Apple's Cult Factor Emerges as Drawback

CUPERTINO, Calif. (TheStreet) -- I know I'm going to be yelled at for saying this, but isn't it about time we stopped the deification of Steve Jobs?

When word broke on Monday that the Apple ( AAPL) chief executive was taking a medical leave of absence, one could practically hear the collective gasps. When trading opened Tuesday, the stock slid in ferocious early trading during the morning. Articles such as this one framed the collective wisdom: "Without Steve Jobs, Questions Surround Apple."

The problem is that with or without Steve Jobs, questions will always surround Apple and, for that matter, questions will always surround every public company in existence.

Recap: Apple Earnings Blog >>

The difference, and the reason for the near-hysteria and the mammoth market reaction, is that Apple isn't just any old stock, it is the quintessential cult stock. One of the reasons that Apple is a cult stock is what we're seeing today: an unhealthy obsession with its founder and CEO.

Now don't get me wrong. I share the high regard that everybody seems to have for Steve Jobs, just as I understand why the company's products seem to engender such fanatical, cult-like loyalty. He is certainly one of the truly outstanding figures of our time, and his products are said to be pretty darn good too. One fellow I know, a cynical veteran investigative reporter, waxed rhapsodic when the subject of his Apple came up a while back. He told me that once he switched to an Apple computer, it was like a religious experience. "You never look back," he told me some time ago. Sort of like the birth of one's first child, or a seminal event like Sept. 11.

At bottom, what is happening here? Nothing more than the fact that the flesh is human, and Jobs is human. He is unwell, and the state of his health has been subject to the kind of speculation that ordinarily follows a head of state, not a CEO. Although Jobs has downplayed the extent of his cancer in the past, it speaks for itself that he is taking a medical leave a year and a half after his liver transplant was deemed to be a success.

Let's face facts. It's entirely possible that Steve Jobs is a very sick man, and that he is much sicker than he or the company has disclosed so far. His loyal shareholders and fans need to brace themselves for the possibility of his death. After all, he or any CEO could die at any time or for any reason, whether it be by cancer, being hit by a car or shot by some nut-job in Arizona. The companies go on when such things happen, and sometimes actually do quite well.

For example, the market reacted strongly when former McDonald's ( MCD) CEO Jim Cantalupo died unexpectedly in 2004. It was viewed at the time as a "harsh blow" to the company. But the company, and the stock, rebounded. As for Apple, the company said late yesterday that quarterly profit jumped 78%, beating analysts' estimates by a mile, as revenue rose to a record.

That possibility doesn't seem to be in the cards for Apple, if you view the vehement initial market reaction. And that, I think, is largely a function of this being a cult stock. In a normal, non-cult company, the possible repercussions of a CEO's health would have far less dramatic, and already would have been incorporated into the stock's price to a large extent. After all, it is obvious by simply viewing Jobs' much-publicized weight loss over recent years that he is a very sick man. Why else should his recent leave of absence cause such a cataclysmic reaction in the shares?

That brings me to another aggravating factor: the possibility that the company may not have been fully transparent in disclosing the nature of the CEO's illness. As trader and blogger Karl Denninger points out, the timing of the announcement -- on the eve of the earnings release -- couldn't have been worse. "Dropping this now implies strongly that it couldn't wait -- that it's serious enough, and has urgency high enough, that Jobs was literally about to keel over and needed the rest," says Denninger.

That's a valid point, and one that Apple management needs to address. While Jobs certainly deserves his privacy, the company is well aware that the precarious state of his health has significant market impact. This is not to say that Apple needs to release his medical records as do presidential candidates, but that the company needs to ensure that investors are aware of the state of its CEO's health, so that market shocks are kept to a minimum.

The cult factor, however, is something that is beyond the control of this or any company. Shareholders need to get a grip. They need to realize that, whether the company says so or not, the CEO of this company may very well be a very sick man. They also need to realize that even if they aren't cultists themselves, this company has a fanatical following, and that its share price is subject to rapid and severe movement -- particularly, as happened today, when the reason is Steve Jobs.

-- Written by Gary Weiss in New York.

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Gary Weiss has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, "The Mob on Wall Street," which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book "Born to Steal" (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. "Wall Street Versus America" (Portfolio: 2006) was an account of investor rip-offs. He blogs at garyweiss.blogspot.com.

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