An open letter to Professor William Lazonick, professor of economics at the University of Massachusetts Lowell, responding to his:
Professor, you state that buybacks are to blame for the extreme concentration of income. It is not clear to me why Apple maintaining mountains of cash would be a buffer against the concentration of income.
Once investors receive their funds from a buy back, one would assume that they could consume it, benefiting those companies, and their stakeholders.
More likely, as they are capital funds, shareholders would reinvest these funds in other productive investments, more productive than leaving them on Apple's balance sheet sitting as deposits or liquid funds.
I suppose you are correct that these investors, having invested these additional funds in more productive investments, that their income would grow and, assuming everyone else's income remains the same, then it is true that inequality would grow.
Are you saying, professor, that the best way to ensure more equality is to prevent more productive investments and thereby limiting the growth in income of those investors? Is inequality, which is very real, not more a result of many other factors, including the skewed tax rate, the skewed distribution of returns, the skewed compensation of employees and many other skewed factors that favor the richer over the poorer...none of which are influenced by Tim Cook presiding over a massive cash pile.
You refer to a study you co-authored where you show that after significant share repurchases, things ended badly for Apple in the 1980s. Are you saying, professor, that Apple's stumbles in the 1980s was as a result of their having paid dividends and not as a result of poor management, poor product launches and poor positioning vis-a-vis their competitors? Is this not mistaking an apparent correlation for causation.
You state that, as shareholders have never "supplied Apple with capital in the first place" then you question how can Apple "return" cash to shareholders. You do know professor, don't you, that Apple shareholders are shareholders because they bought those shares? Are you saying that, as shareholders, they do not own everything that is Apple, including its cash mountain?
You question the 'wisdom' that a company should "maximize shareholder value (MSV)", as there are also other stakeholders, and you refer to taxpayers and to workers.
As to taxpayers, you state that nations provide many resources to companies without a guaranteed return and that nations only hope to benefit from taxes on profits. Then you state that tax regulations are subject to change, and hence the returns to taxpayers on their investments are by no means guaranteed. Do you know who changes the tax regulations professor? Is it not the nation itself, through its politicians, if they do, is it not because they find it the most appropriate thing to do. You may say that many, even most, of these changes usually benefit the rich, thereby increasing inequality. That is true, but is not that the issue that needs to be addressed, a more just tax system? I fail to see how Tim Cook presiding over a massive cash pile can help this along.
As to workers, you state that they "regularly make productive contributions to the companies for which they work", without guaranteed returns. I agree and that argues for a fairer distribution of compensation and not the skewed situation mentioned earlier. I fail to see how Tim Cook presiding over a massive cash pile can help this along.
Of course, if companies paid their employees more, which I would argue for, even as incentive payments based on performance, then the build up in cash reserves would be lower. This is true, but I fail to see how Tim Cook presiding over a massive cash pile can help this along.
You state that "The irony of MSV is that the vast majority of public shareholders typically never invest in the value-creating capabilities of the company." Do you not think that shareholders, by having purchased shares in the Company, have indeed 'invested in the value-creating capabilities of the company'? Do you not see the fact that, if we say to shareholders who are not the original seed investors that they have not invested in the value-creating capabilities of the company, and take away their ownership rights, that less investors will invest in the stock market? Do you not see that less possibility to sell shares in the stock market later, reduces the amount of early stage investors?
Professor, you ask Tim Cook "to consider what public shareholders and stock buybacks have to do with innovation at Apple." I fail to see how Tim Cook presiding over a massive cash pile can help new innovation at Apple. Are you suggesting, professor, that Tim Cook is holding back on investing in innovation but doesn't do so in order to grow a massive cash pile?
Professor, you give Tim Cook some suggestions about "how Apple can use its profits to support the innovation process and contribute to sustainable prosperity in the U.S. economy", of course, using shareholder money, not his own.
Employee education. You suggest that Apple should fund support "the educational attainment of the company’s labor force". I agree that Apple should promote improved human capital among its employees, and if the limits that it has on its assistance are not relevant, given the increased cost of education, then it should be looked at. Of course this would reduce the excess cash pile in some way but the debate is about the use of surplus cash flow and I fail to see how Tim Cook presiding over a massive cash pile can help employee education.
Employee incentives. You suggest that Apple pay its employees more incentivized compensation. I agree that compensation is skewed to the upper levels and that more should be done at the lower levels, however, I am not sure that Apple is the main culprit here and that this program would go to far on the path of eliminating the growing inequality of income. Of course this would reduce the excess cash pile in some way but I also fail to see how Tim Cook presiding over a massive cash pile can help employee compensation.
Social investment. You state that governments at various levels may not have, or even do not have, sufficient resources to invest in the economy, and you refer specifically to infrastructure and knowledge. That is assuredly true but, as stated earlier, it is for governments to set the tax rate not for individual companies or persons. Are you suggesting that Apple send a check to the government, over and above what they owe according to the tax laws? Are you suggesting that Apple begin investing directly in the nation's infrastructure? Are you suggesting that these are legitimate uses of shareholder money?
Social innovation. In this section, you specifically mention "the problems of climate change, disability, discrimination, disease, pollution, poverty, and violence pose formidable challenges" which undoubtedly exist. Are you suggesting that Apple use shareholder money to directly spend in these areas? Really, with shareholder money...directly?
You state that "It’s a travesty for Apple to throw away tens of billions of dollars on buybacks". Do you really believe that returning money unneeded by the company in its business to its rightful owners is a travesty of justice? Do you understand how much less investment there is by not returning this money?
One area professor that you did not talk about is how Apple should stop its practice of paying its suppliers as little as possible, leading to supplier exploitation of their workers. The margins justify a more just treatment of supplier workforces. This would reduce the excess cash pile in some way but we are talking about the use of surplus cash flow and I fail to see how Tim Cook presiding over a massive cash pile can help this along. I know I am talking primarily about foreign workers, but don't you think that they also should benefit from a little less hard bargaining on Apple's part and from your largesse.
Do you not see, professor, that shareholders are owners of the company?
Do you not see, professor that, as owners of the company, everything that is held in the company belongs to them?
Do you not see, professor, that shareholders have a legitimate right to say to management that they will be funded as necessary to perform their tasks but no more and that funds that are not needed to grow their activities, to fund their innovation, should be returned. I fail to see how Tim Cook presiding over a massive cash pile can help this along.
Do you not see, professor, that the markets do not give a multiple value to excess cash balances, precisely because they are not needed for the growth of the business, which they do give a multiple value to and, in the case of Apple, a significant multiple value.
Do you not see, professor, that excess cash reserves on a company's balance sheet, valued dollar for dollar by the market, would be valued at 15 times or more if these cash reserves were given back to their owners, the shareholders, and reinvested. Indeed, if these shareholders reinvested these funds in Apple shares, their multiple value would be even greater.
These are the real reasons why shareholders should receive back their excess money, not necessarily those mentioned by Carl Icahn in his open letter.
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