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TheStreet Open House

Apple Needs Outside Director: Opinion

Stocks in this article: AAPL GOOG MSFT

NEW YORK ( TheStreet) -- Speculation has begun on who should fill Apple's (AAPL - Get Report) open board seat, which opened up after Google's (GOOG) CEO Eric Schmidt decided to step down.

Apple's Chief Operating Officer Tim Cook, who took over running the company while CEO Steve Jobs took time off earlier this year for health issues, has been mentioned as a potential director. That would be the wrong choice.

Despite Apple's enormous financial success over the past five years, its board has flubbed on several issues. It needs to appoint one or two new outside directors who demonstrate to its investors that it takes shareholder concerns more seriously.

Apple's stock growth has been phenomenal since the start of 2004. It's up 1,457% vs. -2% for the Nasdaq. Although Google's gone up three times since its 2004 IPO, Apple is up 9.5 times over that same period. Clearly, Steve Jobs deserves kudos for the groundwork he laid for this success since his triumphant return to the top spot at the company in 1997.

Consider this remarkable fact: Apple spends only $1.3 billion a year on R&D (or about 3% of its overall revenues), compared to Microsoft's (MSFT - Get Report) almost $10 billion, or about 14% of its overall revenue. Is there another large public company that comes to mind that is more innovative than Apple with such a great return on investment for innovation?

I salute Jobs and the entire company for their results. Yet, I'd remind Apple investors that performance like this brings power. Jobs evaded blame in 2001 in a stock-option back-dating scandal that might have claimed other CEOs. He also announced a six-month leave of absence from Apple earlier this year, without disclosing what he was being treated for. Just because you're a titan of business doesn't mean you shouldn't have to answer to someone.

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