May 9, 2018
Tim Cook, CEO
One Apple Park Way
Cupertino, CA 95014
Dear Mr. Cook:
Last week, you announced the largest single stock buyback in corporate history, amounting to $100 billion. Probably no more than you and two other Apple executives made this decision prior to receiving the expected rubber stamp from your congenial board of directors. Your company’s owners – Apple stockholders– were neither consulted nor asked for their approval.
Executive compensation packages rely on stock buybacks. (See The CEO Pay Machine by Steve Clifford, a former CEO who has served on corporate compensation committees.) From 2005 to 2016, stock buybacks by the S&P 500 totaled $5 trillion – equal to half of net income and twice as much as paid to shareholders in dividends. By the end of 2018, this figure will grow to well over $6 trillion. The owners of these companies – the shareholders – were not asked by management for their approval. After all, it is their big money, notwithstanding the out-of-control reliance on the “business judgment rule.” Were they given the clear choice between stock buybacks or dividends, most shareholders would have preferred receiving this surplus in cash dividends now.
With your $100 billion announcement, you are telling shareholders, your company’s owners, without a detailed explanation regarding other options, that this is the best you can do to advance their interests. This is short-term nonsense, except for its positive impact on executive compensation metrics.
Studies have shown that stock buybacks are just one variable in a large matrix of variables – internal and external to the company – that shape stock price and they are a weak variable at that. (See attached list of studies). You can examine major company stock buybacks for yourself (e.g., Cisco and Walmart) and see the accuracy of that observation. Cisco, after huge buybacks and much greater profits and size, has its stock about one-half of its March 2000 value.
It is the better part of prudence and foresight for you to pursue two courses of action. First, suspend the $100 billion decision or its implementation. Second, enter into a professional, detailed exchange with your shareholders – institutional and individual – explaining why you do not think there are better uses long term and short term for their $100 billion. Receive their considered feedback all in public for other interested parties to be informed and educated.
You also owe it to less-favored taxpayers in America who don’t have the offshore repatriation tax reduction demands that Apple and other companies regularly pursue. As Larry Fink, Chairman of the giant Blackrock investment firm wrote in his February 2018 letter to CEOs, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” (See attached).
In that context of proper expectations, here are some issues you can address in ways that would receive positive public reactions:
- For less than 2 percent of your $100 billion buyback, or $2 billion, you could award a full year’s pay bonus to the 350,000 Foxconn workers who build your iPhones. Think of the economic relief and happiness that gesture would produce. These workers sweat for your immense wealth in difficult workplace conditions, unable to afford the Apple phones they manufacture for your company’s massive profits.
- You can invest in research and development on ways you can diminish the effects of your company’s toxic supply chain that stretches from the dangerous mines in Africa to the hazardous solid waste disposal when users discard them. Many serious illnesses, fatalities, and injuries associated with manufacturing your products can be prevented.
- With your reported reflective bent, you can make the case for reducing some of the collateral damage from excessive iPhone use by youngsters that comes with a sedentary life of obesity – now at risk-laden epidemic levels. Apple could invest in needed neighborhood recreational facilities all over the country.
- Of course, you could always cut your prices for consumers. In the 1960s and ‘70s, such profit margins as Apple’s would have been an antitrust signal of possible monopolistic practices or market collusion.
- Then there are the conventional applications of a cash-rich company to consider: productive new investments, raising employee salaries and pensions, improving hiring practices, and workforce training and consumer services.
Finally, it is unconscionable that the federal government decided to give Apple a huge tax windfall for repatriating its cash from abroad, while it refused to adequately fund the annual budgets of four critical agencies. The egregious examples of these budget inadequacies are the Center for Disease Control ($7 billion), the World Health Organization ($4.4 billion), the Environmental Protection Agency ($8 billion), and the IRS, whose strapped budget made it unable to attempt to collect $450 billion in uncollected taxes (it currently has a budget of only $11.5 billion).
Harvard economist John Kenneth Galbraith called attention to the problems associated with concentration of private wealth and public deprivation over 60 years ago.
The concentration of corporate power in ever-fewer hands, with expanding immunities and privileges denied “real persons,” continues to rise on matters of gravity to the American people. Conservatives call these privileges “Statism,” or “crony capitalism,” that has enormous influence over government dispensations. Mr. Fink’s cautions are worth pondering in more reflective formal settings.
The undersigned is not the only Apple shareholder who believes that stock buybacks, in contrast with other superior options, should be fully discussed with shareholders and then submitted to a binding shareholders’ vote. You will be hearing from others. Put your $100 billion stock buyback decision on hold.
I look forward to your thoughtful response.