issues have included stock options backdating, the lack of transparency related to Jobs' health, and questions surrounding a CEO succession plan at the company.

But the issues raised by the Journal story offer lessons for any corporate board.

When I talk to directors, CEO succession clearly stands out as one of the most difficult issues for their boards. Much of that has to do with the power dynamics in the boardroom and the role of the CEO. When the CEO sits on the board, it can be difficult to create a clear demarcation between the CEO's role as a member of management and what the CEO's role should be as a member of the board (See: What's in store for Rupert Murdoch?).

If members of any board are trying to accomplish CEO succession via stealth or unauthorized, small cliques of directors, that is, of course, a very troubling sign for a corporation's governance. Directors should be using their own proper channels to engage in succession planning.

Taking the work of the board offline means there is a working problem with the board online -- signaling that a problem with process, power, or personalities at the board level needs to be resolved. It behooves any board in such circumstances to try to address the real source of the difficulty, rather than use alternate means to accomplish a goal.

Apple has a somewhat unique board leadership structure, with two co-lead directors. Jobs sits on the board but is not the chair, according to the company's website. One co-lead director is Avon (AVP) CEO Andrea Jung, who also chairs the compensation committee. And the other is former Genentech CEO Arthur Levinson, who also chairs the nominating and governance committee.

While Apple declined to offer comment on the current processes of its board, the company's governance guidelines, available on their website, have a section entitled "management review and succession," which outlines a role for the compensation committee and for the full board, including the CEO, in the process.

The guidelines state, "The Compensation Committee should conduct, and review with the Board, an annual evaluation of the performance of all executive officers, including the CEO," and "The Board also reviews the CEO performance evaluation to ensure that the CEO is providing effective leadership of the Corporation. As part of the annual evaluation, the Board and the CEO should conduct an annual review of management development and succession planning for senior management, including the CEO."

While CEO involvement can be helpful, because the issue of CEO succession can be so difficult, independent members of the board need to establish clear authority over the process apart from the CEO. All boards should review their guidelines and charters to ensure that they actually have authority over this process – and they should review every year the extent to which they have developed a solid succession plan and identify any obstacles preventing a flexible, working process.

The effectiveness of CEO succession is a bellwether for good board governance at companies. And it is important at any company, no matter its circumstances. In fact, it represents one of the most important duties a board has to its company -- and to all its stakeholders.

The best-case scenario at Apple? A situation where the board is working on CEO succession and using proper, not unauthorized, channels to do so.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm.

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About This Author
Eleanor Bloxham
Eleanor Bloxham
Contributor, Fortune

Eleanor Bloxham, an authority on governance and valuation, is CEO of The Value Alliance and Corporate Governance Alliance, an independent board and executive educational and advisory firm she founded in 1999. She is author of the books Value Led Organizations and Economic Value Management: Applications and Techniques, and publisher of the Corporate Governance Alliance Digest and her blog The Bloxham Voice.

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