How shareholders could take a bite out of Apple
Activist investors of very different stripes are causing trouble for Apple and Prudential. The former faces a motion sponsored by SumOfUs, a campaigning group, which aims to hold big companies accountable for what they do.
It calls on Apple to make new human rights commitments. These would include spelling out how it will respond to demands for censorship from governments and other actors. The tech giant has been mired in controversy due to its willingness to remove apps from its store at the request of the Chinese government.
This, combined with the country’s poor human rights record, is what has motivated the SumOfUs action.
Pru faces a rather different issue, and it doesn’t look at all related but bear with me. The company last year spun off its UK and fund management businesses as M&G but remains the biggest insurer listed on the London Stock Exchange, with substantial operations in Asia and the US run from a London HQ.
Third Point, a US hedge fund, wants the London HQ closed and the businesses split, arguing that investors would find a pot of gold at the end of the rainbow if the company would just follow its map. It has secured a 5 per cent stake and is now the second-biggest investor.
Here’s where it gets interesting: it’s perfectly possible that SumOfUs will fail while Third Point succeeds, and for the same reason – big investors behaving as absentee landlords.
SumOfUs has won an important victory at the outset, securing the backing of two influential voting advisers: ISS and Glass Lewis. Big investors hire them to help with voting decisions at events like today’s Apple AGM. Their names are more usually seen in connection with disputes over the pay and perks granted to CEOs and issues of corporate governance than they are issues of human rights. They are not known as fire-breathing radicals, and so their support of the motion is highly significant.
But substantial shareholders receiving a recommendation to vote in favour of a progressive measure and their choosing to follow it are two very different things. It still remains rare for shareholders to force boards to follow courses they don’t want to through this method.
With Third Point, the calculus is different. While a big shareholder, it’s very much in the minority. But such investors have been able to impose their views on companies in the past. They succeed by harrying boards, preferably with the help of a like-minded ally or two, while the majority of investors are typically content to sit back and watch.
Third Point may be right that a break up would serve Pru’s investors. It’s important to stress that activists of this type aren’t necessarily a bad thing. Examples of them breathing new life into underperforming companies aren’t hard to find. But it also shouldn’t be forgotten that its motivations are short-term profit rather than long-term investment returns and the overall health of the Pru. The business model of funds like this is, move in, launch campaign, make money, move on.
If there are differing views among Pru’s investor base, pension funds and the like that see value in the company’s strategy and want it in their portfolios for that reason, now would be the time to put them forward because Third Point isn’t going anywhere.
While these two stories are very different, both illustrate why the era of the absentee landlord needs to end. The silver lining for SumOfUs, if it fails to carry the day today, is that boards like Apple’s are capable of responding to public and political as well as shareholder pressure. The pressure group could lose the battle while winning the war. Like Third Point, it isn’t going anywhere and nor should it.