The Worm in the Apple – Does Apple Deserve to be Considered a Conscious Business ?

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  • The Worm in the Apple – Does Apple Deserve to be Considered a Conscious Business ?

worm-in-appleApple Inc just completed a major public launch in September 2014 of its latest products and innovations. The launch was much anticipated as Apple has been slipping in recent years when measured against market share in key markets for its signature smartphone and tablet products.

Samsung and the new wave of Asian manufacturers such as Xiamoi, LG, Motorola, and others have driven innovation and feature rich devices to price points that Apple has been unwilling or unable to match. Instead Apple has sought to energise its large fan base with new products which are a mix of new innovations (Apple Pay and the Apple Watch), and catch-up devices (larger screen iPhone 6 plus).

Apple tried an old Steve Jobs emotional launch by having U2 launch its new album and give it away on iTunes to fans. Apple CEO Tim Cook tried to find the magic of his charismatic predecessor by staging the launch as the same venue launched the iPad back in 2010.

Apple was trying to find its way back into the hearts and minds of the public in its ongoing brand wars with Samsung and everyone else. Apple believe that they still warrant to be held on a pedestal of higher aspirations, values and attainment. But is this still true in 2014?

In the theory of Conscious Capitalism or Conscious Business as it is also known, several writers have flagged some major household brands as being worthy of being called conscious business role models. One of those household brands is Apple who are consistently ranked as one of the world’s most recognised brands and who are often considered a “love brand” by Saatchi and Saatchi.

A Conscious Capitalism or Conscious Business is so called as its reason for living or its business purpose transcends the mere making of profit. A Conscious Business has a clear set of values which are conscious throughout the workforce and there is a clear objective to improve the lot of all stakeholders to that business.

In this regard a Conscious Business is not just focussed on the shareholder as the only stakeholder to the business. Classical business theory from the Industrial Era makes CEO and Board concerns centric to shareholders but the effects of this has been to rob many publicly listed companies of any real ability to plan and execute a long term strategy.

Instead business energy has focussed on short term concerns with share price and any share market price volatility and fluctuations which occur in any economy. The ability of companies to properly execute long term business value strategies then suffers as CEO and Boards watch their backs and dance to the tune of business commentators, stock analysts, demanding shareholders and investment analysts.

A Conscious Business has a clear day to day mindfulness of what it does and why. It also is mindful of its stakeholder’s needs and concerns but understands that all stakeholders such as the local community, the workforce, the country they operate in, and the environment, must also be respected and accommodated within a framework of ethical business practice.

In many ways the term Conscious Capitalism or Conscious Business can be a little limiting as just as in individuals. There are many people who are conscious of what they do yet still choose to do the wrong thing.

Being conscious is a foundational state that one ideally has in moment to moment consciousness as from here we can make decisions and behave in accordance to our values. It is no different for a Conscious Business through the collective consciousness and actions of the CEO, he Board and employees of such aware-consciousness companies.

We find that there are some brilliant companies who know what they are doing but are consciously deceitful or hide behind legal camouflage and PR spin to mask practice that means they are attendant to only the needs and demands of a few. This type of business is aware and chooses deliberately to attend to the needs of a small group whether that be the leaders, the Board, shareholders, or a subset of these.

Consciousness without empathy and clear morals and values is still a conscious state but it is not a conscious business. In fact the aware conscious business which lacks a moral compass is a potentially dangerous entity that can wreak havoc or transgress against others who are outside its agenda.

So the benchmark of a Conscious Capitalism or Conscious Business role model for me is one that goes beyond being just conscious of its actions but is motivated by positive intent and empathy for all its stakeholders. Some of the most psychopathic organisations mentioned in research on narcissistic leaders and their organisations, found a high degree of conscious awareness but an absence of feeling and empathy for those negatively impacted by the behaviour of the business and its leaders.

So the Conscious Business hurdle is raised higher any business just being a savvy, consciously aware, smart operator in the marketplace. Any organisation that either aspires to be a Conscious Business, or is judged by its peers to be so needs to demonstrate its credentials primarily on its behaviours as mapped to moral, legal, and ethical considerations.

The case of Apple is interesting. Apple has been described in some literature and by some business groups as being worthy of being awarded the title of being a Conscious Business.

