Prestowitz

Another bite of the Apple

Another bite of the Apple

My questioning of the existence of a soul at Apple stirred up a lot of response, some in praise of me (thank you) and some questioning my sanity (a perfectly good question). What I found most interesting was two widely held false presumptions.

The first was well expressed by an Apple shareholder who said my notion that Apple owed some obligation to help with the problems of the United States is ridiculous. Clearly the writer takes the shareholder sovereignty view that has become the dominant corporate management doctrine over the past thirty years. According to this philosophy, the soul priority of CEOs and top corporate management is to maximize returns to shareholders. Management is said to have a fiduciary responsibility to shareholders. This thinking evolved out of an attempt to find an effective, readily available way to measure management performance. Returns to shareholders are quantifiable and readily available and so that became the measure.

It was not always so. In the early 1980s, the Business Round Table  published a list of the CEOs recommended priorities. These included such things as producing and providing the best products and services, taking excellent care of customers, maintaining good relationships with suppliers, providing an outstanding work environment and developing the skills of the work force, supporting the local community and the nation, and, oh yes, earning decent returns for shareholders. That stakeholder view of the role and obligations of the corporation and its management was not changed by the Business Round Table until the mid 1990s.

But I can put the case for corporate responsibility to the nation in both more personal, and more organic terms. With regard to the personal, I suppose it to be an elementary aspect of human relations that having been helped by someone, each of us feels an obligation to return the favor if the occasion to do so arises. As a U.S. government trade negotiator in the 1980s, I was requested by top Apple executives on several occasions to help Apple crack the Japanese market, to help Apple prevent dumping of Japanese products in the U.S. market, and to enforce intellectual property laws in ways that would protect Apple from damage due to theft of its intellectual property. As a representative of the U.S. government, I, along with other government officials, responded and provided significant assistance to Apple that certainly enhanced its sales and profitability. Even as I write, Apple is expecting to receive substantial tax incentives from the state of Texas as part of a plan to expand production there. So it seems very clear to me that Apple has received a lot of help from the U.S . government over the years and has a fundamental human obligation to return the favor when the opportunity arises which it now seems to be doing.

A more fundamental point, however, is that Apple and other corporations owe their very existence to the society that gives birth to them. Readers must understand that neither corporations nor shareholders create corporations. They are all chartered by government. In the early days of the United States, both the federal and state governments were cautious about creating corporations and typically only chartered a few of them and those only for very narrow, well defined purposes, and only for limited periods of time such as 10-20 years. Corporations were seen as a potential threat to the freedom and well being of both the individual citizen and the state.

Keep in mind that when it charters a corporation, a government (as the representative of a society) is granting important privileges (such as limited liability, alternative taxation, and the rights and privileges of a citizen) and powers not always granted to individual citizens. The reason a government does this is because it believes and desires that the corporation will bring certain benefits to the society – that, of course, includes the corporations shareholders but is not limited to them. Rather it means the whole society. Thus, by definition, a corporation has obligations to the society and government that gave it birth.

It would seem that the stakeholder philosophy is inherent in the very act of a government chartering a corporation.