Ralph Nader Uses Apple’s Success as Focal Point for His Causes in Open Letter

Ralph Nader (Credit: Wikimedia Commons}

Page 2 – Ralph Nader Open Letter to Tim Cook – May 2018

Here’s Ralph Nader’s open letter in Apple CEO Tim Cook in full:

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 publicdeprivation 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.

Sincerely,
Ralph Nader

6 thoughts on “Ralph Nader Uses Apple’s Success as Focal Point for His Causes in Open Letter

  • As a shareholder I like big dividends, but bought Apple years before it paid any dividend. It was a good growth stock. I had no idea just how good at the time or Id have bought twice as much! I am surprised we are not hearing the calls for Apple to make a little less money and bring more manufacturing to the US.

  • I am pretty sure stock buybacks give shareholders the same amount of equity regardless of how long they have held the stock, but I guess your point is that with an equity increase requires you to hold the stock slightly longer to benefit from it vs. a dividend which pays immediately. I’m not convinced it makes a huge difference, but I guess it will to people who hold the stock for less than a month or however long it takes for the priced to readjust after a buyback.

  • Ralph requested a thoughtful response – here’s mine, to this part of his argument:

    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.

    You seem to infer with these sentences that “major company stock buybacks” are a losing strategy, as punctuated in the closing of this paragraph with your cherry-picked Cisco example. The problem with your analysis is that Apple is not only now considering stock buybacks – it has been buying back its stock for many years already, and this has been enormously profitable for Apple’s long-term shareholders.

    The other problem with your analysis is that Apple’s large cash hoard has been built up over many years, so why should it be shared all at once with the Johnny-come-latelys who only just recently jumped into the stock? I have little doubt many of them were probably hoping for a large one-time dividend, because that’s the way these clowns operate. Short term, short term, short term. Stock buybacks, carefully considered, are an effective means of rewarding patient long-term investors.

    Yes, I’m sure some CEOs have abused this practice…that’s not the point.

  • I understand his point. Although it’s basically a wash in terms of shareholder value (increased ownership and eventual share prices versus being paid out as a cash dividend) for me at least I would generally prefer to have the cash and be able to spend it as I choose – either buying more of AAPL or doing something else with the money.

    Here’s what the motley fool had to say:
    https://www.fool.com/investing/2018/05/13/why-im-not-excited-by-apples-100-billion-stock-buy.aspx

    Regarding Nader’s idea of giving a year’s pay as a bonus to every Foxconn employee who builds iPhones – that’s a pretty cool idea, at least if you work at Foxconn! However I think that the many other Apple employees in Cupertino, R&D, retail, and all over the world would feel it was unfair given that they contribute to the company as well.

    Personally I wouldn’t mind if Apple decided to split it somehow as a shareholder dividend *and* a bonus to all Apple employees and contractors who have done a great job making excellent products.

  • As William F. Buckley Jr. said:
    Idealism is fine, but as it approaches reality, the costs become prohibitive.

    Mr. Nader is an idealist. He sees wonderful possibilities, options that would be great, except they won’t work.
    So Ralph Nader can go on tilting at windmills. The rest of us will get the job done.

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