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Corporate Governance a Case Study on Apple Inc

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Introduction

The Personal computer maker and the operating system markets are the chief gross beginnings of Apple Inc.

The gross net income border of Apple has been increasing over the old ages; in 2009 ( Q4 ) rose by about 2 %. The main competitive advantages of Apple are its leading in the invention, the trade name equity, and a clear mark market. Apple contributes a portion of its gross for the R&D of its merchandise. Apple ‘s R&D outgo in 2008 increased by 42 % from those in 2007, while HP dropped its outgo in R&D in 2008 in order to command cost ( Scribd, 2009 ).

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Apple users are considered to be more tech understanding than Personal computer users due to Apple ‘s sleek and sophisticated design of its merchandise. Apple is pressured by the low pricing scheme from its rivals. For illustration, Dell, with its legendary direct sale theoretical account, eliminates sweeping and retail traders that add unneeded cost. Besides sing the low monetary value offerings from many new entrants, Apple decided to present its first low terminal computing machine called ‘Mac Mini ‘ in 2005 ( BBC, 2005 ).

iTunes

Apple entered the digital music market in 2001 by establishing its first MP3 participant ( iPod ) together with its online shop ( iTunes ) that enables users to lawfully download music from the web. Apple ‘s portion of the worldwide MP3 participant market is about 70 %, which has remained stable throughout the old ages ( Wired, 2008 ). However, the annual growth of participants sold has declined from 131 % in 2005 to -8 % in 2009 ( 4Q ). This tendency indicates that the market comes in the impregnation phase, which obliges Apple to invariably put in the invention to suggest new merchandise.

The menace of replacement merchandise is really high and the demand for standalone participants is diminishing. These elements cut down the attraction of the sector. The on-line music shops sector is extremely attractive because of its healthy growth rates and the weak menaces of replacements. Music companies ‘ digital gross increased by 25 % in 2008 to the US $ 3.

7 billion. Furthermore, 20 % of recorded music gross revenues are made online, which consequences in a 15 % growth rate in 2007. The iTunes platform is the biggest online shop and at the beginning of 2009 reached six million millions of sold downloads, and it besides became the largest music retail merchant in the US ( IFPI, 2009 ). This monolithic growth of iTunes and of the whole digital music concern forced the recorded music industry to reinvent itself, and new rivals entered the market.

For case, in 2007 Amazon.com launched its download service. However, merely 10 % of the clients that downloaded paths on Amazon.com have antecedently bought music through iTunes ( IFPI, 2009 ).

This proves that the strong trade name of the company and the fast clip to market of iTunes are big barriers to entry.

Management

Apple has a unitary board, consisting of one executive and another non-executive manager. The company has policies and guidelines for the choice of its Board members, which includes each of them to be extremely qualified with strong leading accomplishments and important sum of work experience. Apple has regulations on the figure of public boards its board members can be a portion of.

Harmonizing to that the CEO, is merely allowed to be a portion of two public boards in add-on to Apple.Inc and the Chairman of the Audit and Finance Committee is merely allowed to function four other boards. However these regulations are non-being followed by them as they are involved with many other companies ( Business Week, 2009 ). This raises concerns as two of the most of import Apple board members may non be able to give adequate attending to Apple ‘s important affairs.

The independence of a Board of Directors is a nucleus rule of good administration, but Apple ‘s Board has shown some failings. The presence of two Google ‘s managers ( Mr. Schmid and Mr. Levinson ) on Apple ‘s Board in the recent yesteryear has brought up issues in footings of involvement of struggles.

In May 2009 the Federal Trade Commission started to look into for go against the Clayton Antitrust Act, which forbids any individual of being a manager of two or more viewing companies ( Helft, 2009 ). But late Mr. Schmid resigned from Apple ‘s board and besides Levinson left that of Google ( Reuters, 2009 ). These are steps that improve Apple ‘s corporate administration model.

It is an independent commission under the NASDAQ audit commission construction and rank demands. Sing the educational background and the work experience, all members are good qualified for the responsibilities and duties required ( Business Week, 2009 ) . Jerome B. York has antecedently been the president of the Audit Committee of Tyco International and Dana Holding Corporation ( Business Week, 2009 ).

The Committee undertakes to reexamine of fiscal information provided to the stockholders, naming of the independent hearer, reexamining public presentation of independent hearers and internal audit section, rating of Company ‘s accounting policies, and its system of internal controls, and reexamining important fiscal minutes. After the financial meltdown of Enron, the Company adopted an auditor independency policy that banned its hearers from executing any non-fiscal consulting services. This policy mandates the audit, non-audit services, and related budget to be approved by the Audit Committee in progress. Besides hearer battles for non-audit services can non come in without the blessing of the Audit Committee (Redman, 2002).

