Opinion

Felix Salmon

Tim Cook’s improbable victory in Washington

Felix Salmon
May 21, 2013 21:52 UTC

When Apple CEO Tim Cook appeared in front of Carl Levin today, I was hoping for an epic showdown, as presaged by Levin’s highly-aggressive press release yesterday. I was sorely disappointed — although I did end up with a newfound admiration for Tim Cook’s ability to acquit himself with dignity and intelligence and integrity in the toughest of situations.

The Apple executives at the hearing spent most of their time politely listening to various senators pontificate about taxes. But every so often, in response to a rare direct question, they would try to explain why they didn’t think they were evading billions of dollars in taxes.

The Levin report is very long and dry, so let me oversimplify a little. Apple revenues basically end up in one of two places: California, for sales in the Americas; and Ireland, for sales everywhere else. Apple pays US taxes on the money which ends up in California, but only pays US taxes on the interest on the money which ends up in Ireland. Which isn’t very large.

A lot of the hearing was taken up, unhelpfully, with senators asking whether Apple pays taxes on the income from sales made in the US, and Apple saying yes. (Although, as Tim Fernholz points out, “between 2009 and 2011, the company told investors it was setting aside $13.7 billion to pay federal taxes—but it has actually paid only $5.3 billion”. The amount the government receives is significantly lower than we had all been given to believe from Apple’s SEC filings.)

The more interesting questions concern Ireland, the money flowing in there, and the degree to which those enormous sums of money constitute tax avoidance on a massive scale.

There are two parts to this question. The first is the sheer amount of money flowing into Apple Operations International (AOI), a company without tax jurisdiction and which hasn’t filed a tax return in five years. The Apple executives were unflustered about that fact: all of Apple’s various subsidiaries in Europe and Asia pay local tax on their profits. They could then just hold on to those profits themselves, if they wanted. But because it’s nice for Apple to be able to look after all of its money in a single place, the various subsidiaries send it all to Ireland to be invested. It has already been taxed at that point, and shouldn’t be taxed again.

This is more than a little disingenuous, because it seems that Apple is extremely good at ensuring that the “local subsidiary” in question, accounting for the overwhelming majority of the profits being fed into AOI, is ASI — another Irish company without tax jurisdiction. When Apple ships product from its factories in China to its stores in Singapore, the stores in Singapore don’t make much if any profit. That’s because somewhere in the South China Sea, ASI takes ownership of that product at a very low cost, before selling it on to Apple Singapore at much higher cost. The hardware never goes anywhere near Ireland, but title to the hardware changes hands, and substantially all of the profit associated with that hardware thereby ends up being taxed at friendly Irish rates, somewhere south of 2%, rather than at whatever the government of Singapore might charge. Here’s the Levin report:

Transferring title in this manner allowed Apple to retain most of its profits in Ireland, where it has negotiated a favorable tax rate and maintains entities claiming to have no tax residence in any country, and limit the income it reported in the non-tax haven countries where the company did most of its business. For example, in 2011, Apple reported $34 billion in income before taxes; however, just $150 million of those profits, a fraction of one percent, were recorded for Apple’s Japanese subsidiaries, even though Japan is one of Apple’s strongest foreign markets. ASI, meanwhile, reported $22 billion in 2011 net income. Those figures indicate that Apple’s Japanese profits were being shifted away from the United States to Ireland, where Apple had negotiated a minimal tax rate and maintained two non-tax resident corporations.

So we shouldn’t take Apple’s executives at face value when they say that all of the money in AOI has been taxed once already. That might technically be true, but only at extremely low rates.

What’s more, Apple actually does, under the spirit of the law, owe substantial US taxes on that income. The law in question is something called the foreign base company sales income rule — a regulation specifically designed to prevent companies from jurisdiction-shopping when it comes to taxes. Under US law, Apple has to pay US tax on the income that ASI receives on things like the profits from all those Singaporean gadgets. But Apple uses something called the “check-the-box loophole” to make ASI “disregarded” by the IRS. Instead, the IRS looks only at the parent company, AOI, which, being merely a holding company, does not have any foreign base company sales. According to the Levin report, this clever two-step — first putting the income in to ASI, and then disregarding that income using the check-the-box loophole — “allowed Apple to avoid paying taxes on nearly $44 billion in income from 2009-2012″.

The second part of the question is even more important, and surrounds something called a Cost Sharing Agreement which Apple has signed along with its Irish subsidiary, ASI. Under that agreement, ASI pays 60% of Apple’s R&D costs, and in return gets to keep 60% of the income from Apple’s intellectual property. This agreement, Apple executives repeatedly said, was signed “at arm’s length”, with the 60/40 ratio representing the respective proportions of Apple’s sales split: Europe and Asia account for 60% of Apple’s sales, with the Americas accounting for 40%.

