Will Apple Lose Top Employees? The Great Brain Drain (AAPL, MSFT, GOOG)

When great CEOs leave a company, an entire corporate culture is at risk to change, even when the new CEO is the favored replacement. Tim Cook is said to be more than able to fill the role of Apple’s (NASDAQ: AAPL) CEO permanently now that Steve Jobs has left. There is just one problem in thinking that all things will remain the same except for the “minus Steve Jobs” factor. It is not even that Steve Jobs is one of the most memorable, most hands on, and most influential CEOs out there. Of technology CEOs, he certainly shines. What Apple and its investors have to fear the most is the possible competitive threat of a brain drain.

Apple is not alone. Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG) have both already experienced this brain drain effect. The risks are not just top executives leaving. The risk is that other employees will follow executive defections in the months and years ahead. More importantly, even the underlings who do not follow former executives to the same destination are either more likely to accept calls from recruiters or are more likely to go pursue new challenges and opportunities. If those employees feel that the best days of growth have been seen or if they feel they have already been made millionaires on stock and options, then the incentive to stay may even be less.

Again, this has happened elsewhere. It is not a definite outcome at Apple, but if it does occur there it will not be the last such case in business history. Now the new destinations for talent are numerous, from gadget-makers, to social media, to internet and software, and to many aspects of hardware. Imagine how many executives at Facebook, Groupon, Zynga, Dell (NASDAQ: DELL), HP (NYSE: HPQ), Oracle (NASDAQ: ORCL), EMC (NYSE: EMC) and elsewhere would love to bring in some of the Apple culture. These companies could certainly lure employees with salaries and stock options.

Microsoft has seen a large amount of brain drain over the past decade, and much was credited to the departure of Bill Gates, when employees could seek new challenges and after they had accumulated wealth. The departures were in the Windows design team, Windows Live, MSN, Xbox and Zune, and on. One of the most noted departures we tracked was Ray Ozzie as chief software architect, which Microsoft-Watch said was on the heels of other key departures. Business Insider gave a list in early 2011 of the top ten departures over the last ten years. What is funny about Microsoft is that the departures are often not usually over pay, but over pressure, lifestyle, and a desire to seek new challenges elsewhere.

Google has suffered a brain drain in recent years as well. The once best place in the world has peaked as far as its ability to grow, compared to the past. Google originally had been able to attract people seeking new challenges, but Google is not really known for being the top salary destination, and its workforce has expanded massively. Back in 2008, Wired wrote about the brain drain that occurs after a four-year or five-year option vesting plan. In late 2010, the company even reportedly instituted pay raises of about 10% to be more competitive. And now we have Larry Page as CEO without the full-time adult supervision of Eric Schmidt.

So, the focus on Apple …

As with all departure-cultures, some are voluntary and some are involuntary. What seems to be a common theme is that departures actually have the effect of creating further departures further down the ranks for months and years. Former executives and coworkers often recruit out of their former employers. Again, this can take place over a period of years, and long after nonsolicitation clauses expire.

Now that Steve Jobs is not going to be involved in the day-to-day operations at Apple, there is no reason to assume that Apple will just automatically be immune to any brain drain just because it is Apple. The timing of before or after the formal Jobs’ departure announcement is arguable, but it may be easy to argue that the Apple brain drain is already afoot. Tim Cook is supposed to be well-respected and very able to fill the shoes of Steve Jobs. He is also less visible, and many of Apple’s ranks could be taking their talent elsewhere for new challenges.

Apple ranks as #20 on the list of great companies to work for at Glass Door. Many might consider it as a top destination, but companies in tech, web, IT, and media above it on the list are Facebook, Overstock.com (NASDAQ: OSTK), CareerBuilder, Shutterfly (NASDAQ: SFLY), NetApp (NASDAQ: NTAP) and National Instruments (NASDAQ: NATI). The good news is that some 97% of employees approve of CEO Tim Cook. The bad news is that a 97% approval rate may be too high to last.

Ron Johnson, the merchandising guru who is credited for the Apple retail stores, announced his departure in recent months to become CEO of JCPenney (NYSE: JCP). He reportedly turned down the retailer in the years before and he did communicate that he had always wanted to be CEO of a major retailer.

Before the Johnson departure, a key software engineer back to the early Macintosh and even back to the NeXT days left the company. This was Bertrand Serlet, who was referred to as the father of OS X, left “to focus less on products and more on science.”

These departures were before Steve Jobs made his formal departure, but many suspected he was not returning. It also seemed fairly certain that the roles in a post-Jobs Apple were already defined months before Jobs announced his formal resignation as CEO. Neither Johnson nor Serlet were expected to take over as CEO after Steve Jobs left. That is not the real problem though.

The problem faced by these departures is that, with Steve Jobs out of the picture, the desire to perform and to succeed may be different for many other executives or key employees. The desire for new and outside challenges might really take hold. You know that tech outfits would love to recruit out talent from Apple right now. How many designers and concept guys that worked on the iPod, iPhone and iPad might be thinking that they can go do something new or can go earn more at a technology firm that has been challenged of late?

The more obvious risk is that other management team members (rather than just employees) might also start to wander away in search of new challenges. Many of these team leaders have become millionaires by working for years at Apple. With Apple’s high brand image, venturing out to try something new is not out of the ordinary.

When the cats are away, the mice come out and play … Quitting a job as an employee can be a difficult thing. It can be a bit like breaking up with a lover that never did anything wrong, but one which you do not want to spend more time with. However, if you see several relationships end it can be an emboldening tool for someone who might have been chicken to press for the break-up. The truth is that it is just easier to turn in your resignation if you do not know your manager, or even if a number of employees around you have already pulled their exit moves. “If they can do it, so can I.”

These brain drains are almost never immediate at such a large company. They often take months and years to fully play out. Still, these same brain drains can change an entire corporate culture. Many employees use companies as stepping-stones right out of school, or many choose a company because of its culture. The reasons that employees and executives depart are too many to count. What ultimately matters is that the departure risk runs much higher.

This is not really a new thought, even if the brain drain is not currently present at Apple. Two top executives leaving will not kill a company. But what if three more jump ship, and then three under those departed, and then three underlings on each of their teams and so on …

Will this be the beginning of the end for Apple? Not likely. The question is simple: Will Apple be the same company in five years? Even if a brain drain were to crop up as quickly as the immediate months ahead, it is important to remember one thing: The product and development pipeline has been underway for years and the company is now working on sales drivers that literally might not be on the market until 2013, 2014, or even beyond. Changing which employees work on those is one thing. Those products will hopefully be as successful or more successful than the rest.

Canaccord Genuity is not too concerned about the future of Apple’s stock. They just reiterated a “Buy” rating and raised the price target objective to $545.00. Can Apple hit $545.00? Sure, some analysts even expect a higher share price than that. Just do not forget about this potential brain drain as a risk. That new conceptualized giant UFO-styled Apple super-campus could be the home of many more future Apple employees rather than existing employees.

JON C. OGG