If Tim Cook does not care about the "bloody ROI", does he care about the "bloody stock price"?
Tim Cook has got a lot of favorable press for confronting an investor group at the last Apple stockholder meeting and telling them that he does not check the “bloody IRR” when he has to do the "right thing". In fact, he went further and suggested that any investor that does not believe in Apple's social mission should sell Apple stock. Since everyone else seems to have been selling Apple stock ever since Cook became CEO, I guess adding one more group to the mix will not make much of a difference. At the risk of sounding like a moral reprobate, I take issue with both what Cook said at the meeting, and how he said it.
The Incident at the Annual Meeting
Cook is missing the point
Mr. Cook, I am an Apple stockholder, am not a member of the NCPPR, am supportive of good environmental
policies and find your response to be troubling, because it reveals a mindset
that I would not want in the CEO of a company that I own stock in, for four
reasons:
- Social responsibility comes with a price tag: I know that corporate social responsibility (CSR) is a big deal in classrooms, board rooms and executive offices today. In fact, given how many pages companies devote in annual reports to showing us how socially responsible they have been, I am actually surprised that they actually have the time or the resources to run businesses. Assuming that this is not just empty talk (and I have a sneaking suspicion that it often is), it is important that they recognize
that this social responsibility goes with costs (which may lower profits at
least in the near term). At the same time, these costs have to come out of
profits, which means that they have to be reasonable (given the profits) and
that the companies that are most profitable are the ones that can afford to be
most socially responsible. The reason that Apple can afford to spend money on
environmental causes is precisely because it has earned a “bloody high ROI” on
its IMaCS, iPhones and iPads. - If you choose to be socially responsible, as a
publicly traded company, you have to be transparent.: If you accept the
proposition that being socially responsible has costs, and you are a publicly
traded company, you have an obligation to be open about those costs. Hiding
behind the cloak of virtuosity or “access for the blind”, as Tim Cook is, is an act of
cowardice. In fact, I am curious as to why Time Cook refused to tell investors how much Apple spends on being environmentally conscious. Is it because they spend too much or is it because they spend too little (but talk about it a lot)? - If you are transparent, and you truly respect
your stockholders, you have to give them a say.: CEOs seem to believe the worst
about their stockholders, i.e., that they are craven, short term and amoral
people who would never assent to socially responsible actions, because it costs
them money. Otherwise, what is lost by being transparent about the costs of
social responsibility and giving Apple shareholders a say in whether they are
okay with Apple being environmentally friendly and the costs associated with that mission? After all, it is their money that is being spent, not
Tim Cook’s, and it is the height of arrogance for him to assume that he owns
the moral high ground here. - If you give stockholders a say in CSR spreading, and they tell
you no, you have to listen: It
is true that there will be cases where shareholders decide not to go along with
top management and will vote to curtail or eliminate costs associated with
being socially responsible. Given the history of corporate governance, I will
argue that it will happen very infrequently, and if it does, it will be at
companies where the managers are not trusted on doing a good job. For instance,
if I were an HP stockholder, I would definitely not take the word of HP’s
management on environmental consciousness. Given the company's perverse track record on acquisitions
in the last few years, any spending they do to stop global warming will
probably blow a bigger hole in the ozone layer. At Apple, stockholders
clearly were not especially troubled by the presence or magnitude of these
costs and 97% of them voted against the resolution.
an Apple investor, this is what this incident tells me about Tim Cook
- The first is Tim Cook's response to the “bottom line” question from the stockholder group, where he reacted with his “bloody ROI” comment. If Cook believes that the ROI, which is a near-term accounting earnings-focused number, is the bottom line for Apple, that may explain the absence of any “major” new products since very few innovations generate high near-term earnings. Value is driven by cash flows over time, not earnings in the near term, and it is definitely not maximized by maximizing ROI.
- The second is his suggestion that stockholders who are unhappy with Apple’s social mission, at least as defined by Tim Cook, should feel free to sell their stock. It is never a good idea for an employee to suggest that an unhappy owner of a business sell the business, since the owner is on much more solid ground suggesting that an employee who does not like the owner find another job.
- Third, there is a hint of a Messiah complex in Tim Cook's answer, a mix of hubris and elitism that he not only knows what’s best for society and how Apple can deliver that benefit, but that he can do so, without letting Apple stockholders be privy to the details.
As a parting thought, Mr. Cook should realize that while he may have fought off Mr. Einhorn and neutralized Mr. Icahn, there are Apple stockholders who care about the “bloody stock price” and they will only get more restive over time, no matter how green, virtuous and socially responsible Apple may be perceived to be as a company. If Mr. Cook feels that he cannot reconcile his green mission with delivering higher value for stockholders, he should give up the pay package that he got from Apple last year and become head of Greenpeace instead.
I enjoyed reading that. Thanks for sharing your blogs on WSO.
this attitude in a ceo is dangerous. though to be fair his outburst probably got them so much goodwill with the green crowd that it may have been profitable.
Really nice read. I completely agree that there's an elitist / "out of touch" aspect to his response. If you were to ask him a few years ago, I don't think this was the kind of success he was envisioning. It has clearly had an affect on his stress levels.
Prof. Damodaran eloquently and academically written rant may be "because of the absence of any “major” new products at Apple" in the last two years or so, pointing the fingers at Tim Cook.
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