Even as Apple sizzles in the Senate hot seat for alleged tax evasion and finds itself the object of a Justice Department investigation into price-fixing e-books, the company still enjoys a vast reservoir of good faith with the American people. But if Apple doesn’t reexamine its relationship to those who made its success possible, that well could one day run dry.
Apple is not unique in its attraction to the game of monopoly and tax dodging, but it sure is creative. The firm has helped to pioneer the exploitation of loopholes and the setting up of subsidiaries where profits are stashed offshore through a fantastically complex maneuver known as the “Double Irish with a Dutch Sandwich” which seems to involve, among other things, a mysterious Irish company with no employees. The upshot? Apple pays only 2 percent of its $74 billion in overseas income in taxes. According to Senator Carl Levin, that translates to ducking $1 million an hour. Surely Apple qualifies for the tax avoidance Olympics.
During a recent Senate hearing, CEO Tim Cook spun Apple’s tax stance as a model of corporate stewardship, explaining that the firm had a duty to shareholders to pay as little as possible. Many senators agreed, including Rand Paul, who offered that the committee should “apologize” for forcing Apple to sit through a “show trial” concerning “a bizarre and Byzantine tax code.”
Few would defend the U.S. tax code as fair. But what about Cook’s notion of his responsibility to shareholders? Economist and business historian William Lazonick at the University of Massachusetts Lowell has studied the emergence of the idea that companies have a duty, first and foremost, to maximize profits for shareholders — a line that allows executives to argue that doing things like avoiding taxes is not only a good business practice, but a solemn duty.
According to Lazonick, this philosophy took off in the go-go ‘80s and is linked to the financialization of corporations that started in the ‘60s. In 1983, two financial economists, Eugene Fama of the University of Chicago and Michael Jensen of the University of Rochester, wrote two papers promoting the idea that corporate executives should focus their attention on maximizing returns to shareholders because they are the ones who make the investments and take the risks. Jensen landed a job at Harvard Business School in 1985 and, as Lazonick writes, “soon shareholder value ideology became the mantra of thousands of MBA students who were unleashed on the corporate world.”