Question

What will managers do with so much cash? Why does Apple borrow money? What are management’s responsibilities to shareholders, stakeholders and its international business communities and constituencies (charities, volunteer organizations, standard of living, etc.)? Should shareholders demand more dividends? Assuming Apple was a Christian company what Biblical passages would you apply?

2,500 words

Answer 1

1. Cash is something companies love to have but, if you can believe it, there is such a thing as having too much. Many things contribute to the reasons behind a company's cash position. At first glance, it makes sense for investors to seek out companies with plenty of cash on the balance sheet. Provided things are going well, debt financing helps a company gear up to boost returns, but investors know the dangers of debt. When things don't go as planned, debt can spell trouble. There are both good and bad reasons for a company to have coffers that are overflowing.

2. Apple took advantage of a corporate tax break to repatriate some of the cash trapped overseas, and has been steadily spending money on stock buybacks. These reduce the number of AAPL shares in circulation, and therefore boost the worth of each remaining share. They also reduce the number of shares on which the company has to pay a dividend.Apple is borrowing money rather than using its cash reserves, says the paper, because it can earn more than it’s paying in interest.

3. The structure of publicly listed corporations and the marketplace is strategically designed to benefit all parties and society in general. Board directors, managers, shareholders and stakeholders all play a specific role in the marketplace. Boards of directors have specific responsibilities to their shareholders.

The primary responsibilities of board directors to shareholders relate to their fiduciary duties, including the duty of care, duty of loyalty and duty of obedience. These duties require board directors to place the best interests of the company ahead of their own. They must make decisions for the company and act in a manner that an ordinary, prudent person would. The duty of obedience requires boards to ensure that the company remains in compliance with all laws and regulations.

Another responsibility that board directors have to shareholders is to compose and maintain a diverse, independent and highly competent board. Sound decision-making only comes from a wide variety of perspectives. Shareholders are entitled to know that the board overseeing the company’s operations is well-qualified and up to the task.

Boards are required to take minutes of their meetings to detail the issues that they’re working on. Shareholders may request copies of board meeting minutes if they’re looking for assurance that the board is actively fulfilling their duties of oversight and strategic planning. This doesn’t mean that shareholders have any say in directing the issues the board chooses to tackle or the way they prioritize issues.

Shareholders look for assurance that companies are financially strong currently and will continue to grow and prosper. The board of directors has an explicit responsibility to form a short-term plan of one to two years to ensure sustainability. In addition, shareholders are interested in long-term growth for continued security and prosperity.

Board directors also have a responsibility to oversee all departments and aspects of the corporation. The responsibility includes making sure operations are running efficiently, company operations are in alignment with the organization’s purpose, there are no incidences of fraud, they communicate the corporate culture throughout the organization, and they conduct oversight over all departments and operations of the company.

The annual audit gives the shareholders a clear picture of the company’s financial status and outlook. Boards of directors are accountable to shareholders to conduct an annual audit by independent directors that is accurate, complete and timely. In today’s climate, shareholders also expect financial records that are concise, readable and easily understandable.

The board of directors is responsible for hiring, monitoring and firing the CEO and other senior management executives. Shareholders expect C-suite-level managers to be competent, knowledgeable and capable of carrying out the board’s strategic plans. Boards owe it to their shareholders to provide the necessary oversight of senior management.

The company’s reputation is an important concern for shareholders. They rely on the board of directors to protect the company from fraudulent practices, bad press and other issues that can harm a company’s reputation. Boards must work to identify reputational risks that could result in lost revenue, increased operating expense, capital or regulatory costs, and destruction of shareholder value.

In addition to shareholders having more say in board decisions, another place where roles become slightly blurred is that major shareholders are often also part of upper management. Shared roles can become problematic in the boardroom when boards and shareholders don’t share the same perspectives on short-term strategies, long-term strategies or both.

A board portal system by Diligent Corporation is the best way for boards to manage their many responsibilities to their shareholders. Governance Cloud is a suite of governance software tools that assist boards in governance activities and responsibilities with tools like board self-assessments, entity management tools, secure messaging, agenda and minutes software, D&O questionnaires and more. As governance best practices, laws and regulations continue to evolve, Diligent software designers are staying ahead of the curve with new features and products to fully support good governance at every stage.

4. Dividends constitute a major source of income for many investors and can significantly boost the demand for a stock. Unfortunately, dividend payments are not always reliable, and sudden changes in a corporation's policy can catch investors by surprise. Shareholders can exert only indirect control on a company and its dividend policy. While shareholders cannot exert direct or immediate pressure on the company to elicit a dividend payment, they have a tremendously powerful tool at their disposal: their votes in the annual shareholder meeting. The board members are elected every year in a large gathering of shareholders, where every stockholder votes in direct proportion to the number of shares she holds. If the shareholders are unhappy with the dividend policy of the existing board, they can vote the board members out of office and elect new members instead. Just as in elections for public office, candidates for board seats make specific promises before the annual meeting. Dividend policy is often a major topic of discussion among candidates and shareholders during the weeks and months preceding the annual gathering.