Imagine The Following All-Too-Plausible Scenario…
The date is December 21st, 2017 and the typical American holiday shopping fanfare – our Bacchus offering to the gods of modern western consumerism – is noticeably tempered due to increasing concerns about financial data systems corruption and the growing number of international security breaches in the realm of user privacy. These now-palpable fears surrounding US consumer data protection have increased in lockstep with the US/China/Russia financial cyber security conflict of the past year.
Beginning with the November 3rd, 2011 allegations by US intelligence officials that accuse both the Chinese and Russian governments of systematically stealing American high-tech data for their own economic gain, relations between the United States and the governments of these two emerging economies’ have deteriorated with alarming quickness. Of growing concern is the revelation that these two formerly “sleeping giants” have become emboldened in the years since the financial crisis of 2008 and the Euro Zone collapse of 2011/12 and are now powerhouse proponents of a new “EuroAsia Zone” currency which threatens to (potentially by design) topple the American economic dominance of the last century.
In a forceful and detailed airing of previously veiled complaints by US officials, the Office of the National Counterintelligence Executive to Congress released a report entitled “Foreign Spies stealing U.S. Economic Secrets in Cyberspace” and touched off the yearlong battle that now appears to be effecting even the most simple, non-cash consumer purchases. Complicating matters further has been Russia and China’s growing support from US competitors in Europe – a trend that was touched off by the massive Russian and Chinese funded Euro Zone bailout packages and their subsequent increased leverage with the International Monetary Fund.
Together with Brazil, China and Russia successfully orchestrated a majority of the funding for the European Financial Stability Fund (EFSF) and have since steered the support of many former US allies to their respective Eurasian ringside corners in this increasingly complicated economic cyber security conflict. Although the United States has yet to issue any formal trade restrictions with either of these evermore-hostile countries, the dogs of an apparently inevitable commerce war are frothing in their Churchillian cages, and it appears likely that they will be set loose in the months to come.
This bubbling conflict has created a new and interesting problem for many US companies operating in the global sector. In addition to the aforementioned cyber security threat(s), China’s voracious appetite for rare earth metals has drawn the ire of many leading United States technology companies, and this nexus of crisis now appears to be effecting the immediate business decisions for some of the crown jewels of US commerce.
In a recent highly publicized interview, Apple CEO Tim Cook indicated that the company might balk on Apple’s much-heralded upcoming plan to finally issue a dividend to its loyal shareholders. After Apple’s cash and marketable securities reached $76 billion back in 2011, shareholders began to petition their new chief for fresh financial strategies in the wake of long-term visionary and former Apple CEO Steve Jobs’ death that same year.
When the overwhelming successes of the iPhone 7 and iPad 4 launched Apple’s cash reserve figures into the stratospheric $100 billion plus category in summer 2017, Cook appeared to fold to the mounting shareholder pressures by signaling at a potential first time dividend for Apple shareholders for the first quarter of 2018. While this much anticipated turn of events was cause for celebration amongst Apple’s patient shareholder base, it also created the change in investment strategy for one of Apple’s longtime silent investors: The China Investment Corporation (“CIC”).
While CIC had long been a large and diversified investor in many different US companies – holding almost $10 billion in 84 US listed companies in 2009 – CIC has been silently and steadily increasing its holdings in US companies over the past three years; a timeframe that is uncomfortably coincident with the advent of (known) Chinese cyber-spying incident(s). That $10 billion figure has grown nearly ten-fold since the 2009 figures were released and, perhaps more ominously, the investment bets made by CIC and its shadow-Sovereign Wealth Fund brethren, the State Administration of Foreign Investment (“SAFE”), have all been uncannily successful; thus raising questions about the security of US financial data as it relates to corporate espionage in the wake of the mounting cyber-spying controversy.
To illustrate this unsettling shift in their investment strategies, CIC has increased its holdings in Apple, Inc. from a mere $6.3 million in 2010, to a staggering $26 billion (estimated) as of December 2012. These latter figures, released in a report by the Committee on Foreign Investment in the United States (CFIUS), stand in stark contrast to the much lower, but previously accepted number of only $10 billion represented in the U.S. Department of the Treasury’s Monthly Report on Foreign Investment. These discrepancies have since raised major questions about the accuracy and overall ability of the Treasury Department to monitor foreign investment in US companies.
Furthermore, the anticipation of an Apple, Inc. dividend sent shares of the company skyrocketing to almost $1,200 last summer when, after releasing the much anticipated iPhone 7 at Apple’s Worldwide Developers Conference (“WWDC”), Cook hinted at the possibility of a pending dividend. However, questions about Chinese cyberspying and corporate espionage soon beckoned when analysts uncovered that CIC’s massive purchasing spree of Apple stock (both directly booked in US markets and stealthily acquired in American Depository Receipts across the globe) took place a full two-weeks before Cook’s bombshell dividend chatter at the 2017 WWDC. While the SEC has indicated these curious Chinese trades have spurred an “ongoing investigation into suspicious CIC purchases throughout the spring of 2012” it appears that the SEC investigation will not preclude the CIC from reaping over $100 billion dollars in cash should the Apple dividend be issued in first quarter of 2013.
When the suspicious CIC trades were uncovered last month, the American/Chinese cyberspying conflict was firing on all cylinders; a discord that was propelled by the famously cold, almost hostile reception of newly re-elected President Barack Obama at the G20 Summit in mid-November. Since then, Apple CEO Tim Cook has been inundated with cries from both sides of the political aisle by those who feel that issuing such a large dividend to the benefit of an all-but-declared enemy of the State would be counter to the patriotic interests of the country and, moreover, detrimental to the stagnant US economy which is still reeling from the Financial Crisis of 2008.
Despite these mounting pressures, a move by Cook to suspend the upcoming Apple dividend could do more than just effect the price of Apple shares on the open market. Some scholars have indicated that Cook would be in violation of his fiduciary duty to his shareholders and, potentially, expose himself to liability by denying his shareholders – even the sovereign ones – their right to a previously-declared dividend. While the modern conception of fiduciary duties – especially the duty of loyalty – has been aimed at discouraging acts of moral hazard by self-interested directors and officers, any action by Cook that pins his corporate obligations against his moral and/or his patriotic obligations as an American citizen, will surely be followed closely by business and legal scholars alike.
More on this story after the break….