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II. Question 4: A Look at the many Dimensions of
Corporate Governance in Apple
Refernces:
Mallin and Lorsch (see Question 1 for full reference), Vishny and Schleifer and
“America’s Worst Boards,” 2000.
Moran, and Beggs Harvard “Class/Section Discussion and In-Class
Articles”, 2013
Preentation refernces: Reuters, Yahoo Finance,
Google Finance, Bloomberg, Isaacson “Jobs”, 2011. Apple Corporate Governance
Reports and 10-K.
(Introduction)
For our group project (group
3) we identified Microsoft and Apple as potential companies we wanted to
present on, but ultimately chose to focus on Apple. Specifically, we focused on two parts: CEO
Succession at Apple— the successes of Steve Jobs from 1997-2011 and the passing
of the torch to Tim Cook— and evaluating
the Board of Directors. Ultimately we found that: first, Steve Jobs is in the
category of very few CEOs who, because they have complete control, are
extremely effective in creating shareholder value due to their visionary
qualities; second, Tim Cook has seen Apple’s stock fall, but is yet to be truly
tested as CEO as Apple struggles to define itself in terms of its future product
lines after the death of Jobs; and third, that the Board of Directors needs to
take on a better supportive role for Tim Cook, particularly in having fewer
people who overlap in their committee assignments and in possibly instituting a
“Risk,” and “Culture” committee, with properly vetted directors, that would
make for a “more cohesive board.” This “more cohesive board” would not get in
the way of Tim Cook (i.e they would allow him to still have a fair amount of
country since he was personally picked by Jobs to succeed and since we believed
there is no better alternative to Tim Cook currently) but would better
understand the cultural dimensions (particularly abroad) and risks that Apple
currently faces and will face in the foreseeable and not foreseeable future.
(Part a) The features of a good board are tied to how the
board sees itself within the development of corporate governance: since the
development of corporate governance is a global occurrence, and, as such is a
complex area including legal, cultural, ownership, and other structural
differences, a good board qualified directors who properly implement
and monitor mechanisms that appropriately and timely address the aforementioned
complex areas concerning their business. The mechanisms properly establish
key board committees (particularly audit and compensation) as outlined by the
Cadbury Code of 1992, that are independent from management’s tentacles.
Furthermore, the Board should always
see itself as an agent to their owners (shareholders)
and responsible for the various other
stakeholders, including employees, environmentalists, local communities, etc. A
good board will hold the CEO and management accountable when shareholder value
is jeopardized and when stakeholders are poorly and unjustly treated; if not,
then the long term corporate health of the company is severely jeopardized
(Moran, 2013). Additionally, a “robust” size of the board (i.e. less than 7 may be too few, more than 12-15
may be too many because of competing of interest) is a characteristic of a good
board, as well as high degree of independence of a majority number of outsiders
(in a unitary board) and one supervisory board of all independent directors
with one unitary board of management insiders (in a dual board—see the question
5 part b for further note). The bottom line is that ta board of directors has a
high of responsibility, and the above mentioned characteristics all contribute
to a good, responsible board.
Apple’s Board received a mix
grade from our group. First, we note that apple has 9 members, many of which
are above the age of 65 (nothing wrong with age in itself but it is a probably
if older members have been retired because of the fast pace changing landscape
of the business world). On the positive side they are clearly
experienced and most have been there since Jobs, so they’re good at giving the
CEO breathing room. On the
negative, though all members have advanced degrees, many of them are spread too
thin, include several who are chairman of other boards, and the current CEO of
Yahoo, Marissa Meyer, who most certainly has her hands full at the troubling tech giant. Additionally, we note that apple has three
committees: the audit and finance, compensation, and nominating committees, who
may not necessary have a high degree of independence because many of them, as
mentioned, are spread too thin, have overlapping committee assignments, and may
be working too closely to always support management, not necessarily asking
probing questions (one indication of this is the fact there there is virtually
no public information in the SEC filings about Apple’s Board other than the
bare minimum requirements of committees and the member’s names and
assignments). Lastly, we note that
Apple’s committee, though compromised of people most definitely spread too
thin, is at a good size of 9 members and doesn’t have an executive committee,
which is a positive thing because, as discussed at length in class, all too
often, executive committees foster a culture of a exclusivity and outright
hierarchy (Moran, 2013).
