Apple not only company that needs CEO succession plan

New SEC rules broaden legal definition of risk, making disclosure to shareholders critical

There's been a lot of talk this week about how well Apple is prepared for the possibility that chief executive Steve Jobs, now out on an indefinite medical leave, may be unable to resume his full-time duties as CEO. I wrote about this Monday, when Jobs notified Apple employees that COO Tim Cook would be handling day-to-day responsibilities for him at Apple. But even before then, in a bit of accidental prescience, I wrote on Jan. 10 that the company was recommending to shareholders that they reject a proposal by a pension fund owning Apple shares to adopt and disclose a CEO succession policy. (Also see: Apple don't need no stinking CEO succession plan) Apple's argument is that, if passed, the proposal by the Central Laborers' Pension Fund to require the company to develop a CEO succession plan -- and report on it to shareholders each year -- would undermine Apple's efforts to recruit and retain executives. The reasoning here is that by identifying potential successors, Apple faces the danger of having its designated "best executives" recruited away, while those Apple executives not on a short list of possible successors would take that as a cue to continue their careers elsewhere. Personally, I don't think Apple's stance makes sense. If an executive is on a short list of potential CEOs, you can be rest assured that that person already is well-known to competitors, not to mention every headhunter in Silicon Valley. Further, if another company does try to recruit a "short-list" executive, Apple presumably would have an opportunity to retain that executive by making a counter-offer. And if Apple has an executive who doesn't make the CEO short list, well, does the company really want to string that person along with the false hope that someday he or she will occupy the corner office? Today over at Fortune, careers columnist Anne Fisher has an excellent piece explaining why it is imperative not solely for Apple, but for all public companies, to develop a CEO succession plan. And not just because it's a good idea (which it is). Fisher writes: Not so long ago, a company under pressure to reveal its CEO succession plan "could blow off a request like Proposition 5 by claiming that executive succession was a routine business matter best handled by management, not something the board or the shareholders should be involved in," says Dave Heine, an executive vice president in charge of the directors and C-suite practice at Minneapolis-based leadership consultants PDI Ninth House. Then, in 2009 and again in late 2010, the SEC issued rule changes that no longer allow companies to dodge the succession question. The rules changes "broadened legal definitions of risk," Fisher explained. Bottom line: Not being at least somewhat prepared for when a CEO departs creates an unacceptable risk for shareholders and makes a company vulnerable to a class-action lawsuit (at least that's my interpretation). Heine tells Fisher that the SEC rules changes have caught the attention of Fortune 500 companies, though many are unsure how much detail they should go into regarding their CEO succession plans. Nonetheless, he says, just describing the process, especially within the context of the challenges facing the company within its industry, "reassures shareholders, analysts, and employees." It also helps the company be prepared for the eventual and inevitable change. And the last I heard, being prepared was a good thing.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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