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Corporate governance refers to the system of processes and rules through which a company is controlled and directed. Corporate governance involves the efforts by management to balance the interests of various stakeholders such as financiers, suppliers, community, employees, and the government (Macey, 2008). Corporate governance thus provides a framework through which organizational objectives can be achieved. Action planning, internal controls, performance measurement, and corporate disclosure are key elements of corporate governance. Apple Inc. is an electronics giant whose corporate governance has come under immense criticism in the recent past. Some of the management issues raised by the critics range from lack of gender balance in appointments to company executive positions (Satariano, 2014). In light of this, a corporate governance case study of Apple will be conducted to evaluate its performance regarding corporate governance.
Apple Inc. – An Overview
Apple Inc. is a multinational electronics company headquartered in Cupertino, California. It is one of the largest electronics companies by both revenue and total assets. Its exemplary performance for the last quarter of 2015 proves this. According to the company’s website, it registered a quarterly revenue of $51.5 billion and a net profit of $ 11.1 billion which is a 22% growth compared to a similar period in the previous year (Apple, n.d.). Apple majors in the production of consumer electronics, software, and online computing services. Its common consumer electronics brands include the iPhone, Mac computer, iPod, and the IPad. The iTunes store, the iOS app store, the iCloud, and Safari browser constitute its list of online resources (Apple, n.d.).
The electronics and computing industries where Apple operates are very competitive. As such, Apple faces intense competition from companies such as Hewlett-Packard, Samsung, and Lenovo in the consumer electronics industry. In the cloud computing and software industries Microsoft, IBM, and Oracle are some of the most aggressive rivals. The exemplary growth that Apple has achieved over the last two decades depict it as an innovative company that has a proper understanding of its competitors and the industries it operates in. Kane and Sherr (2011) states that Apple strives to give its customers high quality and unique products that guarantee them value for money. Its customer service is also exemplary. Innovativeness, quality, and excellent customer relations are Apple’s secret ingredients to excellence.[“Write my essay for me?” Get help here.]
Outline and Bases for the Review of Apple’s Corporate Governance
Corporate governance can propel an organization forward or drag it backward. A single wrong corporate governance decision can rubbish the success that Apple has built in a couple of decades. Harmony between the various stakeholders is very paramount. There is a need for Apple’s management to iron out the issues raised by different stakeholders early enough to avoid their detrimental consequences. Apple’s performance regarding corporate governance will be reviewed with particular focus on its relations with the major stakeholders. These include the board of directors, board committees, shareholders, and other stakeholders. In assessing performance in the areas mentioned above, the criteria for nominations and remuneration policies will be scrutinized. The CSR policy will then later be evaluated after which recommendations will be made, followed by a conclusion.[Need an essay writing service? Find help here.]
Evaluation of Major Corporate Governance Practices
Relations with Executive Leadership
- Board of Directors
Apple has a single unitary board of directors. It consists of both executive and nonexecutive directors. Currently, the company charter provides for the election of 8 directors who are supposed to serve for one year each, subject to reelection (Investor Apple, 2014). To ensure that the board of directors is capable of delivering, Apple has guidelines that guide the board members appointment and selection process. To qualify for appointment as a board member, one must be highly qualified, possess strong leadership skills, and have an adequate amount of work experience (Investor Apple, 2014).
There also exists rules and restrictions on the number of other boards that an executive board member at Apple can be part of. Currently, this limit is set at two other boards (Investor Apple, 2014). The current directors include Tim Cook, Al Gore, Robert Iger, Andrea Jung, William Campbell, Arthur Levinson, Mildred Drexler, and Ronald Sugar (Apple, n.d.).
The rules and policies relating to the qualities of board members stipulated above are not keenly being followed since most of the board members stated above are involved with leadership at numerous other companies. The involvement of board members in multiple companies is a source of concern for many stakeholders due to the imminent risk of conflicts of interest. Mr. Levinson and Mr. Schmidt, for example, had been board members for both Apple and Google Inc., which are competing companies. It was only the intervention by the US Federal Trade Commission in the year 2009 that led to their resignation from one of the companies. Levinson resigned from Google’s board while Schmidt resigned from Apple’s board (Waters and Menn, 2009). Mr. Levinson is also associated with Roche Holdings and Calico LLC. According to the Federal Trade Commission (n.d.), it is a breach of the Clayton Antitrust Act for a person to serve as a director for two companies that have conflicting interests.
