Examples of Bad Corporate Governance

Apple Corporate Governance

Apple is a business that has done very well for itself over the recent years. There have been some corporate struggles from time to time and they recently lost their transformative leader in the form of Steve Jobs. However, they have mostly weathered the storms quite well. However, there have also been some missteps and many of them center on some form of corporate governance. At the same time, they have done quite well in some matters relating to corporate governance. Some of the good things are bad to some and the others are vice versa or otherwise different. The author of this report will get to the bottom of what is meant by that as the report goes on. While Apple has mostly kept its proverbial nose clean when it comes to corporate governance, there are some things that they should probably pay more attention to.

Analysis

The proverbial elephant in the room right now when it comes to corporate governance is the encryption of Apple's phones as juxtaposed against the recent terrorist shooting in San Bernardino, California. At issue is one of the two terrorists out of that couple had a phone that was manufactured and otherwise created by Apple. As with most phones today, the phone is encrypted. There has been a warrant issued for the contents of the phone and this would require the cooperation of Apple since the only other party who could answer the phone, that being one of the terrorists, is dead. Rather than comply, Apple has asserted that they have not given themselves a backdoor that would allow them to get into the phone and that the creation of such a backdoor would make them "too powerful" and thus able to compromise their ethics. Some people have balked at this given the fact that there is a righteous warrant to access the phone's contents and the person who owned the phone was absolutely a terrorist. However, Apple asserts that breaking the encryption on the phone would be a proverbial slippery slope and that they cannot do so. Many have come to Apple defense and asserted that their stand is a good one while others state that Apple should cooperate given the circumstances and probably cause involved.

The author of this report would say that Apple is generally doing a good thing here but the author would say that the overall results are a mixed bad. First, the author of this report does not believe for a second that Apple does not have a back door for their encryption (Apple). It is interesting that they are using a situation where the assailant is dead because there could absolutely be cooperation between the authorities and Apple and there would be no court case to prove otherwise given that the suspects are dead. Second of all, this is absolutely a situation where cooperation with the government is called for. Whenever there is a righteous warrant issued by a valid court, then Apple or any other company in Apple's position should cooperate. If there is no warrant or other legal means to access the phone's contents, then Apple's stand is entirely warranted and ethical. In general, Apple is making the right stand from a corporate governance standpoint because they are ostensibly trying to protect the privacy of their customers but they need to make exceptions to that stand and a terrorist attack that left many dead would certainly be one of those exceptions.

Another corporate governance situation where Apple has received mixed feedback is its use of factories that are not their own and those factories ending being unsafe to the workers for one or more reasons. Indeed, Apple is not the ultimate party responsible if the factories are unsafe but Apple should also not turn a blind eye to factories that are hurting workers in one way or another. When it comes to facilities that are completely under control of Apple, Apple is surely on the hook for anything and everything that goes on in that factory and that is the way it should be. For factories that are not owned and operated by Apple, there should be the ability to check up on what is going on and how things are being done and this should include "surprise" inspections that are not known about by the factory ahead of time. If it is found that the Apple contractor is not doing right by their workers or what they agreed to do for Apple, then Apple should cut ties with that factory and do business, whether foreign or domestic, with parties that are more ethical and well-acting. Generally speaking, Apple is doing well with corporate governance as it relates to foreign factories but some of the revelations about these factories have been embarrassing due to the worker safety issues that have been revealed. Thus, Apple needs to exercise more care and due diligence when it comes to using factories and suppliers that are not owned by Apple. While some may say that what is not controlled by Apple is not of corporate governance concern to Apple, others say that Apple should absolutely be held accountable even if they are not culpable in a court of law. Indeed, the court of corporate social responsibility and general ethics casts a wider net than what is prosecutable or attributable under the law.