But the fact is, as Levin hammered home at the end of the hearing, that Apple’s intellectual property is its crown jewel; that the amount it spends on R&D is in no way reliant on the fact that it’s getting some of that money from Ireland; and that in no conceivable universe would Apple ever sell off 60% of the rights to its intellectual property in return for a promise to pay 60% of present and future R&D costs. Not in a genuine transaction with a non-Apple counterparty, anyway. As Levin said, “95% of the creativity that goes into that product is in California. But two thirds of the profits are in Ireland.”

Apple receives enormous benefits from being based in California — Cook was entirely genuine when he said that it simply never occurred to him that the company might ever be headquartered anywhere else. And yet Apple has decided, in its wisdom, that 60% of the fruits of its Silicon Valley creativity should end up in a corporate shell in Ireland, never to be taxed by the US Treasury. This system has been in place for many years — since long before the Macintosh was invented — but that doesn’t make it any less of an obvious tax dodge. Apple Inc gets to claim the entirety of its global income for its shareholders, but less than half of it is ever taxed in the US. If an American company makes billions of dollars from its creativity and its enviable geographical location, it’s reasonable that the US authorities should be able to tax those profits, rather than helplessly watching them accumulate offshore.

Here’s the Levin report, again:

Despite the fact that ASI conducts only de minimis research and development activity, the cost sharing agreement gives ASI the rights to the “entrepreneurial investment” profits that result from owning the intellectual property. According to Apple, over the four year period, 2009 to 2012, ASI made cost-sharing payments to Apple Inc. of approximately $5 billion. ASI’s resulting income over those same 3 years was $74 billion, a ratio of more than 15 to one, when comparing its income to its costs… the cost-sharing arrangement for Apple Inc. makes little economic sense without the tax effects of directing $74 billion in worldwide sales revenue away from the United States to Ireland, where it undergoes minimal – or perhaps – no taxation due to ASI’s alleged non-tax resident status.

That’s no arm’s-length agreement, that’s a tax dodge — and a pretty blatant one at that. That’s why I’m astonished that Cook emerged from this hearing so unscathed: the facts were against him, but somehow none of the senators — not even Carl Levin — really managed to put him on the spot. It’s almost as though he had some kind of reality distortion field around him.

COMMENT

apple aparently did not break any laws, or they would be facing charges. Congress writes the laws and if they don’t get enough revenue they should re write them. Since congress has written the laws allowing many of us to pay no income taxes at all and those folks get to vote just like I do then, it is my duty as a husband and father to follow the law and take any and all deductions etc that I lawfully can,paying what I owe and not a penny more. congress should enact a flat tax so that we would all have skin in the game.

Posted by zotdoc | Report as abusive

Why public companies should have public tax returns

Felix Salmon
May 21, 2013 13:29 UTC

Every investigative journalist occasionally dreams of what she might be able to do with monster resources and subpoena power. The answer looks something like Carl Levin, whose latest report on Apple’s tax strategies is Pulitzer-worthy stuff. When Apple CEO Tim Cook testifies in front of Levin today, it’s going to be one of the most uncomfortable grillings of his life. Steve Jobs could be intense — but Carl Levin, in full flow, is truly formidable.

The first discrepancy I’d love to see Levin clear up is a simple factual one: how much income tax does Apple pay? The various tax years and fiscal years are rather confusing, but in its testimony, Apple says that its income tax payments to Treasury were “nearly $6 billion” in FY2012, for “a US federal cash effective tax rate of approximately 30.5%”. (Those numbers imply taxable income of about $19.6 billion.)

The Senate report, by contrast, looks at the 2011 calendar year, and reproduces Apple figures showing $3.884 billion in current federal taxes, plus holding on to $2.998 billion in deferred federal taxes, for a total of $6.882 billion; that means an effective tax rate of 20.1%. (Again, working backwards, the implied total taxable income increases here to $34.2 billion.)

The report then presents the actual amount of cash paid in taxes, as reported on Apple’s tax return. (This is where that subpoena power comes in particularly handy: I’d love to see Apple’s response to a reporter asking to see Apple’s Form 1120 for the past three years.) According to the Form 1120, which is the corporate equivalent of the 1099 1040 for individuals, Apple paid $2.5 billion in actual cash payments to Treasury in FY2011, up from $1.2 billion in FY2010.

The report doesn’t convert those figures into an effective tax rate, just saying that the number would be “well below the statutory tax rate”. But in in the year ended September 23, 2011, Apple overall reported net income of $25.9 billion, while in the following year its net income was $41.7 billion. Much of that income was overseas, of course. Still, it does seem that Apple’s total actual federal tax payments in both FY2010 and FY2011 were less than 10% of its reported net income.

