The death of Apple Inc. director Jerome York last week has left the company with fewer independent voices, putting it in conflict with its own boards rules and renewing concerns about the boards ability to oversee strong-willed Chairman and Chief Executive Steve Jobs.
Mr. York, a former finance chief for Chrysler Corp. and International Business Machines Corp., headed the Apple boards audit committee for more than 12 years. He died from a brain aneurysm at the age of 71.
Apples time frame for finding a new board member, and even whether it will seek one, are unclear. Apple directors havent hired a search firm to recruit a new director, but the Cupertino, Calif., company typically prefers to tap its own network and conduct its own search, industry recruiters said. An Apple spokesman declined to comment.
At Apple, Mr. York was regarded as a relatively authoritative figure on audit and corporate governance matters but tended not to offer too many opinions, said people familiar with the board.
But he had strong feelings about the way Mr. Jobs handled disclosures about his leave of absence for health reasons in January 2009. In an interview with The Wall Street Journal last year, Mr. York said he almost resigned when told of the seriousness of Mr. Jobss illness. Mr. York felt Mr. Jobs should have publicly disclosed his health problem three weeks earlier in a news release that announced his decision not to appear at the Macworld trade conference.
Mr. York said the concealment disgusted him, adding that the only reason he didnt quit at the time was because he wanted to avoid the uproar that would have occurred once he disclosed his reason. Frankly, I wish I had resigned then, he said.
Under Apples own rules, the audit committee is required to have at least three members, and at least one must have past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience. The audit committee currently consists of two directors, former Intuit Inc. CEO William Campbell and former Genentech Inc. CEO Arthur Levinson.
While Apple could tap Mr. Campbell or Mr. Levinson to lead the audit committee or turn to one of its three other independent directorsformer U.S. Vice President Al Gore, Avon Products Inc. CEO Andrea Jung or J. Crew Group Inc. CEO Millard Mickey Drexlerto fill the audit-committee vacancy, such moves appear unlikely, corporate-board experts said.
Apples board, with just six members including Mr. Jobs, is already among the smallest at a Fortune 500 company, based on data from the research firm Corporate Library. As a result, its directors are likely to already be stretched thin, board experts said. Apples investor Web site shows that, except for Mr. Jobs, who isnt on any board committees, directors have multiple responsibilities. And many of Apples current directors dont have the strong financial expertise thats preferred for the audit chair position, governance specialists said.
Investors have long urged Apples directors to be more independent of the companys powerful CEO, even as Apple has continued posting strong financial results. An independent board represents the interests of shareholders and can challenge the CEO when necessary, said David Nadler, a corporate governance expert and senior partner at consultants Oliver Wyman Group.
Mr. Yorks successor should be somebody with sufficient stature and importance to take the CEO on, said Roderick Hills, a former Securities and Exchange Commission chairman, who has led a dozen audit committees. He added that Apples next audit committee chairman should be ready to quit if things arent done right.
At Apple, Mr. Jobs has long called the shots in the boardroom, said people familiar with the matter. When Apple was struggling in 1997, Mr. Jobs, who had been ousted from the company years earlier, agreed to return only if most of the board resigned, said Edgar Woolard, a retired CEO of DuPont Co. and one of two Apple directors whom Mr. Jobs asked to stay on at the time. Mr. Woolard, who left the Apple board in 2000, said Mr. Jobs blamed the old board for letting everything go to hell.
Since then, Mr. Jobs has kept tight control and directors have rarely challenged him, said people familiar with the board. That was true last year when Mr. Jobss lack of disclosure about his health became an issue. After exhibiting severe weight loss, Mr. Jobs took a medical leave of absence for nearly six months in early January 2009 with little explanation. His hospital disclosed last June that he had undergone a liver transplant after The Wall Street Journal reported the news.
As a shareholder, it would give me more confidence in the company if they had more outsiders, said Ted Parrish, a portfolio manager at Henssler Equity Fund in Kennesaw, Ga., which owns Apple stock. He added that Mr. Yorks death and the continuing uncertainty about Mr. Jobss health make it important to have a deep bench.
Apples board has taken one step toward independence. Early last year, it named Ms. Jung as its co-lead director alongside Mr. Levinson. Ms. Jung replaced Mr. Campbell, a longtime friend of Mr. Jobs and a former Apple executive. Bill has no comment, a Campbell assistant said.
But investors and governance experts said the company has a long way to go. Most of the current directors were handpicked by Mr. Jobs and are loyal to him, said people familiar with the situation. Mr. Drexler, a veteran retail executive, admires Mr. Jobs and considers him a genius, according to an individual familiar with Mr. Drexlers thinking.
People familiar with the board said Mr. Levinson was also a big fan of Apple and its products even before he was invited onto the board in 2000. Mr. Gore, meanwhile, has little corporate experience. Ms. Jung splits her time between her duties at Avon and other corporate boards. One person familiar with the situation said she rarely says or does much as an independent director because shes very busy. Ms. Jung is also a director of General Electric Co.
An Avon spokeswoman said Ms. Jung takes her responsibilities as an independent director at Apple and GE very seriously and makes adequate time to be fully engaged in the activities of both boards. Mr. Gores office declined to comment. Through a spokesman, Mr. Levinson declined comment.
Apple had an opportunity last fall to fill a board seat when director Eric Schmidt, Google Inc.s CEO, resigned his Apple seat amid regulatory scrutiny of the two companies businesses. But a person close to the board has said the remaining members decided not to fill the position at the time because there were plenty of directors to man [its] three committees.