Another corporate governance item that has come up more than once is Apple's tendency to use foreign labor and such when it comes to the manufacturing of their products and offerings. For example, the aforementioned factory that was having safety issues was in China (Bilton). To suggest that Apple is the only company that imports parts and finished goods from foreign countries is laughable because pretty much all of the giants of industry in the United States engage in that practice to some degree or form. However, there is something to be said for doing so as ethically as possible but there is also something to be said for making things in America rather than in China. The dollars and cents of making items in the United States does not make a lot of sense to many companies and that is indeed why the items are made overseas to begin with. However, there are some that say the extra expense, both to the company and/or to the end consumer, is worth the extra cost and that fully "American" products are more attractive to buyers. While Apple has not and surely never will fully bring their operations back to America, they have committed to make at least some of their items here in the United States and that is certainly something that many people will glom onto even if the overall move is a token effort rather than emblematic of a wider and focused strategy. This is a good thing for Apple and their corporate governance in that they are having at least some of their goods made in the United States. At the same time, they are also keeping costs down for the consumer and themselves when they make goods overseas (Rawson). So long as those parts and finished goods are manufactured ethically, this is also solid corporate governance. To expect Apple to have everything made in the United States and not forcing other companies to do the same is not fair or recognizing of market realities. Having everything made here would jack up prices for everyone and this is a net loss for the economy in the long run. Of course, an iPod is not a "need" in the traditional sense but there are other items that are at least partially prepared for market using overseas labor and that are necessary for daily life such as fuel, food and so forth. Keeping costs down on those items helps those in poverty and thus taking the ostensibly principled stand would actually end up hurting the poor over the long haul.

A sustaining of the good things mentioned above is entirely possible. Apple just needs to be careful about their public perceptions. Making things overseas keeps costs down for everything and everyone involved but Apple needs to make sure that they are not taking advantage of workers, either their own or those of contracting companies. Apple should make items in the United States when the cost curve justifies it because it is a good thing they can point to. However, Apple would be wise to ensure that the impact to the net price of an item is not affected too much as this can hurt their ability to compete. Lastly, Apple's hard stance against breaking encryption, presuming it is not bluster, needs to be moderated when there is a warrant or other legal allowance for access to a device. Apple should absolutely not give access to any vague or illegitimate request from law enforcement. Snooping expeditions and making consumer data available on a wide basis cannot be justified. However, doing things in a "zero tolerance" way is not the way to go because there are indeed situations where the contents of a phone are fair game. For example, if there is probable cause to suggest that a nuclear bomb will be detonated somewhere in the United States and there is a warrant to check a phone about the existence or location of that bomb, Apple should absolutely comply with a lawful order to break the encryption. If they legitimately have no way to break the encryption, they need to create one. While the knowledge and information about how to do so should indeed be kept to a very, very select few, it needs to exist. Protections of privacy should go out the window when innocent lives have been or absolutely could be lost (Zetter).

Recommendations

Apple approach of only making some goods in the United States as a good will gesture is the way to go. Perhaps sometime in the future, there will come a point where manufacturing items domestically will be the easiest and best thing. However, wage and hour laws from country to country dictate that it is still much cheaper, at least in most instances, to make items in bulk in Asia or Central/South America and then import them into the United States. Second, Apple must make a back door to their encryption and they should comply with lawful orders to break the encryption. If Apple will not comply, then they should be made to comply in the form of a court order and/or national security agencies like the NSA "breaking" the phone's encryption as needed. Apple is trying to take a principled stand and it is mostly the right one. However, they can and should make exceptions and thus they must be forced to comply if they will not see the lack of wisdom in their "no exceptions" policy. Indeed, even Bill Gates of Microsoft fame has disagreed with Apple's stance on this matter (Riley). The privacy of a dead terrorist who killed people for perverse and unjustifiable reasons, for example, is not worth a single innocent human life.

Next, Apple needs to make sure that the factories/contractors they use are following the rules. Further, Apple should make sure that those rules make sense for an American business. For example, even if it is legal and acceptable for an Apple contractor employee to make ten cents a day, this is not something that Apple should stand for. Further, the safety of the workers is paramount even if the workers are not Apple employees. As such, the proper safety suits, gloves and other items for worker safety should be in place. Indeed, there should be as much mirroring of OSHA standards with Apple workers overseas (OSHA, gov) . If the plant itself is unsafe or the conditions are unsafe, Apple needs to find a different supplier. For example, there was a factory in Bangladesh that was used by many clothiers in Europe and the United States but it was not owned or operated by any of those clothiers (Najar). Even with that being the case, the entire factory's structure was compromised and it collapsed. This led to the deaths of many and a withering condemnation of the clothiers that were using the factor due to the fact that they were surely making a tidy penny while the workers were in an unsafe location and were probably being paid peanuts up to the point where they died because the owners of the factory were so grossly inept and/or unethical about the safety of the building, let alone the other work conditions at the site.