Armchair Experts
link Its Apple and CalPERS vs. Greenlight in stock proposal showdown – latimes.com.
While not exactly an obvious burning social issue, the battle that is developing between a stockholder, (actually hedge fund manager) and the corporate behemoth Apple is a good example of why businesses have such a hard time in modern America. Unless you’ve been in a coma for the past 10 years, it’s widely accepted that Apple has been the most successful of American corporations of the past decade, possibly ever, parlaying innovative thinking and creating must-have items into unparalleled commercial success. People fortunate enough to have owned the stock from a decade ago at around 10 dollars a share were rewarded with a meteoric price rise to just over 700 last fall.
And yet Steve Einhorn of hedge fund fame, thinks that he is a better judge of how the company should employ their growing cash asset as if he were a tech visionary. While Einhorn uses the red herring of “returning the cash” to Apple’s shareholders, in reality, he is second guessing the very business strategy of a company that has outperformed anything in the U.S. stock market in recent memory. It’s as if he dines in the nation’s best restaurant and then decides to tell the chef how to make a better Bearnaise sauce. Despite the success that Apple has become through the vision of Steve Jobs, the company is obligated to now spend untold money on lawyers to defend themselves from someone who thinks they could do better.
Wielding the green eye-shades of backroom bookies measuring quarter to quarter performance, large institutional investors can successfully coerce public corporations in many ways; from what suppliers they use, to where they operate, whom they hire, or even the actual core business direction. The rise of activist investment funds such as Einhorn’s can successfully bully companies into actions that can end strategies that have long term growth potential for the sake of short term gains. While those with Einhorn’s mentality may be lauded for their short term investment shrewdness, their ilk are responsible for much of what ails American industry. Of course none of this happens without the everpresent threat of legal action. The bully tactic of using lawyers to advance a particular cause has of course become high art here in the West. While the popular discussion these days is about restricting the access of guns to the average folk, the epidemic of lawyering up has continued unabated causing immeasurably more and longer term harm to society.
The business of Wall Street has gone from providing an environment designed to seed and grow corporations to that of being a virtual casino in which the actual businesses themselves are irrelevant; they are merely statistics for comparison on the worksheets of MBA’s and bankers like cards in a poker hand. Some may notice the similarity to the dynamic present in today’s professional sports business, notably football. While the actual sport itself generates it’s own circle of economic influence, the ancillary and derivative businesses of wagering are thought to be as big or bigger than the legitimate monies involved with the actual sport. So much money in fact that there are ongoing suspicions of game rigging to benefit large bettors. This has happened to the investment business. The problem is that the derivative tail winds up wagging the underlying dog. Eventually, it all gets corrupted and the entire enterprise is threatened with collapse. In a casino at least, you are given the illusion that you can win.
It’s laughable to accept that Einhorn has a better feel for what Apple can do with their cash horde, since to my knowledge, he has no experience at all in running a real operating company, much less a leading edge tech giant. Presumably, if he did, he would start a competitor. Luckily for him, the free market provides a mechanism for venting his frustration for not getting his way. He can sell.