Leadership matters more than visionary ideas

Tim Cook, left, deftly led Apple through a series of challenges. Now it's up to John Ternus to show his leadership qualities.

Erased like an old operating system via update, Apple officially said goodbye to Tim Cook as CEO this week. For the sake of both Mac users and Apple investors, let's hope the new guy keeps one of Cook's best features: leadership.

It's hard to find a CEO who had bigger shoes to fill and somehow still exceeded expectations. Under his tenure, Apple's stock (AAPL) returned 23.5% annually excluding dividends. It had just three down years in 15 and outperformed the S&P 500 SPX by three times during that span. Shares of Tesla (TSLA) and Nvidia (NVDA) may have surged even more, but those companies started well behind. Apple went from a market cap of $350 billion when Steve Jobs left to $4.75 trillion on Cook's last day.

Under Cook, Apple swatted away competitive threats such as Android phones and introduced modest-but-gangbuster products, like wireless ear buds (AirPods) and watches that produce as much as an annual $20 billion and $13 billion, respectively. The company navigated supply-chain, political and economic disruptions. Cook's calculation to rent rather than build AI is widely seen as a smart move, too.

Cook's final test was in tapping John Ternus as his successor, and though it's too early to tell if Ternus will be Cook's last bold stroke, the early verdict - from the market - is a yes. Apple shares are up 20%, compared to 9% for the S&P 500, since Ternus was announced as successor on April 20.

Leadership is fundamental

Cook's years as CEO of Apple underscore how important leadership is for investors. It's the X factor that's often overlooked. In a bull-run environment, most CEOs look pretty good. When the bond market tanks, inflation ramps up, a selloff begins or a financial crisis hits, strong leaders like Cook or Jamie Dimon at J.P. Morgan Chase (JPM) find a way to thrive amid the fallout. Less-than leaders like Dick Fuld at Lehman Brothers go down with the ship. Other companies, like Boeing (BA) and Hertz (HTZ) during the pandemic, have a revolving door of mediocrity in the C-suite and a down escalator for returns.

When it comes to a bull market, Warren Buffett said, "only when the tide goes out do you discover who's been swimming naked." It's high tide for leaders today. Some are Tim Cooks, others Dick Fulds. Some, as Peter Drucker said, are managing to do things right. Others are leading: doing the right things.

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And while it may be hard to tell who's just managing and who's leading, there are a few CEOs who have track records to suggest they will guide their companies through a bear market, recession, financial crisis or geopolitical shock. After all, in many cases they've done it before.

Larry Culp at GE Aerospace (GE) took over a debt-ridden, slow-growing General Electric in 2018 and transformed it into three financial engines. Culp delivered one of the clearest modern large-company restructurings: deleveraging, operational simplification, tighter capital allocation and separation into GE HealthCare $(GEHC)$, GE Vernova (GEV), and GE Aerospace. Those three companies combine for $624 billion in market cap - more than three times GE's valuation ($150 billion) when Culp was named CEO.

General Motors' $(GM)$ Mary Barra gets knocked for her handling of GM's on-and-off electric-vehicle strategy. But since taking the helm in 2014, GM has steadily revived under Barra. She's proven her mettle in crisis response, cultural change, financial discipline and capital returns. GM's stock beat the S&P 500 in three of the past six years, a period that included both EV market fluctuations and the pandemic. GM has beaten analysts' consensus estimates in 26 of the past 27 quarters - and the stock is up 76% in the past two years.

Jensen Huang is an obvious choice. Remember, Nvidia (NVDA) survived near-collapse as an early startup, then navigated brutal semiconductor cycles, failed product bets, crypto volatility, gaming downturns and export controls. Nvidia is the biggest success of the decade, and Huang is the smartest guy playing the AI game.

Opinion: Nvidia is getting too big, and that's a problem

Probably no leader could make Microsoft (MSFT) cool. Every product it has, from LinkedIn to Teams, is derided by workers as dorky and cringe as a Steve Ballmer-led product launch. But to CEO Satya Nadella, that's just fine. Microsoft is laughed at in the workplace because it is in every workplace. And Nadella has made the company into a cloud, subscription, developer-platform and AI leader. Like Apple under Cook, Microsoft's stock has seen roughly three times the returns of the S&P 500 since Nadella was named CEO in 2014. It's a $3.68 trillion company that would make Clippy proud.

David Ricks at Eli Lilly (LLY) gets a lot of attention for Mounjaro and Zepbound (leading GLP-1 drugs), but he took over the pharmaceutical company in 2017 when it was a laggard and worth about $70 billion. It's worth $1 trillion now. Ricks is credited with helping push the Trump administration to get obesity drugs covered by Medicare. Customers have become skinny and shareholders have gotten fat.

CVs vs. EVs

Contrast those leaders with some other well-known names.

Elon Musk? Sure, Tesla (TSLA) and SpaceX (SPCX), for now, have been pretty good investments. Garrett Nelson, a senior automotive-industry analyst, estimated last year that 30% of Tesla's value was due to Musk's role as CEO. But how much did Musk's side hustle in the Trump administration hurt his brands and shareholders? Well, Tesla sales slumped soon after and were down 26% in August.

What about Sam Altman at OpenAI and Dario Amodei at Anthropic? Smart guys, blockbuster IPOs coming. But neither has led through a downturn, and their decision-making isn't so hot when things are good. Altman's one crisis was getting fired by his own board - a fight he survived, not one he saw coming. Amodei has critiqued the AI industry's safety, size and even Anthropic's own models.

And both continue to signal that their product is dangerous. They signed the Center for AI Safety letter warning their industry poses an "extinction risk" on par with nuclear war. Maybe they're right. But it's a strange thing to tell regulators on your way to the public markets, and stranger still to tell shareholders. Cook never warned Congress the iPhone might end civilization.

Choose your fighter

Ultimately, investors should never put all their faith in big personalities or even smart guys who can build rockets, AI or EVs. A bold thinker or visionary is not necessarily a great leader. Put another way, who do you want to lead you into battle? Someone with a great idea? Or someone who's been through a fight before and won?

Until now, the money has been flowing, and companies have been riding a wave of expansion. Just about every operating system works in that environment. But find me the CEOs who have built something bigger, thrived in a period when others struggled. Find me the Tim Cooks out there, and I'll take my 23.5% annually.

-David Weidner