We can joke about David Einhorn suing Apple because it has recently cost him so much money.
We can relish the latest clash of styles between cosseted, serene Silicon Valley and twitchy, aggressive Wall Street.
We can even approach Einhorn’s suggestion that Apple (Nasdaq: AAPL) issue preferred stock to its common shareholders as a creative solution to the puzzle of unlocking Apple’s obvious but recently elusive value. Briefly, the advantage of this approach is that it lets income investors uneasy with the technology industry’s risks enjoy a solid income stream backed by impressive assets, while giving growth investors a slightly more leveraged bet on Apple’s continued ability to innovate.
Einhorn says Apple has heard him out and disagrees, and the company has every right to do so. What’s not fine is its attempt to foreclose on the very possibility of issuing preferred stock by bundling this change with introduction of majority voting for directors.
That’s the simple point over which Einhorn has taken Apple to court. And even if the judge doesn’t agree with the hedge fund manager’s claims that doing so violates Securities and Exchange Commission rules, Apple ought not resort to such tricks. They undermine what’s left of the principle of shareholder democracy, wrongly shielding managers and boards of companies from oversight by their employers (shareholders.)
Now, Apple finds itself in court at all only because unlike Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB) it never resorted to a separate share class handing founders effective control without ownership of a majority stake. So, to that extent at least, it’s less of a sinner against a bedrock principle of capitalism.
And there will be those who say none of these companies is doing anything wrong because shareholders are free to vote with their feet, and in the case of Google and Facebook knew about the separate-and-unequal deal going in.
But Apple’s shareholders didn’t sign up for the bundling of a controversial proposal with unrelated and uncontroversial ones. And any precedent set here could be applied by less scrupulous managers of less admired companies to insulate themselves from legitimate demands.
Apple doesn’t need to resort to this. And by virtue of its size and position it has a greater social responsibility, as CEO Tim Cook has acknowledged. This would be a good time to walk the walk and let shareholders foreclose the possibility of ever issuing preferred stock, or not, on the merits of that proposal, and that proposal only.
UPDATE: Apple now says that its proposal would not rule out the issuance of preferred stock, only the issuance of such stock without a vote by shareholders. Great. Let shareholders vote that change up and down as a standalone, and help unclog our overburdened court system.
Thanks for reading. Follow me on Twitter and subscribe on Facebook.