This is particularly shocking to the US public, which has to pay taxes on its global income. Every other country’s billionaires are extremely good at escaping into a state of tax-free statelessness; America’s aren’t, and we expect that if you’re rich American, you’re going to pay a substantial amount of US taxes.

American multinational corporations, in this sense, lie somewhere in the middle: they don’t need to pay income tax on their global income, and so they can avoid billions of dollars in taxes by moving income to tax-friendly jurisdictions like Ireland, or to subsidiaries such as Apple Operations International and Apple Sales International, which pay taxes in no jurisdiction at all. (Their headquarters are in Ireland, so they are sheltered from US taxes, but since their operations are mostly in the US, they don’t pay Irish taxes, either.)

The only real punishment for avoiding taxes, if you’re a US corporation, is that your offshore profits are stuck offshore, where it can be hard to invest them or return them to shareholders. So when Apple claims in its testimony that it “supports comprehensive reform of the US corporate tax system”, note its two key provisos: that such reform be “revenue neutral”, and that it allow “free movement of capital back to the US”. The first would mean that US corporations wouldn’t actually pay the taxes they’re avoiding right now: total corporate taxes would remain at an all-time low. And the second would mean that the biggest corporate tax loophole of all — the ability to pay no taxes on foreign earnings — would be made substantially bigger.

The Senate report quotes Mark Keightley, making a very important point:

Corporate tax revenues have declined over the last six decades. In the post-World War II era, corporate tax revenue as a percentage of gross domestic product (GDP) peaked in 1952 at 6.1%. Today, the corporate tax generates revenue equal to approximately 1.3% of GDP. The corporate tax has also decreased in importance relative to other revenue sources. At its post-WWII peak in 1952, the corporate tax generated 32.1% of all federal tax revenue. In that same year the individual tax accounted for 42.2% of federal revenue, and the payroll tax accounted for 9.7% of revenue. Today, the corporate tax accounts for 8.9% of federal tax revenue, whereas the individual and payroll taxes generate 41.5% and 40.0%, respectively, of federal revenue.

What we’re seeing here is a corporate class which is vastly more effective at evading taxes than individuals are; I don’t see that trend going away any time soon.

Instead, I have a modest proposal of my own: why not at least require all public US companies to file their federal tax returns with the SEC. They already report the amount of taxes that they pay, but as we’ve seen, the reported numbers, calculated under GAAP, can differ substantially from the actual cash numbers. I’m not saying we’d shame companies overnight into suddenly paying more taxes. But at least we’d be able to see which ones are evading taxes most effectively.

COMMENT

Find blank and fillable 1120 forms at PDFfiller.
http://goo.gl/bCOAOC
You can fill the text fields, add a variety of checkmarks, digitally sign the form and even add pictures. After your pdf form is completed, it can be printed, emailed, faxed or saved on your computer. You can even send fillable pdf forms to your customers, employees, vendors and partners.

Posted by JulzElie | Report as abusive

Why Apple should ignore its shareholders

Felix Salmon
Feb 12, 2013 00:30 UTC

Allan Sloan neatly divides the world of Apple obsessives into two types of people:

For most people, Apple mania means buying the company’s products and playing with them. But for us financial voyeur types, the fun comes from watching the lunatic lurching of Apple’s stock price.

Financial journalists love any stock doing the lunatic-lurching thing, because that creates an easy heroes-and-villains story. Were you bearish at the top? You’re a genius! Were you bullish throughout the fall? You’re a goat!

James Stewart has a classic example of the genre this weekend, putting on his straightest face and contriving to be shocked — shocked! — that Wall Street was bullish on Apple stock during its recent decline:

Fifty of 57 analysts rated it a buy or strong buy; only two rated it a sell. Apple shares continued their plunge, and this week were trading at just over $450, down 36 percent from their peak.

How could professional analysts have gotten it so wrong?

It wasn’t supposed to be this way.

This is very, very silly: the clear implication here is that the analysts following Apple should have seen the fall coming. But you can’t time an individual stock like that: no one can. Especially when there was nothing — no thing — which caused the stock to fall. Apple stock was going up, and then it was going down. That happens with stocks: they’re volatile things. But you can’t expect anybody, no matter what their job is, to be able to anticipate all those fluctuations.

Instead, analysts generally do something else. At heart, they’re fundamental analysts: they look at a company’s numbers, and decide how much they think the company should be worth, given its revenue and profitability and prospects. Even at its peak, Apple was trading at pretty low multiples — and on top of that, it had a lot of upwards momentum. So it makes perfect sense that most analysts had “buy” ratings on the stock, with price targets somewhere north of $700. And given that nothing fundamental changed in the past few months, it would be weird for one of those analysts to suddenly slap a “sell” rating on the stock just because the ratios are becoming even more attractive as the stock gets cheaper.

