Corporate Governance Case on Apple

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Introduction The case company analysed in this report is Apple Inc. I will start by identifying the company profile, which is beneficiary for the remainder of the report. The overall framework of the report will follow an agency approach. I find this approach very feasible in a corporate governance context. Per definition corporate governance is “the control and direction of companies by ownership, boards, incentives, company law, and other mechanisms” (Thomsen, 2008). So, if proper control and direction is not applied in the company it leads to agency problems. I will identify and discuss the different agency issues (type 1,2 or 3) by evaluating and analyzing Apple’s capital structure, board structure, executive compensation scheme, and…show more content…
However, the theory does not hold for Apple since they have no long-term debt and their short-term debt only constitute 10.4 percent (Yahoo! Finance) of total liabilities, which limits the amount of debt interest. More interestingly is their extremely high ROCE. In 2009, Apple had a ROCE of 177.57 percent compared to Microsoft that had a ROCE of 69.84 percent (See exhibit 5). ROCE is a performance measure used to assess whether the firm is generating enough return to cover cost of capital. So, Apple’s managers are currently doing a good job from a shareholders perspective. I have already touched upon the subject of payout policy earlier. It is essential to evaluate Apple’s payout policy, since they do not pay out dividends to shareholders or have not repurchased shares since 2001 (BusinessWeek, 2008). As in Jensen’s FCF theory, shareholders’ alternative to monitoring managers’ investment decisions is receiving dividends, so they get a capital compensation now rather than uncertain future returns. In other words, FCF to managers is reduced and they are forced to utilize the remaining cash flow to maximize shareholder value (Sponholtz, 2005). Another aspect of dividends is that shareholders enjoy lower taxation on dividend as opposed to that of capital gains. By paying out dividend, the firm also sends a signalling effect (Sponholtz, 2005) that they are in a good financial state – this is
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