Also, Apple’s board of directors has been heavily criticized for failing to observe gender balance. Satariano (2014) points out that no single woman has ever been appointed to Apple’s board of directors for a long time, and this has triggered widespread criticism from various entities, including the shareholders. Apple’s CEOs, starting from the founder Steve Jobs, have also been criticized for their dogmatic approach towards decision making during board meetings.
- Board management committees
The most influential Board of Directors committees are the Audit & Finance Committee and the Nominating & Corporate Governance Committee. As indicated on their website, the Audit & Finance Committee is supposed to be an independent committee fully compliant with the NASDAQ structure. Members of this committee should be elected on the basis educational qualifications and educational background. The committee is supposed to review financial information provided to the various stakeholders, appoint auditors for the company, and evaluate the company’s accounting policies (Apple, n.d.).
The Nominating & Corporate Governance Committee, on the other hand, is mandated to oversee the appointment of board members. It is the main body that oversees succession planning. Interfering from the CEO and major stakeholders to a great extent compromises the operations of these committees. For example, the board’s decision to change their external auditors from KPMG to Ernst and Young in the year 2009 was highly controversial. There was no unanimous agreement by a majority of all directors (Reuters, 2009). A conflict between the CEO and one of the directors at KPMG influenced this move.
- Executive and non executive remuneration
Regarding executive remuneration which covers the board of directors and other executive members, Apple has also witnessed massive criticism. Fortt (2013) writes that Apple had a history of paying its members through stocks and bonuses. The CEO and other board of directors take home hefty salaries and allowances on a monthly basis. On top of this, they are also awarded stock bonuses annually based on their performance. Apple’s policy of opting to pay its CEO and other top executives via stock bonuses has been widely criticized due to its tendency to create disparities in the distribution of stock. It creates a scenario where only a few individuals who include the CEO and directors control a majority of the shares in a firm. With this power, they have the power to influence major appointments in the company. In the year 2014, after years of deliberation, the annual shareholders meeting adopted the idea of controlled stock Units was adopted (Fortt, 2013). This concept ties executive remuneration to their performance.
A comparison between the executive and nonexecutive pay rates reveals massive inequalities. The board of directors and other top executives who total to approximately 50 earn 80% more than what the non-executive employees, totaling about 150,000 over the same period (Shapiro, 2012). An analysis of what executive and non executives received in the year 2011 clearly shows this inequality. Shapiro (2012) further confirms that in 2011, the executive leaders at Apple received $ 441 million in net compensation which is equal to the compensation received by 95,000 employees working at Apple’s Foxconn factory, which is its principal assembling plant in the world. While the CEO and other chief executives at Apple receive several million dollars as compensation, an employee at the Foxconn assembly plant receives only $384 a year (Shapiro, 2012). This is unfairness which should be addressed. Apple’s performance relative to its Board of Directors is not satisfactory. Independence and integrity of board members should be given priority.
Relationships with Other Shareholders
Apple Inc., being a private limited company, is owned by its shareholders. The shareholders take an active role in the company and play the role of electing members who form the board of directors. The company is supposed to organize annual general meetings to be attended by all shareholders. In these meetings, the company is expected to address all the concerns of the shareholders and chart a way forward for the next one year (Investor Apple, 2014).
Such an open approach helps to enhance transparency and cultivation of a good bond between the management and the other shareholders. Most of the shares at Apple are owned by shareholders through mutual fund ownership schemes while the rest is held by the top directors and executives. This setting creates an environment of focus where senior executives and managers share roles to stimulate the achievement of organizational goals. In the long run, both the executive leaders and the general shareholders benefit from the success of the company.
All shareholders actively take part during the annual meeting. All shareholders of Apple Inc. have the right to participate in the election of board members. The board of members to be elected are nominated by the nominating committee. Apple’s shareholders have been pushing the top management over transparency in compensation schemes, and it is this that has led to the recent changes aimed at reducing compensation disparities between executive directors and other employees. Active participation of Apple’s shareholders in company affairs has led to its superior performance in the stock market in the last two decades (Carnette, 2015).