When we examine what is a conscious business by authors such as Fred Kaufman and Raj Sisoda then we see how a conscious business will be a good corporate citizen and have a strong corporate governance aspect to its culture. Apple has gotten the nod in some quarters as it has been assessed as having a good record in the area of corporate governance.

Corporate governance is many things but one key thing it is must be the willingness and clear practice of paying its taxes, duties and debts as they fall due. It also includes pricing their goods and services in an equitable way for the fairness and good of the community in which it sells those products and services.

Again one can say that Apple are very conscious and rigid in its application of pricing policies worldwide. Apple do not price its smartphones, tablets or computer devices to a discount pricing model or strategy.

Apple maintain a premium brand strategy that relies on a strong positive emotional affinity in the consumer heart around the brand that is then tied to its innovative products. Apple operate in pricing to a healthy premium as it refuses to become a commodity seller who will end up in some form of competitor price war.

Apple resist becoming a commodity brand as that just leads to a race to the bottom and the commoditisation of its product range. This is clear and fair and up until recently has served them well. However an examination of tablet and smartphone market share reveals that in the tablet and smartphone wars Samsung and newer entrants are slowly eroding out the loyal consumer base from under Apple worldwide. One problem that emerged for Apple in this same period is that its reputation for being a squeaky clean Mr Nice Guy brand has taken a bath in the press.

The disclosure is that Apple practices a shadowy transfer pricing policy out of countries like Australia, and funnels the money either into its nominated tax haven (Ireland), or as some critics argue, it may not account for its total global revenue through any jurisdiction at all. The practice is legal on that level but fails any reasonable moral test on another level.

The situation works like this. Apple has shifted its global headquarters and nominated its taxation home country as Ireland. This is because Ireland has an effective corporate tax rate of 12.5% as against higher rates of say 30% in Australia.

One of the reason that the Celtic Tiger economy came into being was the tax incentives offered to major computer manufacturers such as Apple and Dell to locate operations there. Technology companies such as Apple and Google used to receive “letters of Comfort” from the Irish government promising that if they relocated to the emerald isle they were to receive tax breaks and government concessions or grants to do so.

Every government entertains making concessions for a company to reside as a foreign subsidiary and be a corporate citizen within its boundaries as it brings jobs, investment, taxes, and economic stimulus into the country concerned. A Conscious Business would still avail itself to such inducements but would then operate in a positive partnership with its community, workforce, and government to play fair and to recognise the intrinsic trust and goodwill placed on it by being let into the country to practice its business.

In the case of Ireland we have a situation where the multinationals such as Apple now pay 12.5% tax and yet the average Irish citizen pays up to 52% tax. We already have the start of a morally suspect issue as the burden in supporting this arrangement then falls on the average Irish citizen to support the multinational who certainly has the capacity to pay for the right to exist and consume the community resources such as roads, water, electricity, and services like rubbish collection, law and order etc.

A Conscious Business respects their hosts in the countries it operates. A conscious business pays it way and accounts for the resources it consumes, and the footprint in the communities it makes in practicing business.

Apple has been accused in the press of two transgressions. Firstly in some countries like Australia it is accused of pricing its products at higher margins than in in other countries. It is seen to do so because it can exploit the higher socio-economic base of Australia by charging more from its monopoly position of controlling its sales channels within Australia.

Secondly the profits and earnings it has made in Australia have been subject to a dodgy practice known as transfer pricing. Here the company concerns transfers out of the country where income is earnt all such earnings and domiciles it in a tax haven where it pays little or no tax.  Apple has been accused of engaging in this practice for some years by shifting earnings from Australia to Ireland.

Apple is exploiting the Australian community through the advantage of its arrangement and the only clear beneficiaries are Apple itself and its shareholders. Suddenly Apple starts to look like one of those old self- serving industrial era companies that Conscious Business seeks to replace, not emulate.

The European Commission is so concerned with the actions of Apple that it has commenced an investigation of taxation practice by Apple in Ireland. This mirrors the concern of Apple in Australia who are now being investigated by the Australian Federal government and the Australian Taxation Office (ATO). The investigation centres on the practice of what is termed transfer pricing, and the effects on the Australian tax position and whether Apple pay adequate taxation on its Australian operations.

