Blog 01.09.16

Apple CEO misses the point and the opportunity

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Apple CEO Tim Cook is missing the opportunity to enhance the brand and establish his reputation as a visionary.

“Maddening and comes from a political place” was Apple CEO Tim Cook’s response today, to the EU ruling that Apple has illegally avoided $14bn in taxes through an agreement with the Irish government.

This isn’t the first time Tim Cook has felt victimized: in December 2014, he was “deeply offended” by revelations in the BBC Panorama program that workers in its supply chain, especially in tin mines, continue to suffer from very poor conditions. For one of the world’s most powerful men, Tim Cook does seem hyper-sensitive to external scrutiny.

Questioning the motivation of journalists and government officials is Apple’s stock response to those daring to question the company’s ethics. Regardless of the details of an intrinsically complex tax argument, attacking Apple’s ethical critics is the wrong strategy for one of the world’s pre-eminent CEOs.

Apple has amassed $215bn in cash in foreign bank accounts (see charts all courtesy of Statista www.statista.com) compared to $17bn in the US. In context this is four times the company’s annual profit and more than an entire year’s revenue. It’s also close to the GDP of Ireland, the EU country facilitating Apple’s low tax strategy (about $250bn).

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The company literally has more cash than it knows what to do with, but still sees its best interests in defending the mounting pile, with an army of tax avoidance advisers and lawyers.

Step back and consider how Apple could alternatively deploy its resources. Few companies have a greater stake in the future. The Apple brand is the second most valuable in the world. According to WPP agency BrandZ, Apple is just 0.5% less valuable than Google at number one. An icon of the tech sector, everyone expects Apple to be more than a modern company – to be visionary. Of course this starts with its products, but extends to its role in the world.

The company did make an impressive commitment to climate change ahead of the COP21 conference, committing to install renewable generation in China equivalent to the needs of all its factories. But tax is Tim Cook’s Achilles heel.

Apple is by no means alone in pursuing tax reduction strategies, but Apple isn’t your average company – or shouldn’t be. While tax strategy will have some impact on Apple’s share price, the company’s intrinsic value is based on its product innovation and brand reputation.

Apple’s reputation is very much at risk from a protracted legal battle with the EU, defending what in the minds of the public is indefensible: company with the cash resources whole countries would envy, twisting and turning to avoid paying for social services like education, health and security on which the company itself depends.

The opportunity for Tim Cook, is to call time on tax avoidance, and state a new socially responsible tax policy for Apple, and as an example to global corporations. The value added to their brand would be significant and the personal legacy of Tim Cook as a visionary leader established.

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Author:
Simon Propper

CEO and co-founder

Clients:
PepsiCo, Roche, Medtronic, Trex




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