With any stock, there’s always a bear case, and Stewart lionizes the one bearish analyst he managed to find, Carlo Besenius of Creative Global Investments. But even with hindsight, Besenius’s bear case doesn’t seem particularly compelling, based as it was on squishy things like “concerns about product quality and innovation”. You can always have “concerns about product quality and innovation”, and you can always be uncomfortable with “Apple’s arrogance”. But those concerns would have left you out of one of the greatest bull runs that the stock market has ever seen, over the past decade or so.

Similarly, Bethany McLean’s case for Apple being a $200 stock doesn’t actually include any ratios, or any calculation which comes to that number. Instead, she simply asserts that “built into Wall Street’s stock price targets was the expectation that the iPhone would rule the world” — and that therefore any future world which isn’t dominated by the iPhone must have Apple trading at a much lower level than those price targets.

The problem with this argument, of course, is that it’s far from clear that the price targets did incorporate global domination. It’s entirely possible that she’s right, of course, along with other bears like Jeff Gundlach, whose big Apple short last spring looked horrible for a while but now looks much smarter. But at heart, the bear case on Apple is one based on gut feeling: that the company has had its day, that its greatest glories are behind it, and that Tim Cook is not going to be able to continue Steve Jobs’s string of astonishing successes. It’s a perfectly reasonable gut feeling to have. But it won’t tell you when Apple stock is going to drop, and it won’t give you a level at which to exit your position. (McLean’s arguments, for instance, could be used to justify a $100 target, or a $200 target, or a $400 target.)

Meanwhile, the highest-profile Apple bull right now, David Einhorn, is arguably even worse than the bears. He has loads of clever ideas in the realm of financial engineering, whereby the issuance of new classes of stock would efficiently funnel money to shareholders like himself and thereby make them happy. It’s the kind of Clever Idea that activist hedge-fund managers like Einhorn and Bill Ackman often have, but it’s fundamentally a distraction in terms of Apple’s core job, which is to make insanely great products. Basically, everybody knows nothing, when it comes to the famously-secretive Apple, and it would be crazy for someone like Tim Cook to pay much attention to such ignoramuses.

Apple did spectacularly well, for most of the past 10 years, ignoring shareholders completely; at one of its competitors, Michael Dell is so sick of them he wants to buy them out and make them go away entirely. If Einhorn got his way, there might be a short-term boost in the stock, Einhorn would take his profits, the people who invest in Einhorn’s funds would make money — and Apple would in no way be better positioned for the future than it is today.

The day that Apple starts embarking on elaborate financial engineering in order to placate hedge-fund investors is the day that it loses sight of its core mission and starts turning into a mess like Hewlett-Packard, constantly trying to “deliver shareholder value”, whatever that might mean. When Tim Cook became CEO, he was given a restricted stock grant of 1 million shares, which don’t fully vest until 2021. The point was to keep him focused on a time horizon much longer than anything David Einhorn might be thinking about, and the message was that he shouldn’t worry about the stock price fluctuating up one month and down the next: so long as he builds an excellent permanent franchise, he will end up hugely wealthy. Apple listened to shareholders before, when it fired Steve Jobs and brought in John Sculley. It won’t make that mistake again.

Therefore, to use Sloan’s distinction, Cook rightly belongs with those of us who are interested mostly in buying the company’s products and playing with them, rather than those of us glued to the gyrations in the corporate share price. Let Wall Street worry about the Apple share price: very little harm is done to the company if it’s low, and Apple is so incredibly profitable that it has zero need for Wall Street or any kind of outside investment.

Apple shares are an interesting speculative vehicle, in which a lot of money can be made and lost. But they don’t help shape the fortunes of Apple itself — not any more. A close reading of the stock price might tell you something about herd mentality among mutual-fund managers, and the problems of being so big that people feel forced to buy your stock. But the share price has never been particularly useful in terms of being able to predict what’s going to happen next to Apple the company. Let New Yorkers worry about the stock: in Cupertino, they have much more important things to do.

COMMENT

“So, what is the point of owning stock again?
No claim on current profit, no claim on retained earnings.
Is the hope that you find a sucker or sell before management does actually crater value?”

Didn’t some economist win the Nobel prize for explaining this? Was it Modigliani? It’s all beyond me.

Posted by Kaleberg | Report as abusive

How much do Apple employees earn?

Felix Salmon
Jan 19, 2012 17:30 UTC

Adam Lashinsky, in an excerpt from his new book, says that Apple employees aren’t paid particularly well:

If they don’t join for a good time, they also don’t join Apple for the money. Sure, Apple has spawned its share of stock-options millionaires — particularly those who had the good timing to join in the first five or so years after Jobs returned. “You can get paid a lot of money at most places here in the Valley,” said Frederick Van Johnson, a former Apple marketing employee. “Money is not the metric.”

