Principal Agency Problem example of Apple Company

1. APPLE’S STRATEGIES TO
OVERCOME PRINCIPAL-
AGENCY PROBLEMS
 CEO vs. Shareholders conflicts in APPLE
 APPLE VS SUPPLIERS: FAXCOON
VIOLATIONS
 APPLE’s RESPONSE
 Training of Employees
 Tracking Activities of Suppliers
 Main Sanctions over Suppliers
 Impact of Solutions on Faxconn

2. Solutions for CEO vs.
Shareholders conflicts in APPLE

3.  Incentives- mainly depending on the future
prospects of CEO, equally cut incentives for a
failure
 Apple Inc CEO Tim Cook received compensation
for 2012 valued at 4.17 million but no stock option
vs Steve Jobs received compensation of $378
million and accompanied with 376.2 million in
stock awards
 executive officers have to hold triple of their base
salary in company stock
 the importance of converting Agents to Principals

4. APPLE VS SUPPLIERS:
FAXCOON VIOLATIONS

5.  Huge Contrast-bilions of profits and worker
conditions
 Fair Labor Ass. Report
 Faxcoon; employees rights violated
-working more than 60hr( 40+36/ monthly)
-Overtime compensation
-Health and Safety

6. APPLE’s RESPONSE:Supplier
Responsibility Progress Report’

7. Training of Employees

9.  Apple considers training program is crucial that
more workers understand their rights, more
they will able to speak up when their rights are
violated. Since 2007, more than 3.8 million
workers and managers have attended training
program including 1.5 million in 2013.

10. Tracking Activities of Suppliers

11.  revitalized its supply chain activities to
increase the standards and solve the
problems.
 In Exhibit 2, Apple announced their suppliers
according to the locations.
 Apple has also publicized their list of suppliers
suppliers

12. Main Sanctions over Suppliers
 tracked work hours of employees throughout their supply
chain activities
 exerting pressure on their suppliers to achieve an average of
60hrs workweek
 Continuously conducting audits at factories to preserve the
rights of migrant workers.
 conducted 451 audits at all levels of supply chain. (51%
increase from 298 audits in 2012)
 Apple Supplier Environment, Health and Safety Academy-
accomplished more than 520 site profile surveys for
decreasing environmental risks including the Clean Water
Program with 13 suppliers

13. Impact of Solutions taken by
Apple on Foxconn
 Foxconn - bring its factories into full harmony
within Legal limits -working hours into 49 hrs
including overtime.
 Fairly payment for all overtime as well as
work-related meetings outside of regular
working hours
 Fair Labor Association - obliges them to pay
any worker for their unpaid hours in the past.
 Faxconn promised to report all accidents.