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Succession is a tough Job for Apple

By The New York Times Syndicate
The looming question of who would replace Steve Jobs if he had to leave Apple remains unresolved for shareholders, analysts and customers. While the company maintains it has a succession plan, it has offered no details. Observers are left to question what Apple might look like without Jobs and whether the company can continue pumping out hits like the iPhone, MacBook and iPod.

A succession plan is critical for most companies, but especially so for Apple. Every company is different, there are established best practices for succession planning, including hiring from within, conducting an audition period, easing the successor into a leadership role and providing some level of succession disclosure to shareholders.

Companies with strong corporate cultures can usually count on continued success if they can seamlessly transfer power to an executive from a strong bench of managers. But selecting Jobs' successor will be challenging, given the degree to which he is tied to Apple's identity.

Apple now seems eager to show that there is more to the company than the vision of Steve Jobs. Apple has a strong bench of executives who could succeed Jobs, but major stakeholders, such as investors, customers and partners, don't know much about them. The first step in any succession plan may be illustrating that Apple is more than Jobs.

According to Wharton management professors Michael Useem and Peter Cappelli, Apple's effort to highlight executives other than Jobs is a good test for any successor. Why? Part of Apple's mystique revolves around messaging and generating buzz. By putting other executives in the limelight, Apple can give other managers some practice introducing products and familiarise them with investors and customers. "It is important for any company to be developing talent internally. And it is also important to be promoting people from within," notes Cappelli.

Useem suggests that a board of directors should be responsible for ensuring that a company has the right leader as well as the right leadership team – especially if there is any hint that the chief executive may step down in three to four years. He cites numerous research studies indicating that internal successors are more effective.

"Succession planning, per se, is a waste of time," says Cappelli. "It means trying to determine in advance who will take over a top job. But because the needs change so frequently, as often do the players, there is no real ability to plan. These plans take a lot of time and energy, they divert the attention of people in the company and they almost always get tossed aside because they are out of date." The solution: Companies need to develop talent internally so that they have multiple options when a successor is needed.

A company also has to prepare for the inevitable mop-up duty that follows the appointment of the new CEO. It is unlikely that executives who lost out on the top job will stay.

Generally speaking, companies in the midst of succession planning need to deliver some kind of transparency to customers and investors. In Apple's case, disclosure – or lack of it – about Jobs' health and future plans appears to be a sore point with some analysts. Wall Street is clearly worried about Apple's future post Jobs. Any rumour about Jobs' health can move the stock.

In general, having a succession plan is a good idea since it minimises uncertainty, but how much a company discloses depends on culture, says Wharton management professor Lawrence Hrebiniak. If a company is too transparent, "every would-be CEO would leave if he or she was not a finalist", and performance would suffer.

Meanwhile, it is unlikely that Apple will fall apart without Jobs, suggests Cappelli. "Investors get worried if they think the future of an entire company depends on a couple of key individuals. In fact, that is almost never the case. This bias – attributing the success of organisations to individuals – is pretty common. Several studies have looked to see what happens when CEOs… die unexpectedly. All the studies show that, rather than collapsing, share prices in fact actually go up. The current leaders are not that crucial. Companies don't collapse when the leader departs and there is some time to fill the job."

What remains to be seen is whether a post-Jobs Apple will retain the corporate traits that made the company successful with its iconic leader at the helm. The conventional wisdom is that Jobs' control has influenced everything from marketing to design at Apple, says Wharton management professor David Hsu. After a decade of leading Apple, he argues that it is quite possible Jobs' imprint is permanently etched on the company.

Hsu says the secret sauce for all successful companies is having a corporate culture that transcends any individual. "You want a culture to be so ingrained in the rest of organisation that it [provides a] competitive advantage."

Useem agrees. "You cannot overstate how important corporate culture is – if it's a good one – in sustaining and carrying on a company." Some companies, such as Wal-Mart, Mary Kay Cosmetics and Southwest Airlines, support strong cultures that have lasted well beyond their founders' departure, Useem notes. "A strong culture will transcend the exit of leaders."

The problem for Apple is clear: No one will know until after Jobs leaves how thoroughly his imprint permeated the company. Useem acknowledges that developing a corporate culture is not clear cut. "Culture is one of the great mysterious aspects of company business. It is very important, but poorly understood. You can try to copy a company like Southwest, but rivals can't get their hands around what it is that makes these companies so successful."