By reputation, Apple pays salaries that are competitive with the marketplace — but no better. A senior director might make an annual salary of $200,000, with bonuses in good years amounting to 50% of the base. Talking about money is frowned upon at Apple. “I think working at a company like that, and actually being passionate about making cool things, is cool,” said Johnson, summarizing the ethos. “Sitting in a bar and seeing that 90% of the people there are using devices that your company made — there is something cool about that, and you can’t put a dollar value on it.”

This is interesting — but I think it understates the importance of stock options and restricted stock units. Apple is that rarest of beasts, a fast-growing company with a low stock price. And you don’t need many RSUs at $430 a pop before you’re talking real money. A job offer from Apple is certainly a treasured thing and most people aren’t going to turn it down just because the salary isn’t north of $300,000. But money’s still important and Apple employees have actually been much better paid than Lashinsky implies.

We can do some very basic back-of-the-envelope math here. When Apple went public in 1980, it had 61 million shares outstanding. It has since split three times, so those original 61 million shares have now become 490 million shares. Today, however, Apple, has 929 million shares outstanding. Which means that over the years, Apple has issued 439 million shares.

Where did those shares go? There haven’t been any secondary offerings, so none of them went to investors. And Apple is not particularly acquisitive, so few of them went to buy companies, either. Apple does buy some companies with stock, but those deals are rare and don’t account for all that many shares: even the NeXT acquisition, which brought Steve Jobs back to the fold, was paid for with $429 million in cash and only 1.5 million shares of stock.

So it’s fair to assume that the lion’s share of the newly-issued shares — let’s say 400 million, to keep numbers round — have gone to employees. And 400 million shares, at $430 each, is $172 billion.

To put that in perspective, Apple now has 60,400 employees. 36,000 of those work in the retail segment; we can assume they don’t get options or RSUs. So excluding retail, Apple has about 24,400 employees. Let’s double that number, to include all the employees who have left over the years — call it 50,000 in all. $172 billion divided by 50,000 employees is $3.4 million per employee.

Now I’m not saying that the average Apple employee has made $3.4 million in stock options and RSUs. Most of those options and RSUs will have been exercised, at prices well below $430 per share. (On the other hand, most current employees have options and RSUs which haven’t yet vested and therefore aren’t included in the 929 million number of total outstanding shares.) But the fact is that Apple has been generous in terms of handing out equity to its employees, and there’s no reason to believe it won’t be just as generous going forwards. And the most recent datapoint we have — the 1 million RSUs given to Tim Cook when he became CEO “as a promotion and retention award” — certainly doesn’t make it seem as though Apple is stingy with its equity-based pay.

I’m sure that Apple doesn’t pay more than it needs to and I’m also sure that demand for Apple jobs significantly exceeds the supply of those jobs. But if you properly account for options and RSUs, I suspect that Apple turns out to be a pretty generous employer — more so, in any case, than Lashinsky implies.

COMMENT

Interesting article Felix

Posted by cortesr | Report as abusive

Counterparties

Nick Rizzo
Sep 6, 2011 11:09 UTC

Microsoft releases its Ten Immutable Laws of Computer Security, showcasing their usual flair for graphic design. We particularly like number nine.

The New York Post reports that forty six people were shot in New York City over the long weekend and that’s not counting the three civilians killed and two policeman injured in Crown Heights last night. This is the highest total for one weekend in the city in a very long time. “I can’t remember a couple of hours like these since the days of crack,” said one source. Meanwhile, Yosemite National Park is also having its deadliest year in more than a decade.

Rupert Murdoch’s papers aren’t the only UK tabloids with egg on their face: the Daily Mail just made its sixth recent apology, this time for alleging that Vanessa Redgrave “had once found her husband in bed with her father.” Oof.

After an initial denial, the San Francisco Police Department is now acknowledging that their investigators did assist Apple in searching for a missing iPhone 5 prototype. This is important because SF police officers literally knocked on a door, identified themselves as police and then stood aside as private Apple detectives searched the home and made threats against its residents.

And here’s a quick Q&A with cyberpunk founder William Gibson.

COMMENT

@mmascoline

It’s not a “paper”! It’s a “graphic design” without graphics! Microsoft’s usual flair for incompetence! It’s like as if they were trying to say something, but somehow their only tool was to put lots of little letter-thingies in rows. I got bored after twenty or thirty. Hah Hah Microsoft! Last century want you back, losers.

Posted by bxg6 | Report as abusive

Why I’m talking about Tim Cook’s sexuality

Felix Salmon
Aug 26, 2011 17:30 UTC

Every so often I put a blog post up, start getting feedback on it, and realize I’ve got things horribly wrong. And then sometimes, very rarely, the opposite happens: I put up a post and discover that I was more right than I ever suspected. My post yesterday on Tim Cook’s sexuality is one of those times.

