A is for Apple: C is for Chutzpah

Earlier this month Apple Corporation (AC), the darling of businesses and consumers alike, sold $17 billion worth of bonds. Thanks to the U.S. Federal Reserve’s policy of quantitative easing (printing money to keep interest rates artificially low) Apple’s new 3 year bonds pay a measly 0.45%. Why would a company with $145 billion in cash and no debt need to borrow so much money? Apple’s answer: they intend to buy back $60 billion in stock over three years (the largest corporate stock buyback in history) and raise their dividend by 15%. But that’s not the whole story. apple logoAccording to Barron’s, Apple is avoiding as much as $9.2 billion dollars in U.S. taxes by borrowing in the bond market instead of repatriating the hoard of cash it has stashed overseas. A handsome subsidy for stockholders of one of the world’s wealthiest companies courtesy of retirees dependent on their investment income, underfunded pension plans and the American taxpayer. And then – to add insult to injury – Apple defends its policies when called to testify at a Senate hearing about using overseas subsidiaries to avoid paying taxes in the U.S.

While the Federal Reserve’s loose (some say misguided) money policy is handsomely rewarding stockholders, Apple is laying off 5% of its retail store staff. In the recent past, Apple has also been cited for condoning poor working conditions for employees of its suppliers.

The often asked, but seldom answered, question: does a business have a responsibility to share its success with its employees? In part because of maintaining a lean workforce and keeping wages low (the share of money going to labor has fallen to a multi-decade low), U.S. corporate profits recently hit an all-time high as a share of the nation’s GDP. By some estimates corporate profit margins are 70% above their historic levels. Meanwhile, owners and senior executives make sure their bonuses are both substantial and continuous (even when executives make serious mistakes which cause their companies to falter).

While compensation is partially determined by supply and demand, astute management will realize it’s in their self-interest to share the bounty with employees. Generous compensation attracts and retains talent, reduces turnover and boosts motivation and productivity. A company’s self-interest is also served by decreasing the widening gap between the rich and the poor; social unrest is a problem for every business. So is the inevitable backlash when a company doesn’t pay its fair share of taxes. Henry Ford, a staunch capitalist, paid his workers above average wages so they could afford to buy the cars they were building. Can Apple, or any other prosperous company, afford to do any less?


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