iPods, iPads, and iPhones would have baffled the German social scientist Max Weber, who died in 1920.
The father of modern sociology, however, would surely have understood something about the man behind those futuristic gadgets.
Weber defined the ‘charismatic leader’ as one whose influence stems from almost preternatural insights and imagination, and who inspires devotional loyalty from his followers.
This definition adds up to an uncanny description of Steve Jobs of Apple.
Weber also argued that organizations structured around a charismatic leader are doomed to lose their vigor after the great one leaves the scene.
That prediction became relevant yesterday, when Jobs, perhaps the most charismatic chief executive officer in business history, announced his retirement from Apple, the company he started at the age of 21 (in 1976) has one he has led to breathtaking heights over the past few years.
In a letter to his 50,000 employees, Jobs has handed off daily control of the company to Apple’s chief operating officer, Timothy D. Cook. He will however continue to look at the company as its Chairman.
Jobs’ health has been an issue for so long that many investors seemed to have grown habituated to it. Despite this, just after Jobs announced his resignation yesterday, Apple’s shares tumbled 5%.
Now if 5% doesn’t sound like a big figure, know that this is on Apple’s total market capitalization of US$ 350 billion, or just around one-third of the size of India’s economy.
“He’s always going to be remembered, maybe for the next 100 years, as the greatest technology business leader of our time,” Steve Wozniak, who co-founded Apple with Jobs, said in an interview on Bloomberg West.
He added, “Company culture doesn’t change overnight. He’s got tens of thousands of employees. The quality of the products reflects how good they are, too.”
So Apple seems to be in the right hands even after Jobs moves out from the key execution role.
However the question most investors would have on the top of their minds is…
“What happens to a modern company whose innovations and inspirations are so closely tied to the vision of one leader when that leader’s influence is in decline?”
In the Indian context, this question could be asked by investors in the companies managed by Ratan Tata (Tata Group), Sunil Mittal (Bharti Airtel), Azim Premji (Wipro), K. Anji Reddy (Dr. Reddy’s), Adi Godrej (Godrej Group), Kiran Mazumdar Shaw (Biocon), Deepak Parekh (HDFC), and Anand Mahindra (M&M).
These are the leading names in the list of charismatic leaders of Indian business. What happens to these companies when these people move out of their leadership roles?
If you are an investor in any of these companies, this question must be your biggest worry.
There are some lessons to be learnt from Jobs’ resignation and the knee jerk reaction to Apple’s stock price.
While Apple might continue to remain the innovation powerhouse even after Jobs’ exit, the culture would never be the same. And thus there ‘could’ be a long range impact on Apple’s fundamental business value. However this only time will tell.
Lessons for investors
Apple’s dependence on Jobs, his resignation from the company, and the impact on the stock price, has some lessons for investors.
1. Beware the superstar CEO
While you may love Steve Jobs, the superstar innovator and CEO, as a consumer of Apple’s products, as an investor you must take a company’s such high dependence on one man with a pinch of salt.
Of course, there is a rationale for buying a stock whose products you love (like legendary fund manager Peter Lynch used to do), buying a stock just because you love one person in the company is fraught with high risks, however charismatic and superhuman that one person is.
It’s good to invest in ‘what you know’, but the idea of diversification must not be lost on you. Most of the Indian companies I’ve mentioned above have been super performers over the past ten years. But assuming that you have diversified your investments, chances are you don’t have all of your money in most of these stocks.
While adequate diversification might keep you from benefiting tremendously from the supernormal rise in one or few stocks, it will also help you protect the downside in case any of these stocks face bad times.
3. Leadership matters
While he oversaw a huge company, comprised of thousands of talented employees, Jobs has infused the company with his creative imprint. That’s what leadership is all about. The ability to groom a second line of managerial talent is what separates leaders (and their great companies) from managers (and their good companies).
4. Don’t over-react
Selling under panic just because a superstar CEO has resigned, and not considering the business value isn’t what sensible investors do. When Jobs took a leave in January 2011, Apple’s shares traded down but then recovered. The idea is that you must not make a decision without doing your homework. If you own a stock and have good reasons to continue owning it, don’t get spooked into selling just based on just a single piece of news.
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