Which is not to say that it’s uncontroversial. I’ve had significant pushback on it, and on the video above, from both inside and outside Reuters. The negative responses fall into a few broad categories:

Haven’t we moved on?

This is rarely accompanied by an elucidation of exactly what it is we’re meant to have moved on from. If it’s the kind of world where people are scared to come out at work, then, first, I’m sorry, but we haven’t. There are, obviously, no reliable statistics on how many LGBT people are out at their work, partly because “out” isn’t the nice, binary concept that a lot of journalists would seem to like it to be. (More on that later.) But I can tell you that I’ve had a lot of private feedback from gay professionals thanking me for my post, saying that it’s still hard for them to come out in the workplace, and that more open discussion and open acceptance of executives’ homosexuality is something we’re only beginning to work towards.

It’s still not normal, in most workplaces, to have an open and accepting culture where all gay employees feel comfortable being open about who they are and who they love. Apple, by all accounts, is very good on that front, and Steve Jobs’s other billion-dollar startup, Pixar, is even better. But the very fact that neither Apple nor Tim Cook has ever said anything about this aspect of his identity is a clear indication that people are still worried about it. The closet is an institution designed to protect LGBT individuals from scorn and hatred; without that scorn and hatred, it would not exist. It exists. And, lest we forget, neither the federal government nor most states gives equal rights to gay couples; in most states, including California, it’s still entirely legal for a company to fire someone just for being gay.

More generally, it’s still the exception rather than the rule for successful gay people in the public eye to be out. Some gay people who achieve success feel a responsibility to serve as role models and advocate for equality and public acceptance. That’s great. But what we see very little of is the people who simply don’t hide who they are, and who don’t make a big deal of it — the non-political gays. And the reason we see so little of it is because it’s a very tricky act to pull off. Instead, we have the institution of the “glass closet”. Which is clearly just a stepping stone on the path to full acceptance. So I think it’s reasonable to say that we’re a very long way from having “moved on”.

Why should shareholders care?

The number of things that shareholders care about, with respect to any given company, is as varied as the number of shareholders itself. But certainly there’s no particular or obvious reason why Tim Cook’s homosexuality is relevant to Apple’s shareholders, qua shareholders. As journalists, however, the media has a responsibility to more than just a company’s shareholders: its responsibility lies to the public as a whole. Including millions of gay professionals, their friends, their families, and people who aspire to being gay professionals. For these people, seeing Tim Cook rise to a position of such prominence and power is something to celebrate. If the media keeps that news on the down low, we’re therefore doing a disservice to that large and important part of our readership. Meanwhile, if shareholders don’t care, that’s fine. Most news is of no interest to most people. But that doesn’t mean it shouldn’t be published.

What business is it of mine what Tim Cook does with his genitals?

This isn’t an issue of sex, it’s an issue of sexuality — a central part of who all of us are. It’s about attraction, and identity. Not genitals.

Now admittedly Tim Cook’s sexual identity isn’t any business of yours either. But it’s worth asking who exactly we’re protecting here. Tim Cook hasn’t complained about coverage of his sexuality, but a lot of straight people who don’t know him seem to be very upset about it. It seems a bit like the old attitude of “I don’t care what consenting adults do in private, just so long as they don’t stick it in my face.”

All too often, secrecy surrounding someone’s sexuality is imposed upon that person by the straight society surrounding them. It’s the “I don’t want to hear about it” attitude which reached its nadir in the Don’t Ask Don’t Tell policy. Many gay professionals — I’m tempted to say most gay professionals, at least outside the creative industries — act very much in line with an implicit policy of don’t-ask-don’t-tell; coming out to co-workers is done individually, on a case-by-case basis, and acts as a sign of deeper friendship and outside-of-work socialization. And it contrasts quite sharply with the overt displays of straight employees who happily plaster their cubicles with photos of their spouses and children or unselfconsciously talk about the attractiveness of members of the opposite sex.

This is irrelevant, so we should ignore it.

Not when ignoring it is the problem. As commenter Hamranhansenetc said on my original post, “what you mean by ‘ignoring Time Cook’s sexuality’ is ‘pretending he is straight.’” It’s rude to do that. And skirting the issue of Cook’s sexuality only encourages and exacerbates that problem. As Hamran continues (you should really read the whole comment, it’s great), “In the larger sense, it does not matter that Tim Cook is gay and not straight. However, it does matter when the media pretend Tim Cook is straight and not gay. And that is what we are talking about here.”