KPMG acted as the external hearer for Apple from 2002 to February 2009. Recently at the Securities and Exchange Commission, Apple appointed Ernst; A; Young to be its new external hearer. Apple announced that it had no differences with KPMG, but it was due to the new policy adopted by the board of reexamining its hearer every five old ages ( Singh, 2009 ). Therefore, Apple has a really powerful Audit; A; Finance Committee which tends towards good corporate administration.

The co-lead managers are Andrea Jung and Arthur D. Levinson, Ph.D. ( Business Week, 2009 ). Members of the Committee are appointed by the board.

Each member is “independent ” in conformity with applicable jurisprudence, including the regulations and ordinances of the Securities and Exchange Commission and the regulations of the NASDAQ Stock Market. The commission makes certain that each and every board member is good qualified and experienced to be on the board and run the corporation. It involves the choice of the new board members and besides gives the new members preparation and thoughts about the board. It besides involves in sequence planning.

The Compensation Committee of Apple Inc structures the wage schemes for the executive managers. It consists of merely independent managers and arranges meetings to modify the compensation programs of the executive officers based on their public presentations. The rating of the CEO ‘s public presentation is done in his absence. Remuneration strategies have been developed by companies to guarantee that managers are being paid sufficiency for the high degree of expertness given to concerns.

In January 2000, Steve Jobs had been awarded an airplane deserving $ 43.5 million in acknowledgment of his public presentation since he had taken over as CEO of Apple Inc ( Kanellos, 2001 ). Director compensation by Apple Inc has been increasing every twelvemonth; the entire compensation for 2008 was $ 711,434 ( Forbes.com LLC, 2009 ).

Apple Inc has awarded “portion options ” to the executive managers based on their public presentation to aline their long term involvement with the company and the stockholders. Awarding portion options has been a common norm in the corporate industry. Due to assorted corporate dirt, in many instances, portion options did non by and large favor the length of service of the company. It showed that the troughs focused on short term ends and gave more properness to portion monetary values than hard currency flow statements, due to the fact that they could sell their portions in the close hereafter.

The backdating of portion options dirt at Apple Inc had become a high profile intelligence from 2002-2008. In the dirt, the CEO, Steve Jobs, along with other employees of the company were accused of wittingly backdating the portion option to take the day of the months. The instance was cleared in September 2008 when the company had to pay a mulct of $ 14million ( Oliver, 2008 ). After the recent one-year stockholder meeting Apple Inc has accepted the “say on wage ” system.

In this system, the stockholders get to show a sentiment on the wage of the executive managers in the one-year stockholder meetings ( Skillings, 2009 ). This would assist to put just executive wages from a stockholder ‘s point of position and would hence aid equilibrating power between the company ‘s directors and stockholders. Apple Inc has been established as a private limited company and is hence owned by its stockholders. The stockholder ( s ) with the major shareholding semen to power and take of import determinations within the company.

Stockholders take an active portion in nominating and electing the board of managers. The company organizes one-year stockholder meetings in which all the company ‘s executive directors take a portion to turn to the stockholders on the current state of affairs of the company and reference any questions of the stockholders. It helps to make transparence and heighten the bond between the corporate directors and the stockholders. About 72 % of the portions of the company are owned by Institutional and common fund ownership ( Yahoo! Inc, 2009 ).

As major financial support of the company comes from strong institutes and common fund organization, it gives a solid rigidness and creditability of the Apple Inc finances. A batch of portions of the administration is besides owned by assorted executive directors and board of managers. Such managerial and stockholder functions shared by the directors and managers ensure a high focal point to accomplish the long term ends of the company, which finally helps the stockholders to profit from the company ‘s success. In one-year meetings, the stockholders actively take portion.

One of the major parts of the meeting is the re-electing of the board of managers nominated by the nominating committee and the stockholders. Major issues discussed in Apple ‘s recent one-year meeting were: Stockholders get a “state on wage ” on the wage of the executive managers. Approved after stockholders on a regular basis appealed to the board members of the company to give more penetration on the compensation strategies for the managers ( Skillings, 2009 ). Succession programs of the company in respect to Steve Jobs ( McLean, 2009 ).

Stockholders ‘ feeling of being kept in the dark by nonbeing given complete information on Steve Jobs’s medical status ( McLean, 2009 ).The stockholders have raised many issues over the old ages. Apart from a few jobs the company, under the supervising of Steve Jobs, has been executing supremely at the stock market. The assurance of the stockholders in Steve Jobs can be seen by him being re-elected every twelvemonth by the stockholders.

