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Apple's CEO Tim Cook.  Photo by Getty Images

Apple’s board reboot: Tim Cook needs to stay out

Jul 09, 2014

Is the maker of Macs in for a board reboot?

According to a Wall Street Journal article published on Monday, Apple CEO Tim Cook is looking for new board members. If the report is true, Cook’s search is reminiscent of Steve Jobs’ handpicking of an Apple board that would, perhaps in name only, oversee him. But CEO selection of board candidates is a governance no-no because CEOs report to—and are hired and fired by—the board.

To be sure, the Apple (aapl) board is certainly ripe for an overhaul. Bill Campbell, the chair of Intuit (intu), has served on Apple’s board since 1997. Campbell figured prominently in documents filed in the wage fixing case that Apple agreed to settle this year. The testimony related to that case also referred to Apple Chair Art Levinson, who has been an Apple board member since 2000. Amid antitrust concerns, Levinson stepped down from Google’s board in 2009. But in September of last year, he became CEO of Calico, a controversial gig for an Apple director since Calico is funded by Google (goog).

The two other longest serving Apple directors are Mickey Drexler, CEO of J. Crew, who has been on the board since 1999, and former U.S. Vice President Al Gore, a director since 2003. Drexler and Gore are not known as champions of good governance. Drexler survived a controversy in 2010 when he allegedly waited seven weeks to inform the J. Crew board of in-depth discussions he was holding related to the potential sale of the company. Gore led Apple’s internal investigation into stock options backdating allegations, issuing a report that some considered a whitewash.

Many boards find it vital to reconsider the people who sit on their nominating and governance committees in order to facilitate director exits and find the best candidates. When the least governance-minded or longest-serving directors control those committees, boards can run into serious roadblocks. Tech firms have a heightened need to avoid stagnant board membership because fast-moving strategies require fresh thinking.

Apple’s board is not diverse and not reflective of its customer base. The composition seems out of step with the company’s recent new hires, including Angela Ahrendts, former CEO of BurberryThe board currently has only one female member—and not a single independent Apple director is under 55. Apple did not respond to a request for comment.

At Apple, Campbell or Levinson, along with Drexler and Gore, have been responsible for board nominations and governance since 2003. (Apple’s 2011 to 2014 proxy filings show the board’s nominating and governance committee has been chaired by Campbell, the board’s longest serving director, with members Drexler and Gore. The 2003 to 2010 filings show the committee composed of Levinson, Drexler, and Gore.)

At this year’s annual meeting, Apple stockholders did not approve a proxy access proposal that would have allowed shareholder board nominations to appear on Apple’s ballot. Nevertheless, the nominating committee should be seeking shareholder input.

So, where does this leave Tim Cook? If the Apple CEO wants new board members, he has a couple of options. He can garner board support to get the nominating committee moving—or he can suggest that the board consider reconstituting its committees to shake things up and give newer independent members a bigger role in the nominations process.

Under no circumstance should Cook, who as CEO reports to the board, be creating the slate. It’s bad governance that could backfire down the road. And it could tarnish Cook with the same brush that painted former HP (hpq) Chair Ray Lane when he took control of board nominations, contrary to that board’s governance charter.

The era of Jobs is over. For Apple and Cook, that means it’s time for mature corporate governance. Along with it, perhaps the company will gain some fresh ideas as well.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance. She may be reached at ebloxham@thevaluealliance.com.

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