Another commenter, RaidV92C, reacted a rather different way, but just as accurately: “This is not newsworthy, it’s west coast, liberal media, hollywood forcing homosexuality as NORMAL on the general public.” Yes. Exactly. Homosexuality is normal. And people who object to stories which cover an executive’s homosexuality as being as unexceptional as another executive’s wife and children are exactly the people who are winning if no mention is made of Cook’s sexuality.

Do we report that executives are straight?

Yes, all the time, especially when we talk about their families. And more generally straight is the default option — people are assumed to be straight unless we’re told otherwise. No LGBT person likes it when they’re assumed to be straight, but it happens every day.

Isn’t this a salacious invasion of Tim Cook’s privacy?

There is nothing salacious about someone being straight, or being gay. Insofar as you think it’s salacious, that’s because you think that being gay is somehow naughty, or shameful. Is this an invasion of privacy? To a certain extent, yes. More people know more things about Tim Cook now than they did a few weeks ago. That’s what happens when you become the CEO of Apple.

In any public corporation, there’s a small number of people whose jobs are outward-facing, and at the top of the list is always the CEO. He’s the public face of the company; if you see a corporate profile on the cover of a glossy magazine, chances are it will be illustrated with a big picture of the CEO. If you don’t want your face splashed across the world’s media, then you shouldn’t be CEO of a massively valuable company which touches millions of people. Sometimes, as in the case of Mark Zuckerberg, entire movies — and not particularly accurate ones, either — are made about you and your personal life. Reporting that Tim Cook is gay is absolutely nothing, in the invasion-of-privacy stakes, compared to The Social Network. But CEOs, especially CEOs of public companies, are public figures. Their salaries are a matter of public knowledge. When you’re a public figure, you lose a certain amount of privacy. And the higher your profile rises, the more privacy you lose. Tim Cook knows that; he knows that it’s silly to expect to be the CEO of Apple without the world knowing that he’s gay. So let’s stop pretending that we’re not talking about this subject for his sake.

Finally, one critical note I got went so far as to say that “I would think people who are gay don’t care” that Cook is gay. Which is almost hilariously, completely wrong. All the feedback I’ve got indicates, unsurprisingly, that LGBT people really care about this — they care about it a lot, and they want to see it celebrated as widely as possible. It’s perfectly natural to feel pride and joy when a member of your community rises to a position of great success and prominence.

I’ve been incredibly heartened by the thanks I’ve got from gay friends, gay acquaintances, and gay people I’ve never run across before, all saying that they wish there were many more people pushing this line of argument. And I was also heartened, when I talked to John Abell about this yesterday for the video above, that he thinks the same way: not only should the media cover Cook’s sexuality in a more matter-of-fact way, but that they will, as well. Cook himself need do nothing.

At the same time, though, I agree with Nicholas Jackson that it would be great if Cook was more open about his sexuality. The glass closet is not an unpleasant place to be. The more transparent the glass, the less likely you are to have people making you uncomfortable by assuming that you’re straight. And at the same time, by never “officially” coming out, you get to avoid having to talk about your sexuality in public — something very few people like to do.

It’s sad and rather silly that gays have to make some kind of formal and official statement about these matters; certainly straights don’t. But without such a statement, as we’ve seen, the media gets cold feet talking about sexuality, and perpetuates the stigma associated with homosexuality. A very common response to my piece from journalists was to question my sourcing: how did I know that Cook is gay? Do I have first-hand knowledge? (No, and if I did, I would never have written my post.) Do I have reliable sources? (No, I’m simply passing on information which is in the public realm, just as I do with dozens of other pieces of information every day.) And isn’t it unethical to talk about something unless you know for sure that it’s true?

What’s unethical, I think, is perpetuating the false idea that Tim Cook is straight — an idea which, it turns out, many people had. One person said it was “disappointing” that I disabused her of that notion. Why she should be disappointed to learn this news I can only guess, I haven’t asked. But honest journalism has to be honest. If I allow you to continue to believe a falsehood, that’s a form of dishonesty. And I, for one, am not comfortable with that.

COMMENT

MrMath.

You challenge people to posit why they are ‘against gay’ lamenting they would have no argument – and then you say imply that to be anti gay must mean that one is a ‘closet gay’.

Your upside down premise (‘Mr Math’???, really???) of asking people to provide ‘valid arguments’ and then spewing something such stupid and childish positions that don’t deserve a reasonable response – in fact only validates how you and the ‘gay agenda’ are miserably ideological.

I’m not making an anti-gay statement.

I’m making an anti-gay supporter statement.

You losers claim ‘morality’ and then go on to make absurd claims.

Homosexuality is a disease. It is the misalignment of gender, and sexual orientation. Just as most complex forms of behavior are learned – they can be unlearned. We are in fact biological machines – and we will one day have the ability to create an adaptive environment that creates outcomes we desire – including sexual orientation.