Another concern is that the nominated discounted  tax home such as Ireland may be merely a pass through on the way to another tax haven and that the necessary tax is either lower again or non-existent. In this scenario the company pays no tax at all to anyone.

Some analysts have remarked that the extent of the problem may stretch to the extent that the country that hosts the tax base of the company (e.g. Ireland) may be receiving its 12.5% tax take but it may not be aware of all the offshore profits and earnings that are also supposed to be taxed within that jurisdiction.

This is a conscious taxation policy that has required the setup of an elaborate accounting and revenue shifting framework and system but no-one would claim that satisfies the test of being a Conscious Business!!  The global effect of such practices by any company is to potentially deny their host countries of their subsidiary operations any substantial tax payment as the claim they make is that the earnings are by a subsidiary or part of the business in Ireland and so the money will be taxed there.

This practice is hard for any one country to counter and relies on the existence of a global framework to counter these predatory behaviours where they exist. In effect the transnational pays very little tax in its nominated tax haven, and it pays little or no tax for its offshore operations and everyone is fooled by the arrangement.

An American senate investigation found that Apple operates two subsidiaries in Europe and Ireland. One is Apple Sales International and the other is Apple Operations Europe.

In the 4 year period from 2009 till 2012, Apple Sales International had income of about $74 billion US dollars. A significant portion of that income was passed to Apple Operations Europe as dividends.

However Apple Sales International was found to have no declared tax residence anywhere and had paid little or no taxes anywhere to any national government  on the $74 billion dollar income. This certainly violates the charter of Conscious Business as it makes any such company beholden to its shareholders and predatory of its host nations.

Apple in my opinion clearly fails a core moral, ethical and legal test of intent and operational practice if this is the way they execute international business practice. It is hard for anyone to know how any of the transnationals are complying with their taxation obligations.

When challenged by investigative journalism around this issue we tend to hear a legalistic reply that “company X has the legal right and moral obligation to minimise its tax obligations for shareholders and arranges itself to do so”. Apple claims it has no preferential tax treatment in Ireland which is technically true as the 12.5% tax rate is applied across all companies.

However that is not the central issue at hand. Apple is not conducting itself in a transparent way that demonstrates an intention to pay its fair share of tax.  It simply organises its affairs to pay minimal tax.

Ireland also is seen as potentially culpable in this issue. Ireland promotes a minimum tax regime that the EU tries to eliminate within its member countries as the EU wants a level playing field within its member countries.

in order to influence a level playing field within its borders the EU tax commissioner Algirdas Semetas has come out and stated “Member states tax incentives should never be used to lure profits away from where they should rightfully be taxed”.

However the moral failing here is seen to lie with Apple who despite being a legendary innovator, and a smart leader in its chosen technology markets, cannot be considered a Conscious Business. Its taxation minimisation strategies are narrowly designed to benefit the few at the expense of the many.

Remember it is the consumer and their host communities that give Apple the right to operate within its national economies and enable their profit making. Predatory taxation tends to rob those communities and its members of wealth over time.

Thomas Picketty, the author of the book, “Capital in the 21st Century”, explains in detail this problem. Picketty warns us about how the gap in wealth between the rich and the poor is growing at a faster pace than ever before.

Picketty condemns such multinational business practices as transfer pricing and tax minimisation schemes by multinationals. His conclusion is that such business taxation practices enrich the few and undermine the member host economies, robbing taxpayers of important taxation revenues and the ability of governments to meet their social services obligations to their citizens.

Picketty warns us all that these practices are immoral and illegal if one looks at the intent of taxation practice that taxation should be paid in full where and when it falls due. Apple appears to be rotten to its core or to be a worm ridden illusion of a healthy Apple when looked at through the taxation lens via the Picketty argument.

We all must consider removing our own rose tinted glasses when it comes to how we often portray the myth of Apple as the brand we all aspire to be, or to whom we believe is part of a higher consciousness New Economy model. As we see the emerging entrepreneurial shift towards enlightened business practice then Apple can be considered a great company in many ways.

Apple however fall over the hurdle of the moral test and so are not a great corporate citizen.  As such they cannot be considered a true conscious business.

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