Paul Hodgson: Investors getting schizophrenia over Apple? Not really

The CalSTRS/JANA approach to iPhone giant

When JANA Partners and CalSTRS joined forces to write a letter to Apple about developing an app to allow parents to control how much time children spend on their smartphones it raised eyebrows in the pension fund industry, the activist investor community, corporate law firms, the business media and, since Sting is on JANA’s board of advisers, it probably came up at the Mercury Prize too.
The two together own some $2 billion worth of Apple stock, with the bulk of that at CalSTRS, which owns just shy of $1.9bn; the iPhone giant is CalSTRS’ largest domestic equities holding.
But the collaboration should not have been such a surprise, since CalSTRS’ statement indicates that “the two organizations have a long-term relationship collaborating on engagements focused on increasing shareholder value.” But apparently, JANA worked with CalSTRS in voting against Qualcomm’s Say on Pay vote in 2015, though the partnership is not mentioned in the pension fund’s corporate governance report and the fund is not listed as one of its partners. At the same time, JANA was pressurising Qualcomm to split up its chip business from its highly profitable licensing business; a split that is on again/off again.
And apparently CalSTRS was with them again on the proxy access issue at Whole Foods. On the other hand, Whole Foods’ CEO John Mackey referred to activist investors like JANA as “greedy bastards” when they acquired the second largest stake in the company and were instrumental in forcing its sale to Amazon.
It subsequently sold its entire stake, making a handsome profit. On its website, JANA says: “In certain cases, JANA can be the instrument for value creation by becoming an actively engaged shareholder.” I guess so.
But also on its website, JANA describes itself as a “value-oriented, event-driven manager that invests, long and short, in companies undergoing or expected to undergo change.”

Note that it says “value-oriented” not “values-oriented”, two very different missions.
On the other hand, and this is where Sting comes in again. The letter to Apple does note that JANA has a new impact investment fund, with a board of advisers made up of Sister Pat Daly, Director Emeritus of the Tri-State Coalition for Responsible Investment, Robert Eccles, Founding Chairman of the Sustainability Accounting Standards Board (SASB), Sting, rock star, and Trudie Styler, actress and film director. Sting and Styler founded the Rainforest Fund together, apparently, in 1989.
But back to Apple. The letter to the company asks it to form a committee of experts to research the issue of overuse of electronics by children and to “offer parents more tools by enhancing mobile device software to enable age-appropriate setup options including limiting screen time, setting up parental monitoring, etc.”. It cites research that blames phones for educational, emotional and social challenges, risk factors for suicide, higher risk of depression, lack of sleep, lack of empathy, and phone addiction.Apple’s current controls, it says, are all or nothing; meaning that parents can let their children have a phone or not.

Even more specifically, the letter asks that “stakeholders and experts have a seat at the table as Apple develops these new tools and options moving forward.” Stopping short of asking for Sting to be on the committee, there is a clear call for CalSTRS’ two experts, Michael Rich, a Harvard professor and founder and director of the Center on Media and Child Health and Jean Twenge, professor of psychology at the University of San Diego. It also calls on the company to educate parents about their options and report back on its findings.
In a major plea for long-term investment, the letter concludes by saying: “In the case of Apple, we believe the long-term health of its youngest customers and the health of society, our economy, and the Company itself, are inextricably linked, and thus the only difference between the changes we are advocating at Apple now and the type of change shareholders are better known for advocating is the time period over which they will enhance and protect value.”
If the company did adopt such controls, it might mean that fewer children would ask for an iPhone if they could get an android that did not have any parental controls on it so Apple could take a short-term hit to its sales. But where Apple goes, so others follow, and such a differential would be unlikely to last long. And the goodwill it might generate among the people actually doing the buying would also likely offset any sales drop, so the long-term, short-term problem seems to me unlikely to arise.
The partnership, though as we have said it is not new, appears to have angered some in the corporate law community. Law firm Cleary Gottlieb, in a post right after the letter was sent, and subsequently republished on the Harvard Law School Forum, says: “The activists are on to the social good angle and are aggressively building bridges with the institutional shareholder community on this front.” And accuses them of being likely to leverage “social good” matters into support for their campaigns.
Then, in a plea for dual class stock and classified boards – so that boards and management can be given the control to play the “long game” – it accuses the entire investment community of schizophrenia with activists posing as social good investors, actively managed funds pretending to be activists and pension funds agitating for so-called corporate governance improvements.
In contrast, JANA seems to behave exactly like a traditional activist even while partnering with CalSTRS, except perhaps on this one issue with Apple, CalSTRS is the one shifting to social good campaigns rather than traditional good governance campaigns and no other type of investor is cited as an example of this schizophrenia.