The Value of Steve Jobs
| Peter Klein |
As you have likely heard, Steve Jobs is taking an indeterminate leave of absence from Apple to deal with his continuing health problems. How will this affect Apple? How important is one person — albeit the founder and CEO — to a diversified multinational company with tens of thousands of employees? Apple’s stock slipped slightly on the news of Jobs’ leave (down 2.3 percent today, the first trading day after the announcement), but Jobs’s health problems are well known and Apple’s stock price presumably already included a discount reflecting the possibility he’d step down. To estimate the value of a particular employee to the firm in this way, we need an unanticipated departure, one that isn’t a response to poor performance and isn’t expected in advance.
Sure, enough, there’s an app for that — I mean, there’s a literature on that. An influential 1985 paper by Bruce Johnson, Robert Magee, Nandu Nagarajan, and Harry Newman looked at stock-price reactions to CEO deaths by plane crash, finding positive announcement effects for founders and negative announcement effects for professional managers. (One way to handle the founder-succession problem!) Macabre, I know, but nonetheless a clever way to deal with endogeneity. Naturally, this paper spawned a follow-up literature. Rather than cite the papers myself, I’ll just block quote a paper by Bang Dang Nguyen and Kasper Meisner Nielsen presented at last week’s AEA meeting, “What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?” and you can chase down the references on your own:
Our paper draws inspiration from a growing body of literature that uses sudden deaths to overcome the identification issues related to the contribution of top executives to shareholder value. In a seminal paper, Johnson et al. (1985) use sudden deaths of 53 executives to estimate the value of executives’ continued employment. They find positive stock price reaction to the death of founder-CEOs and negative reaction to that of professional CEOs. Later papers have applied this approach to examine different roles of CEOs and chairmen (Worrell et al., 1986), the effect of inside block ownership (Slovin and Sushka, 1993), and the impact of managerial entrenchment on firm value (Borokhovich et al., 2006; and Salas, 2010, respectively). Other studies (Roberts, 1990; Fisman, 2001; and Faccio and Parsley, 2009) have used sudden deaths (or rumors of poor health) of politicians to estimate the value of having a politically connected CEO. Bennedsen, Pérez-González, and Wolfenzon (2007) study the event of the deaths of CEOs, and of their relatives, and show that CEOs are instrumental for corporate performance. More recently, Nguyen and Nielsen (2009) use sudden deaths to estimate the value of independent directors.
I don’t know if any of these papers study unanticipated medical leaves, as well as deaths, but that would be a sensible extension.
Of course, studying the value added from the founder’s contribution to a mature company tells us little about the value of founders per se. But this raises a more general question about “opportunities” as conceived in the entrepreneurship literature. If opportunities exist, objectively, waiting to be discovered, then it’s reasonable to question the value of a particular discoverer. If Columbus (or Vespucci, or Leif Eiríksson, or whoever historians favor these days) hadn’t discovered America, somebody else would have come along a bit later and done the same thing. I think this view downplays the roles of subjectivism and uncertainty, which is one of the reasons I reject the opportunity-discovery perspective.
(Thanks to Peter Lewin for inspiring this post.)