By David Benoit
The iPhone has made Apple Inc. and Wall Street hundreds of
billions of dollars. Now some big shareholders are asking at what
cost.
A leading activist and a pension fund will launch an unusual
campaign against the smartphone maker, saying it needs to respond
to what some see as a growing public-health crisis of youth phone
addiction.
Jana Partners LLC and the California State Teachers' Retirement
System, or Calstrs, which control about $2 billion of Apple shares,
sent a letter to the smartphone maker Saturday urging it to develop
new software tools that would help parents control and limit phone
use more easily and to study the impact of overuse on mental
health.
The campaign would be unusual for an activist like Jana, which
normally urges companies to make financial changes. But the
investors believe that Apple's highflying stock could be hurt in
coming decades if it faces a backlash and that proactive moves
could generate goodwill and keep consumers loyal to Apple
brands.
"Apple can play a defining role in signaling to the industry
that paying special attention to the health and development of the
next generation is both good business and the right thing to do,"
the shareholders wrote in the letter, a copy of which was reviewed
by The Wall Street Journal. "There is a developing consensus around
the world including Silicon Valley that the potential long-term
consequences of new technologies need to be factored in at the
outset, and no company can outsource that responsibility."
Obsessive teenage phone usage has sparked a debate among
academics, parents and even the people who helped create the
iPhone. Some have raised concerns about increased rates in teen
depression and suicide and worry that phones are replacing
old-fashioned human interaction. It is part of a broader
re-evaluation of the effects on society of technology and social
media.
Apple hasn't offered any public guidance to parents on how to
manage children's smartphone use or taken a position on when they
should begin using iPhones. Apple and its rivals point to features
that give parents some measure of control. Apple, for instance,
gives parents the ability to choose which apps, content and
services their children can access.
The Apple push is a preamble to a new several-billion-dollar
fund Jana is seeking to raise this year to target companies it
believes can be better corporate citizens. It is the first instance
of a big Wall Street activist seeking to profit from the kind of
social-responsibility campaign typically associated with a small
fringe of investors.
Adding splash, rock star Sting and his wife, Trudie Styler, will
be on an advisory board along with Sister Patricia A. Daly, a nun
who successfully fought Exxon Mobil Corp. over environmental
disclosures, and Robert Eccles, an expert on sustainable
investing.
The basic idea behind socially responsible investing is that
good corporate citizenship can also be good business. Big investors
and banks, including TPG, UBS Group AG and Goldman Sachs Group Inc.
are making bets on socially responsible companies, boosting what
they see as good actors and avoiding bad ones.
Big-name activists increasingly view bad environmental, social
or governance policies as red flags. Jana plans to go further,
putting its typical tools to work to drive change that may not
immediately pay off.
Apple is an ambitious first target: The combined Jana-Calstrs
stake is relatively small given Apple's nearly $900 billion market
value. Still, in recent years Apple has twice faced activists
demanding it pare its cash holdings, and both times the company
ceded some ground.
Chief Executive Tim Cook has led Apple's efforts to be a more
socially responsible company, for instance on environmental and
immigration issues, and said in an interview with the New York
Times last year that Apple has a "moral responsibility" to help the
U.S. economy.
Apple has shown willingness to use software to address
potentially negative consequences of phone usage. Amid rising
concerns about distracted driving, the company last year updated
its software with a "do not disturb while driving" feature, which
enables the iPhone to detect when someone is behind the wheel and
automatically silence notifications.
The iPhone is the backbone of a business that generated $48.35
billion in profit in fiscal 2017. It helped turn Apple into the
world's largest publicly listed company by market value, and
anticipation of strong sales of its latest model, the iPhone X,
helped its stock rise 50% in the past year. Apple phones made up
43% of U.S. smartphones in use in 2016, according to comScore, and
an estimated 86 million Americans over age 13 own an iPhone.
Jana and Calstrs are working with Jean M. Twenge of San Diego
State University, who chronicled the problem of what she has dubbed
the "iGen" in a book that was previewed in a widely discussed
article in the Atlantic last fall, and with Michael Rich of Harvard
Medical School and Boston Children's Hospital, who is known as "the
mediatrician" for his work on the impact of media on children.
The investors believe both the content and the amount of time
spent on phones need to be tailored to youths, and they are raising
concern about the public-health effects of failing to act. They
point to research from Ms. Twenge and others about a "growing body
of evidence" of "unintentional negative side effects," including
studies showing concerns from teachers. That is one reason Calstrs
was eager to support the campaign, according to the letter.
The group wants Apple to help find solutions to questions like
what is optimal usage and to be at the forefront of the industry's
response -- before regulators or consumers potentially force it to
act.
The investors say Apple should make it easier and more intuitive
for parents to set up usage limits, which could head off any future
moves to proscribe smartphones.
The question is "How can we apply the same kind of public-health
science to this that we do to, say, nutrition?" Dr. Rich said in an
interview. "We aren't going to tell you never go to Mickey D's, but
we are going to tell you what a Big Mac will do and what broccoli
will do."
--Tripp Mickle and Betsy Morris contributed to this article.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
January 07, 2018 16:15 ET (21:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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