(Part b)
As a potential shareholder we
believe that the Board will be able to maximize shareholder value because (a).
it has a good CEO who had over a decade of experience at Apple with Jobs and
years and years elsewhere and who has a very meticulous approach to realizing
product lines, and (b). because many directors come from disparate backgrounds,
such as biology and biotech, which brings a fresh perspective of thinking in
the board room (Moran, 2013). HOWEVER,
there needs to be several changes before we can conclusive say that the Board
will improve shareholder value: a. we argue for the addition of a “Culture”
Committee, composed of independent and qualified outsiders who aim to
understand the cultural context of the
country or region apple plans to expand into (i.e. perhaps a culture committee
and directors who understand and speak mandarin Chinese would’ve been able to
better advise Apple in their Chinese operations) and a “Risk,” committee
composed of independent and qualified professionals with appropriate
backgrounds in business/finance or other areas that would help apple to
understand, assess, and thus mitigate risk. Lastly, we believe that having a
board that is not spread too thin and having members that are properly informed
and not busy with other commitments outside the boardroom will better serve us
as potential investors and maximizing shareholder value. (Personally, I believe
a Dual Board will do this best, as addressed in class and discussed with
professor Moran. For further explanation on the Dual Board please see Question
5, part b).
(Part c)
Because the board is spread
too thin, because the committees do not have a high degree of independence, and
because Tim Cook still remains untested after Jobs’ passing, we do not believe
that the Board would be able to protect from a Harding Lawrence type CEO. However, Tim Cook is like Harding
Lawrence in many ways: first, he wasn’t an outside hire (as Lawrence was from
Continental), he was selected by Jobs himself; second, he is focused on product
lines and has not made any overstretched
acquisitions, like Lawrence did (expanding too fast without proper risk
assessment). In hindsight, it’s easy to fault Lawrence, but back then he was
seen as the “smartest guy in the room,” as well as the most able and
knowledgeable within the airline industry (Moran, 2013). We believe, though, that although Tim Cook
has a lot of power and free reign that, since he has avoided the bad actions of
Lawrence (known to us now) he does not post a significant risk in stepping on
the Board and burning apple to the ground. Personally, I believe another CEO
poses that risk: Steve Ballmer in Microsoft. Ballmer is “undoubtedly biggest
overhang to shareholder value in Microsoft” (David Einhorn, Greenlight Capital,
2011). Though once a great COO in Microsoft, Ballmer has fired the fast majority
of executives in Microsoft since the time of Bill Gates, single handily
eliminated his competition, and has derided then subsequently missed out on key
technological innovations, including the smartphone and tablet industries. Talk
about an inept board combined with a control-freak and subjective and single
minded, however smart and talented, CEO. Ballmer or Lawrence? Doesn’t matter,
it’s all the same here.
(Conclusion)
All
in all, we believe that Tim Cook has the appropriate experience to lead Apple:
whether or not he has the appropriate vision remains to be seen. We also
believe that Board members who are spread too thin, such as Marissa Meyer and
others who have other chairmanships, and members who may be more focused on
their golfing and retirement activities, may not be the best directors for
Apple’s long term corporate health. We gave Tim Cook a rating of “B” or “good”,
for still maintaining positive cash flow and strong balance sheet, we gave
regulators “F” for arcane and hurtful corporate taxes that encourage Apple to
not bring money back into the United States from foreign operations, and the
Board of Directors a “C” for needs improvement. If there is more transparency,
independence, and cohesion in the Board Room, we believe that management will
be more efficient and Apple may once again become the inspiring company it once
was when Jobs was in charge.
Word Count: 1450
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