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Inside Apple's Boardroom Coup


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INSIDE APPLE'S BOARDROOM COUP

Eleven tense days, a showdown in Manhattan, a new CEO

Gilbert F. Amelio took the hot seat on Feb. 5. On his first day as the new CEO of embattled Apple Computer Inc., he sent an E-mail, telling employees that he is an "avid" Apple user and that in coming weeks he will meet with them to "begin the process of getting Apple back on track." He sat down with top execs, squelching fears of wholesale firings, and asked for ideas on how to return Apple to health. And he told his top marketing chief: "We must have some good news every day." Says Satjiv S. Chahil, senior vice-president of marketing: "He's just what the doctor ordered."

Now, Amelio has to come up with the right medicine. Credited with reviving troubled National Semiconductor Corp., Amelio already is assessing Apple's ills: slowing sales, shrinking market share, a quarterly loss, layoffs, a painful exodus of executives, and no blockbuster products to bail it out anytime soon.

There's also the question of how to resolve ongoing merger negotiations with Sun Microsystems Inc. On Feb. 7, the two companies were once again bargaining after haggling most of the previous weekend in the Palo Alto (Calif.) offices of Wilson, Sonsini, Goodrich & Rosati, Sun's law firm. It was unclear, however, if the talks were about a merger, an Apple equity position for Sun, or a technology partnership. Why talk now, after Amelio has been brought on board? Insiders say there was no deal in sight when Amelio took the job but that Apple board members haven't given up their interest in a pact--as long as the price is right. Though talks continue, insiders at both Sun and Apple are skeptical that a merger will come off now.

Nobody knows exactly what Amelio will do to revive Apple. But insiders think he is mulling an approach like the one he took at National and the one Louis V. Gerstner Jr. took at IBM: Say little, listen to employees, customers, and dealers. Then come out swinging.

At least Apple is clear of the hysteria zone--the weeks of tumult between doses of bad financial news, rumors of the Sun deal, and shareholders calling for the head of CEO Michael H. Spindler. On Feb. 2, they got what they wanted. Spindler resigned, and Amelio, an Apple board member for 15 months, stepped in, ending one of the most bizarre chapters in Apple's high-drama history.

This chapter involved boardroom theatrics at its best. It began on Jan. 23, the day of Apple's annual shareholder meeting. Board members and Spindler were expecting tough but manageable criticism from investors. Insiders say Spindler and the board had begun serious negotiations to sell Apple to Sun the week before, and a deal looked likely. All they had to do was weather the meeting.

Spindler was coached on how to take criticism without responding angrily, insiders say. That would prove handy, as one jab after another was thrown at him. Afterward, at a press conference, Chairman A.C. "Mike" Markkula Jr. supported Spindler, even patting his shoulder and telling the press: "I like this guy. He's a very good person."

But events would quickly erode Markkula's backing. That afternoon, the board met to consider Sun's merger offer. On the table: a proposed stock swap, valuing Apple's shares in the mid-20s--far below its 31 5/8 selling price that day. The board was stunned. Shareholders were unlikely to approve such a lowball bid. Says one insider: "The board really thought they would come out with a deal and all would be forgiven."

CRUSHING NEWS. Realizing a merger was now dicey, the board met again that night for a "business session" in which one Apple executive after another made presentations, outlining the issues Apple faced. Insiders say the board listened, nearly mute, barely asking questions. But the magnitude of Apple's problems began to sink in. Says one insider: "They got their [minds] around the fact that things weren't running well."

For seven days, the pressure mounted. Board members, still stinging from the shareholder meeting, were stunned by an onslaught of bad press. Big shareholders, reading leaks about the Sun talks, began contacting the board directly, denouncing the bid. Then, crushing news: Some corporate buyers, worried about Apple's future, were delaying purchases; a few were even considering a switch to rival PCs, says Tim Bajarin, president of market researcher Creative Strategies International. The final blow: On Jan. 29, Standard & Poor's downgraded some of Apple's debt to "junk" status. Says an insider: "It became clear as time went on that this was about more than having buddies on the board."

It was time for Spindler to go. Markkula called an emergency meeting for Jan. 31 at Manhattan's St. Regis Hotel. Insiders say Spindler, who traveled to New York with his wife, was caught off guard and argued passionately for more time. The board was firm: Spindler had contributed much over his 16 years at Apple, but directors had been surprised by plunging gross margins, throwing into question management's credibility. "I know it's the pits, for Michael and for all of us," Markkula stated in a Feb. 4 E-mail to Apple employees. That night, Markkula and Amelio, close friends and both pilots, flew out of New York in Markkula's Falcon 900. Amelio, 52, an engineer with 16 patents, had become Apple's fourth chief.

By 6:30 a.m. on Feb. 1, Apple was aswirl with rumors of Spindler's ouster. Employees scrambled to find copies of their new boss's book, Profit from Experience, a step-by-step description of how Amelio "transformed" National Semiconductor from its worst loss ever ($151.4 million in the fiscal year ended May 26, 1991) to its best year (a $264.2 million profit in fiscal 1995).

By Thursday afternoon, Amelio notified National Semiconductor that he was leaving. The news surprised the chipmaker's board and top executives. "I was shocked and annoyed," says Charles E. Sporck, a board member and former CEO and president. "I'm disappointed that he decided to bag it." Amelio met with his seven-member executive committee and National's general counsel late Thursday. In a 20-minute meeting, he assured everyone he had not sought the Apple job. But he said he could not turn down the chance to save Apple. "Gil sees this as a mission for America," says Modesto A. Maidique, a National board member.

Since the stock market had already closed, National decided to announce Amelio's plans early Friday morning. But Apple still wasn't ready. So at 8:30 a.m. Pacific time, National finally put out a terse release on its own, saying Amelio had resigned. Apple's announcement came at 6:45 p.m., apparently held up while Spindler hammered out his compensation package. Apple declines to comment on the matter.

That Friday, Spindler cleaned out his office as his tearful support staff looked on. By evening, the German-born executive sent an emotional E-mail message to Apple employees that began: "Dear Colleagues: The end of a long voyage. A page in my life has turned..." He reminisced and took the full brunt of what had gone wrong. "So it's time for me to go!" he wrote. "Mistakes or misjudgments made? Oh yes--even plenty. Both in business and personal judgment terms. I take personal responsibility for things that didn't work and should have worked. I tried to give it my best--both intellectually and physically in every corner of the world to carry this cause and its color."

Amelio is already plowing through Apple's problems. He hates talk of a "turnaround" because it implies a quick fix with lots of layoffs. He prefers to be known as "transformation manager"--someone who works with employees to craft a vision and rally the troops behind it. "He's not a guy who comes in and turns things around by swinging a machine gun," says Frederick L. Zieber, president of Pathfinder Research Inc. in San Jose. Whatever methods he employs, he faces some of the most daunting challenges of any Apple CEO yet.BY KATHY REBELLO, WITH ROBERT D. HOF AND PETER BURROWS, IN SAN FRANCISCOReturn to top


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