There is, unsurprisingly, a lot of talk about Steve Jobs’ illness. It’s understandable: Jobs is a person who thousands of Mac fans around the world think of more as a friend than just the CEO of the company whose computers they like.
This devotion and concern often manifests itself in a simple idea: Jobs’ health is his own business, and anyone suggesting that Apple should release information about it should be ashamed of themselves. My friend Joe Wilcox is getting a lot of stick at the moment for suggesting that Apple has handled things badly, and needs to start being honest with its shareholders about the state of Jobs’ health.
I can understand both sides in this argument. Anyone who has had a friend or family member be seriously ill knows what an intense and terrible experience it is, and the natural inclination of anyone is to want to keep as much private as possible. This is doubly-true if the illness is life-threatening.
But, Steve Jobs is also a senior executive of a publicly-traded company, and with that role comes certain responsibilities. Steve has responsibilities to his shareholders – and, importantly, so do Apple’s board of directors.
The illness of a senior executive is a classic area where boards need to be strong, and work for the shareholders. It’s a tough time for everyone, but the role of the board, as I’ll explain, means they have to look at things in a way which is impersonal – and which some might find insensitive.
The dull corporate governance stuff
Public companies generally have simple two-tier structure. There’s the executive team, comprising the senior employees who run the company on a day-to-day basis. How big or small the exec team is depends on the company, but members of the exec team have a single, simple overall mission. Sometimes referred to as their “fiduciary duty”, they have to do whatever it takes within the law to maximise shareholder value, which generally, in a public company, means increasing the share price.
What’s a big no-no is artificially inflating the share price, by either lying about stuff, doing shifty accounting, or whatever. Doing this is the worst – and often criminal – breach of an exec’s duty, because it’s essentially misleading the shareholders as to the value of their shares.
Above and way beyond the exec team comes the board of directors. The board’s job is to represent the interests of the shareholders to the executives. It’s their job to ensure that the executive team is doing what’s in the interest of shareholders, and not of themselves: no executive, no matter how powerful, should ever be allowed to do anything that’s not in the interests of the shareholders.
This is why all boards should have lots of independent members, people not involved in the day-to-day running of the company. While having senior executives on the board is valuable, they cannot be allowed to dominate the board’s decisions. If they do, the board starts to represent the execs, not the shareholders.
The health issue
If a senior executive has a serious health issue, one that may affect his ability to maximise shareholder value, his duty is to report it to the board, in as full and frank a way as possible.
At that point, the board – and not the executive – has to decide what, if any, information it needs to relay to shareholders. While all boards will naturally be sensitive to the situation the executive finds himself in, they must solely consider the interests of shareholders.
This can lead to conflict with the executive. The exec, understandably, might want nothing to come out at all. The board might want to issue a more detailed statement. But whatever happens, the board must decide, and if the executive disagrees with the board he either has to go along with it, or resign.
The key thing is that any statement on the health of senior executives must be approved by the board, and not under any circumstances, solely be left to the discretion of the exec or any member of his team. If the board allows statements to be made on an issue like this without its approval, it is failing in its duty to represent the interests of the shareholders, and allowing the executives interests to come first.
The most important thing in any board statement is that it must be true, and give shareholders an honest appraisal of how the illness will affect their company. It does NOT have to include full details of the condition. In fact, it doesn’t have to include any details. But if an executive is not able to fully-function, needs to take time off, or – and this is very important – is unlikely to be able to continue in the role, the board must let shareholders know this as soon as possible.
Bringing this back to Apple, it’s highly-likely that the written statements which Apple has released have been fully approved by the board – hence the additional “board statement” which the company gave. This separate board statement was a clear signal to the shareholders that the board was fully-aware of everything and was looking out for their interests. It was meant to say to shareholders “we are on top of this, we know all the facts, and you can trust us to deal with it in your best interests.”
However, clearly, there have been some failings by Apple along the line. When that nameless PR person told the Wall Street Journal last summer that he had “a common bug” that was a lie, and one that I very much doubt had been approved by the board. To be honest, that PR person should probably be fired: while they were well-intentioned in wanting to protect the privacy of the boss, in lying to the WSJ they were lying about the state of the company to the shareholders, and that’s a BIG no-no.
The company also made a mistake in not quashing speculation about his health early on. Once it became physically obvious that Jobs had been ill, it needed to give the shareholders clear guidance about whether and how his condition would affect the company. Ideally, it should have done this before speculation started – but unfortunately, the board appears to have allowed Jobs’ wish to not say anything to override their duty to protect the interests of shareholders. It’s understandable, it was a mistake, and I’m sure the board has learned from it.
The two statements
Some people may conclude that the fact that the company has made two statements in nine days is also an example of bad corporate governance, but I’m afraid that I think it might not be. The board’s statement from 5 January was clear and unequivocal: Jobs was ill, but it wasn’t going to affect his performance. To then have to reveal, nine days later, that he was going to need six months off indicates one of three things:
1. Jobs lied to the board about the state of his health. I just don’t believe this to be true. Steve Jobs is many things, and was almost certainly very reluctant to reveal even to the board what the problem was, but he’s also a very experienced executive and knows his duties. He might not want to tell them everything, but I can’t believe he would allow a board statement to go out that he knew to be false.
2. The board lied in its first statement. I can’t believe this either. Boards can do some crazy things, but lying about something this big would be impossible, not to mention illegal.
3. Jobs’ health situation changed in that nine-day period. This, I’m afraid, is the most likely explanation. Steve is simply much more ill than he believed on 5 January.
Heroes, companies, people
Steve is a hero to lots of people. He’s a remarkable guy, in many ways. By all accounts he’s a tough, inspiring perfectionist – but almost everyone I’ve met who’s ever worked with him looks back on it as the best work they’ve ever done (if not the best experience they’ve ever had).
He’s also a human being, a person like everyone else. He’s sick, and like all of us when you’re seriously sick your first duty is to yourself and your family.
But Apple is not Steve: it’s the property of its shareholders. And Apple’s board’s duty is look after the interests of shareholders. Of course, in part that means looking after Steve, who’s the most important employee. But if it’s a conflict between what Steve wants and what’s good for the shareholders, they have to come down on the side of the shareholders. That might sound inhumane, or harsh, but that’s just what they have to do.