00:00First, I just want to get a sense here of how you actually grade this baton handoff between Tim Cook
00:05and John Ternus.
00:08Thanks, Romain. It's great to be here.
00:10Look, one thing about Apple we all know is that it's a company that is all about excellence.
00:15And when it comes to CEO succession, it is the hardest thing and the most important thing that a board
00:22does,
00:22especially for a company like Apple, where you have Tim Cook, a 15-year iconic CEO leader,
00:30following in that footsteps. It's very, very difficult.
00:33You can judge any CEO succession by two factors.
00:37One is the process. And then most importantly, over time, is the outcome.
00:42So obviously, the outcome we'll see unfold over the coming years.
00:46But the process seems to have been perfect, confidential.
00:50They considered lots of options, as I understand it.
00:53And they came to a conclusion with someone with unanimous board support, with tremendous market credibility and internal credibility.
01:02And so we can talk about what goes into great CEO successions.
01:05And we study this.
01:07It's Spencer Stewart.
01:07As you mentioned, Romain, we do hundreds of CEO successions.
01:11And it is the most important work that the board does.
01:14I am curious about the pressure that Ternus is going to be under.
01:17I think when Tim Cook took over for Steve Jobs, both on an interim basis and eventually on a permanent
01:22basis after his passing,
01:25I mean, the weight of the world was on his shoulders.
01:27How do you take one of the most innovative companies, led by one of the most innovative leaders, and build
01:32on it?
01:33And there were a lot of doubts about Tim Cook's ability to do that.
01:36He obviously proved them wrong on a lot of levels.
01:39Ternus, to a certain extent, is going to face that as well, to basically take this company into a new
01:44era.
01:44I mean, you wrote a book, what was it called?
01:45You're in charge, now what?
01:47I guess that's my question to you, is what kind of honeymoon period is Ternus actually going to have here
01:53to be able to prove that he actually is the guy that maybe will lead this company for the next
01:5910, 15 years and beyond?
02:01Well, it's so funny because we study this and John will have, he'll have a honeymoon period.
02:08He'll have the benefit of Tim stepping as executive chairman.
02:12And we know that they're going to really craft those roles very, very carefully.
02:16But there's something that we've just published on a study.
02:20We've studied the 3,000, more than 3,000 CEO successions since the year 2000 in the S&P.
02:26And for those successors who follow what we call a marathoner CEO, those who've been more than 10 years, they
02:35actually have a much higher likelihood of success.
02:38Even though the shoes are gigantic to fill for John, he will have a trust premium that is built in
02:46for the board, the organization, the investors.
02:49So the chances are very strong that he'll have a very long run.
02:56And yes, there's no easy answer.
03:00When it's a turnaround, like take a look at Liputan coming into Intel, that was a gigantic challenge and it's
03:08done a great job in the first couple of years.
03:10Here, when you have Tim who grew the, led the growth of the market cap from 350 billion or so
03:16to just about 5 trillion before today's slight correction, it's in a completely different sort of situation.
03:23So the pressures to grow on that massive, almost incalculable base are truly huge.
03:32At the same time, the assets are to work with and he's got the credibility and the support of the
03:37board, the organization and the investment community.
03:40Jim, that's actually exactly what I wanted to ask you about next.
03:43You look at a 10-year return on Apple shares.
03:47It's over 1,000 percent gain here.
03:51You just have to wonder if we're going to see a repeat of that for the next 10 years ahead.
03:56I mean, the company can only get so large, right?
03:59How does that kind of shift the priorities for the next CEO?
04:04Well, on the one thing, most great CEOs, we all know that boards, CEOs, investors look at the returns as
04:14the ultimate scorecard of CEO performance.
04:16But you have to know that that's more an overtime situation.
04:21Who would have guessed 15 years ago that there would have been this massive increase?
04:26So it's hard to say where things are going from here.
04:30But if you can imagine a company with the assets, with the quality, with the culture, with the supply chain
04:38excellence, with the brand strength, there is so much to work with.
04:42So it's a real leadership moment for John.
04:44But it's not just about him.
04:47There's the whole leadership team.
04:48There's the board.
04:49There's the massive organization.
04:51There's the customer base.
04:52All the experts.
04:53So a lot of people, of course, are rooting for him and rooting for the company to continue to thrive.
04:59They certainly are.
05:00I am curious.
05:00And this is a question about Ternus, but really a question about all the sort of searches and other consultations
05:07you've been involved in over your storied career.
05:09And it's that question that always comes up about whether you go for an insider or you go for an
05:14outsider for the company.
05:15Obviously, they chose an insider.
05:17At least right now, it looks like the market's pretty comfortable with that.
05:20But we've seen some other successions in recent years where we've seen boards flub that in a big time.
05:25And I'm curious, is there sort of a formula or at least a question that you ask yourself and, in
05:31that matter, of the board to try to determine whether an insider or an outsider would be best for the
05:37next leg of the company's history?
05:40I'm so glad you asked that question, Romain, because that is really the question that boards often ask.
05:45And we've been studying that question for 20 years.
05:48The general direction on that question is that when a company is performing well and there's a clear strategic direction
05:55and there's conviction on the business, insiders tend to be lower risk and slightly outperformed.
06:02When a company is in a crisis or a turnaround, Boeing, Intel, there are others, then that does conditions favor
06:13an outsider who can come in and change the culture, build on the strengths and create a new direction.
06:19But actually, overall, as most boards really believe that it is a benefit to have an insider.
06:26And generally, that often works the case, but the actual data show that the performance is pretty much identical, but
06:34the risk or the beta is higher for an outsider.
06:37So the upside is a little greater.
06:39The downside is a little greater as well.
06:41The big, big point is that boards do it well when they consider all the context.
06:47They consider insiders, they at least benchmark the external talent and then try and make a judgment based on the
06:54forward-looking needs of the business and then try and back in what are the right leaders for that.
06:59So in this case, they clearly have done that, focusing on where the company is going and that John would
07:06be the right man for the job.
Comments