Apple ‘s relationship with its stakeholders is one of unbelievable importance as it should be with any well-run corporation. Directors in Apple – or any corporation for that affair – tend to be able to guarantee that their involvements are catered for since they are the 1s with the ability to straight act upon corporate policy and company way. The major cheque on this power is the Board of Directors led by Bill Campbell which has already been detailed. Equally far as the company ‘s relationship with its employees goes a Vault study found that Apple employees were preponderantly happy with the company aside from some scruples about low compensation and publicity troubles ( AppleInsider, 2009 ).

The investors in Apple are a subdivision of stakeholders that have received a batch of imperativeness coverage in the past twelvemonth with respect to their proposal about holding a say, or more specifically ballot, on executive wage ( Siliconbeat, 2009 ). Controversially, this proposal was ab initio changeable down after it had passed the twelvemonth before with a smaller per centum of ballots in favor of it. Finally, Apple clients are reasonably good known for their brand-fanaticism and it is of no surprise that Apple is tied for the first topographic point in the client evaluation polls. Apple ‘s relationship with local communities, civil society, and the natural environment, etc.

will be examined under the umbrella of its Corporate Social Responsibility policy. In the context of globalization, Apple excessively has moved towards the popular pattern of outsourcing some of its labor-intensive operations abroad, in this instance China. Harmonizing to Frost; A; Burnett ( 2007 ), attending to the electronics sector-foremost shifted in 2006 when it was revealed that Apple ‘s Chinese maker Foxconn was non conforming to its Supplier Code of Conduct. By and large talking, Apple can be criticized for holding a so-called “reactive attack ” to CSR.

Apple has come under examination by Greenpeace and environmental group As You Sow for the usage of toxic chemicals and deficiency of recycling installations for old computing machines several. Now, nevertheless, Burrows & A; Hesseldahl ( 2009 ) claim that Apple is establishing its most aggressive run yet, to counter its green critics. Indeed, Apple is putting a new criterion by including merchandise usage and fabrication into the computation of its C emanations. This is contrary to direct rivals Dell and HP who, harmonizing to Burrows & A; Hesseldahl ( 2009 ), say including such factors would increase their C emanations several-fold.

However as Burrows & A; Hesseldahl (2009) note, Apple CEO Steve Jobs ‘ attack is different from what NGOs might anticipate of him, he feels the consequences are more of import than the promises made in the end scene. One large issue of the company in the footings of administration is the influence and the power of Steve Jobs on the stakeholders. He is considered to be the chief ground for the success achieved by Apple in the last decennary, but he besides created a one-person company that is wholly formed around his personality and inspiration. Many stockholders are steadfastly convinced that the success of Apple is due to the presence of Steve Jobs at the caput of the company.

The diminution of 10 % of the portion monetary value after the proclamation of his wellness jobs proves this. His personification of the company can go a strong bound in footings of future developments and sustainability. It is extremely recommended that the company suggest a concrete sequence program for the company ‘s length of service. Within the board, the company ‘s determinations seem to be overpowered by positions of the CEO Steve Jobs.

Since the start of Steve Job ‘s reign, the direct construction of the company has changed to a more CEO centered construction because most of the managers on the board were CEOs in their primary company. Due to this format, more power has been centered on the custodies of Steve Jobs. It would be recommended that this power concentration be broken by adding more managers to the boards who are non a Chief executive officer in their primary business. Presently, the chance is available for Apple to get down this transmutation after the surrender of Eric Schmidt.

Accepting the “say on wage ” format with respect to the compensation of the board of managers would assist to make transparence and stockholder satisfaction since they would non experience that the managers are being overpaid. But its benefits have still to be experienced and its importance has to be better understood. However, the common consensus is that this would assist beef up the corporate administration of the company in the long tally. It is besides of import for Apple ‘s executives non to rest on their awards in footings of covering with stakeholders.

Final Thoughts

While the company surely enjoys a big sum of popularity among its overzealous customer-base they must non disregard the other stakeholders in the company, particularly with respects to its employees since these are the same employees that keep Apple on the cutting border of engineering and straight enable it to bask its popularity with clients. Last, we believe that Apple must develop an explicit, marketable CSR policy which they presently do non hold. In making this, Apple will promote transparency and further a multiple bottom-line company doctrine since, as a group, we believe the individual bottom-line attack to be unsustainable. This is best embodied by the recent historical bubble prostrations due to the relentless, resolved chase of a bottom-line, pure pecuniary net income.

Cite this Corporate Governance a Case Study on Apple Inc

Corporate Governance a Case Study on Apple Inc. (2016, Nov 26). Retrieved from https://graduateway.com/corporate-governance-a-case-study-on-apple-inc/

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