Bloomberg News

Apple CEO Cook Talks to Congress as Steve Jobs Never Did

May 21, 2013

Apple Inc. CEO Tim Cook

Apple Inc. Chief Executive Officer Tim Cook faces a Senate Permanent Subcommittee on Investigations that said yesterday Apple had used a web of offshore entities to avoid paying billions of dollars in taxes. Photographer: David Paul Morris/Bloomberg

Apple Inc. (AAPL:US) Chief Executive Officer Tim Cook went somewhere his predecessor never ventured: the witness table at a congressional hearing on Capitol Hill.

Cook was questioned today by U.S. senators during a hearing on the company’s untaxed overseas billions. His congressional debut, following an appearance at President Barack Obama’s State of the Union address in February, shows the iPhone maker can no longer afford to keep the low profile in Washington that co-founder Steve Jobs maintained.

“In this day and age, if you’re not here, you’re nothing but road kill,” Jim Manley, a 21-year veteran of Congress who served as spokesman to Senate Majority Leader Harry Reid, said in an interview.

Jobs, who the company said never testified on Capitol Hill, kept Apple’s annual lobbying spending below $2 million most years and its influence more behind the scenes.

“While we have never had a large presence in this town, we are deeply committed to our country’s welfare,” Cook said at today’s hearing.

Under Cook, Apple recently hired as a lobbyist Jack Krumholtz, who founded Microsoft Corp. (MSFT:US)’s Washington office in 1995. Apple’s lobbying bill rose in the first quarter of 2013 to $720,000 from $500,000 in the same period of 2012, according to filings. That’s still less than the $2.5 million Facebook Inc. (FB:US) spent in the quarter or Google Inc. (GOOG:US)’s $3.4 million.

Apple, once a near-bankrupt personal-computer maker, is responding to fresh regulatory and legislative challenges as a leader in the smartphone and tablet markets. It’s stepping up its presence in the capital to avoid misfortunes such as the antitrust probes that afflicted Microsoft and Mountain View, California-based Google as they grew.

Taxes, Antitrust

Cook appeared today before a Senate Permanent Subcommittee on Investigations that said yesterday Apple used a web of offshore entities to avoid paying billions of dollars in taxes. The panel’s leader, Senator Carl Levin, a Michigan Democrat, said the Cupertino, California-based company had used a “gimmick” to evade payment. Apple shares dropped $3.27 or 0.7 percent, to $439.66 at 4 p.m. New York time.

Apple has $102 billion in offshore accounts and shifted billions of dollars in profits out of the U.S. into affiliates based in Ireland, where it negotiated a tax rate of less than 2 percent, according to the panel’s report.

Next month, Apple squares off in court with the Justice Department, which has accused the company of conspiring to increase electronic-book prices as it prepared to introduce the iPad tablet computer in 2010. Apple has denied the charges.

Working Conditions

Separately, Apple is in litigation battles with handset maker Samsung Electronics Co. over U.S. patents. Apple also faces questions from lawmakers on its handling of personal data collected by its iPhones and other devices.

Apple and manufacturing partner Foxconn Technology Group have been criticized by labor- and worker-rights groups for conditions at facilities where Apple products are made. Cook, in an interview with Bloomberg Businessweek, said Apple plans to add some manufacturing of its Mac computers in the U.S.

The developments show that as Apple’s market power grows it won’t be able to avoid government attention -- a lesson other technology companies already learned, according to Manley.

“They used to avoid the Hill like the plague,” said Manley, a senior director at Quinn Gillespie & Associates, a Washington communications and lobbying firm.

Compared with other tech heavyweights, Apple has some catching up to do in Washington.

‘In Sync’

Since 2008, Apple has spent $9.05 million on lobbying, according to the Center for Responsive Politics, a Washington-based group that tracks political spending. That compares with $38 million for Redmond, Washington-based software company Microsoft and $38.2 million for Google. Regulators in January ended a 20-month investigation into whether Google unfairly undercut competitors.

“The technology companies, in order to be successful, have to get in sync with Washington. And I think that’s what you have with Apple,” Ginny Terzano, a principal with Dewey Square Group who led Microsoft’s public relations in Washington last decade, said in an interview.

In December, Apple hired as a lobbyist Krumholtz, who started Microsoft’s Washington office and helped guide the company to its landmark 2001 antitrust settlement with the Justice Department. Krumholtz in recent years has worked for companies including Facebook and Expedia Inc. (EXPE:US) He didn’t return telephone calls seeking comment.

In 2012, Apple became the most-valuable company in the world until a shares slump over slowing growth dropped it to No. 2 behind Exxon Mobil Corp. (XOM:US) in January. Last year, Apple reported a $41.7 billion profit on $156.5 billion revenue.

Tax Changes

Apple is recommending an overhaul of the U.S. corporate tax code, including lowering rates on foreign earnings to encourage companies to bring cash back to the U.S. In prepared remarks for the Senate investigations panel, Apple said it doesn’t use “gimmicks” to avoid taxes. Instead, it said the tax code is outdated and “undermines U.S. competitiveness.”

Washington pays attention to large companies, which need to return the government’s focus, William Kovacic, a former chairman of the Federal Trade Commission, said in an interview. For technology companies, an example is the government’s successful antitrust prosecution of Microsoft, he said.

“You cannot wait until the competition or regulatory problem comes to you,” said Kovacic, a law professor at George Washington University. “Having a mechanism both to anticipate difficulties, but also on a regular basis to approach the regulators and tell them what you’re doing, is important.”

Government Attention

Apple, for instance, must contend with government scrutiny on issues including competition policy, intellectual property rights and privacy, Kovacic said. In lobbying disclosure forms, Apple lists issues including copyright, patents, trademarks, education, environment, trade, consumer safety and products, transportation, telecommunications and taxation.

The taxation issue has grabbed widespread attention, David Walker, a technology analyst at Boston-based Trillium Asset Management LLC, which manages about $1.3 billion, including Apple shares, said in an interview.

“This is tremendously important to a lot of companies, particularly in tech, that have a lot of their profit overseas,” Walker said. “Apple would be at the top of the list” of companies that may use returned capital from overseas for dividends or share buybacks.

Having Cook appear can only help the company’s cause in Washington, said Terzano, the former Microsoft spokeswoman whose politics background includes stints working for Al Gore -- now an Apple director -- when he was vice president in the 1990s and former Senator Gary Hart in the 1980s.

“It’s smart. It’s really smart,” Terzano said.

Microsoft co-founder Bill Gates and his executives found they could move the Washington debate, she said.

“Any time Bill or Steve Ballmer of any of the top executives engaged, it really made a difference,” Terzano said. “It’s the way of Washington: Members want to see the people at the top, and to hear from the people at the top.”

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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  • MSFT
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