That we don’t yet have the ability to correct homosexuality, and that gays can live otherwise healthy and normal lives, does not change the fact that it is a medical condition that would otherwise be cured.

100 years ago, were someone to have discovered a cure, or therapy for ‘gay’ that worked – gay simply would not exist for the most part, certainly not the extent that we have a disproportionate minority of bit&es in the media raving about it all day.

Posted by jammer11 | Report as abusive

Thanks, Steve

Felix Salmon
Aug 24, 2011 23:26 UTC

It’s a sad day: only this morning I was reminiscing about my days exploring the Apple Macintosh in Palo Alto in 1984. Like much of the world right now, I’m reliving Steve Jobs’s greatest hits on YouTube, I’ve got a bit of a tear in my eye, and yet I can’t imagine how Jobs could possibly go out on a higher note than this.

Jobs took Xerox PARC’s ideas about what the personal computer could be and made them reality; he brought back Apple Computer from the brink of death to being the most valuable company in the world; he created a whole new class of electronic device, with the iPad; he even reinvented the telephone. And, of course, he’s still around, at least for the time being — he’ll stay on as Apple chairman (and, in one of the most touching parts of his resignation letter, as “Apple employee”).

So thank you, Steve, for everything you’ve done. You’ve relieved me of more money than I care to mention in public, and I don’t begrudge you a cent of it. In fact, even with the massive run-up in Apple’s share price over these past years, I’ve always been convinced that the best use of $1,000 or so has always been to buy an Apple computer, rather than Apple stock. The extra productivity conferred by the machine, I’m convinced, will give you a much better return on your money than any equity.

Here at Reuters, I made sure that I could work on a Mac before I accepted this job, and even though we’re standardized on PCs, you see Apples all over the company, up to and including the CEO’s office. None of that is going to change with Jobs’s departure as CEO. Does Apple still have an outsize personality who can slice away extraneous features on hardware, say no to the demands of the marketplace, and give us not what we think we want but what we never knew we wanted? I think it does: Jony Ive fits the bill quite nicely. And Apple’s amazing relations with its suppliers — the way that it can get chips and hardware into its devices that the rest of the world can’t get its hands on for any amount of money — is now baked in to the organization, rather than being reliant on a single man.

The formula, then, is clear. And with or without Jobs, Apple is, for the foreseeable future, going to coin simply astonishing amounts of money. It made $7.3 billion of profit just in the last quarter, on revenues of an almost unimaginable $28.6 billion. That makes Apple one of the most profitable companies the world has ever seen — and makes its stock look almost cheap, even at a market cap of $350 billion.

No one man can be responsible for all or even most of that kind of performance. Jobs has always been the exception who proves the rule as far as the cult of the CEO is concerned — he’s one of very, very few CEOs who really did make an enormous difference to their company. But even so, he’s just one guy, and he’s built around him a super-talented team who know exactly what’s expected of them. We’re not going to see Tim Cook coming out and talking about “one more thing” at a WWDC keynote presentation, but we don’t need to. Apple is a dominant company now, and is more than big enough to be able to withstand a leadership change at the top.

Today’s news, and tomorrow’s, will rightly be all about Jobs. But in a few years’ time, I look forward to the seeing the case studies showing how Apple, seeing an entirely predictable event coming down the road, set up an elegant and model handover from Jobs to Cook. Jobs knows that he will be judged on this — and I’m quietly confident that he’s done it perfectly.

COMMENT

At the risk of offending friends and colleagues who labour in the anonymity of the South Bay, I’m moved to laughter when I read of someone contrasting the suburbs of Cupertino and Santa Clara, and hoping to draw out a real distinction.

The vast swath of that portion of Santa Clara Valley has long been filled out by cookie-cutter suburbs. Cupertino is no different in any meaningful regard than Campbell, Los Gatos, Sunnyvale, Mountain View, Palo Alto, or even the less-dense areas of the city of San Jose.

That Apple chose Cupertino back in the eighties is an accident of time and circumstance. That they choose to remain there is (I believe) more of happenstance–they want to move into the former Hewlett-Packard campus that existed long before Apple was even formed.

I don’t fault those who live and work in the South Bay for being proud of the firms that are part and parcel of the physical geography of the place. Just as I wouldn’t do so in any of the other places where I’ve worked where a significant concentration of an industry’s wealth is forced into narrow geographic confines (cf. Wall Street, Hollywood).

To Kaleberg’s point about the corrosive effects of “crowning glory” architecture: I share the feeling that Apple’s efforts in this regard will prove to be a distraction–not a major one, but just enough so that the carefully balanced spinning wheel that is the Cook-led company can suddenly find itself in dangerous precession.

Posted by lauradeen | Report as abusive
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