Apple Inc.’s relationship with its shareholders is satisfactory. Apart from the controversies and conflicts arising from its compensation schemes, the management and shareholders at Apple have not had significant disagreements. This good working relationship with shareholders is one of the secrets for excellent performance.[Click Essay Writer to order your essay]
Relations with Other Stakeholders
Apple’s relationship with its other stakeholders is satisfactory. Being one of the well-run companies, Apple has been able to balance its interests with the interests of other stakeholders. They include the government suppliers, employees, and the customers. Apple Inc.’s employees, for example, were found to be happy with the way the company was run, aside from a few complaints regarding compensation and promotions (Colley, 2003). The investors are also satisfied aside from their recent calls for more influence on business affairs and specifically having voting power. Apple customers are a happy lot. They are known for their brand loyalty that has sustained Apple at the top of most major customer satisfaction polls. Colley (2003) affirms that a good relationship between a company and its stakeholders has a significant bearing on its overall performance. A good relationship with suppliers, for example, ensures that raw materials are delivered on time and are of the expected quality. A good relationship with the customers creates brand loyalty which is the secret towards high sales revenue.
Corporate Social Responsibility (CSR) Policy
Corporate social responsibility is the other areas where Apple has come under considerable criticism. Its move to outsource its production operations abroad to take advantage of the labor intensive markets has raised numerous concerns from various stakeholders, including the European Union. Frost and Burnett (2007) state that 2006’s revelation that the operations of Foxconn, Apple’s Chinese manufacturer, was not in conformance with its stipulated supplier conduct code attracted enormous attention and criticism. The main concern was poor pay for employees and dangerous working conditions. Employees at Foxconn were underpaid, overworked, and exposed to hazardous chemicals in the laboratory. Xu and Li (2012) reiterate that to a large degree, these factors contribute to the increasing number of accidents and suicide attempts in the factory which is considered to be the largest in the world.
Apple’s corporate social responsibility policy also has the weakness of putting little effort towards environmental protection. Apple’s approach to environmental protection has been described as reactive instead of proactive (Burrows and Hesseldahl, 2009). Instead of striving to prevent environmental damage, Apple seeks to control the level of damage caused to the environment. For example, it does not have recycling facilities for old computers in most countries. It has also been heavily criticized for using toxic chemicals in its production processes (Burrows and Hesseldahl, 2009). In response to increasing criticism that seeks to erode its reputation, Apple has initiated recycling campaigns and plants in various countries. It has also invested heavily in technology to help it lower its carbon emissions [Click Essay Writer to order your essay]
Apple’s Corporate Social Responsibility has also been questioned following its recent claims of tax evasion in Ireland (European Commission, 2016). Companies pay taxes which are partially used in community welfare. Avoiding tax or manipulation of financial records to reduce the amount of tax to be paid is unethical and a sign of poor corporate social responsibility. According to a press statement issued by the European Commission, Apple managed to get undue tax benefits amounting to €30 billion from the government of Ireland which is unethical (European Commission, 2016). Apple’s corporate social responsibility record is thus not satisfactory. As a leader in the consumer electronics and cloud computing sectors, the company should work towards improving its corporate social responsibility record.
One of the major issues identified about operations of the board was interference from the CEO. The CEO was found to have a lot of influence on the activities of the board of directors. This has the potential of sinking the company due to conflicts and lengthy decision-making processes. Apple should fight this one-man decision-making culture and embrace a more participative decision-making approach. The notion that apple’s exemplary performance is due to efforts of its CEO needs to be dealt with for it is a misconception. [Need an essay writing service? Find help here.]
Apple has continued to thrive even after the demise of Steve Jobs who was believed to be the brains behind Apple’s success. This indicates that the decisions made by all directors are critical and necessary (Carnette, 2015). To dismantle this CEO-centered decision-making approach. Apple should add more directors to its current list to reduce the possibility of the CEO and directors who are his friends influencing the decision-making process.
Apple also needs to accept and embrace a system that gives its shareholders some say on compensation. This will help create more transparency in its remuneration processes and reduce the inequalities that exist in the compensation activities. Pay raises and other compensation benefits to directors and other top executives should be based on a consensus of various stakeholders. This would strengthen the corporate governance of the organization.
Apple also needs to review its corporate social responsibility policy. The issues raised relating to Foxconn, lack of recycling facilities and tax evasion in Ireland have eroded its corporate image. Failure to act, particularly on the matter of deplorable working conditions at Foxconn and environmental conservation, risks bringing Apple down. The CSR policy should be revised to address these factors among others.
In conclusion, Apple as one of the largest electronics companies in the world performs fairly regarding corporate governance. The main areas of concern regarding corporate governance are the operations of its board of directors, and corporate social responsibility policies. Improvement is needed in these areas for they risk pulling down the entire organizations. Relations with the other stakeholders including customers and other shareholders is excellent. There is a need for apple’s shareholders to find a way of dealing with the undue influence of the CEO and also a way of making the corporate social responsibility more responsive to the needs of the society.
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