In stocks as in life, we tend to trust what we can see: profits, cash flows, multiples, growth rates. Trusting anecdotal evidence -- "I went to that store and it was empty" -- is dangerous because extrapolating isolated experiences can give a false sense of confidence (or doom).
In this new series, my aim is to examine the businesses behind stock tickers to get a sense of how companies stack up in four vital but harder-to-measure areas. Specifically, I want to gauge how well a business serves its main stakeholders: employees, shareholders, customers, and suppliers.
Up today is Apple (Nasdaq: AAPL). This year, Apple surpassed Microsoft (Nasdaq: MSFT) to become the largest tech company in the country (and the second-largest U.S. company overall, behind only ExxonMobil) so -- quite obviously! -- it's been doing a lot of things right. Let's dive in.
Apple employees
The popular employee-opinion website Glassdoor.com shows Apple with 3.8 stars out of 5.0, indicating that employees are "satisfied." No surprise here: 97% of those who voted approve of CEO Steve Jobs.
Further bolstering Apple's credentials is the long list of "Great Company" awards it has won. Here's a sampling just from the past year:
- Employees' Choice, 50 Best Places to Work, Glassdoor, 2010
- World's Most Admired Companies (No. 1 for third consecutive year), Fortune, 2010
- World's Best Companies, BusinessWeek, 2009
- Best Places to Work for LGBT Equality, Human Rights Campaign, 2011
Apple has maintained employee satisfaction both because of and despite its meticulous, strong-willed chief executive. Jobs was Fortune's CEO of the decade, but a 2008 Wired story quoted one former Apple engineer as saying, "More than anywhere else I've worked before or since, there's a lot of concern about being fired."
That seems unhealthy, and in many organizations, a micromanaging, autocratic CEO would kill morale. But Jobs is … one-of-a-kind. As Wired notes, "Jobs' employees remain devoted … because his autocracy is balanced by his famous charisma -- he can make the task of designing a power supply feel like a mission from God."
Jobs has given Apple employees purpose, challenged them in their roles, and demanded the best work from them, and he's been rewarded with high marks from his troops.
Apple shareholders
Going by stock returns, Apple has treated shareholders very, very well:
- One-year return: 65%.
- Five-year return: 483%.
- 10-year return: 2,753%.
It's a slam-dunk. For a very rough gauge of shareholder-friendliness, we can use the RiskMetrics corporate-governance rating:
| Measure | Rating |
|---|---|
| Board | Low Risk |
| Audit | Low Risk |
| Compensation | Low Risk |
| Shareholder Rights | Low Risk |
Governance Risk Indicator (GRI®) courtesy of RiskMetrics Group via Yahoo! Finance.
This, too, is a slam-dunk. But there's a caveat.
Last year, I wrote about an interesting debate surrounding Steve Jobs. My colleague Rich Greifner made a sound argument as to why Jobs is very shareholder-unfriendly: poor disclosure policies, cash hoarding, excessive corporate perks. In theory, I agree with Rich that a shareholder-unfriendly manager can be "bad" even if he makes money for shareholders -- when a high-flying stock slows down, as is inevitable at some point, CEOs who are used to running wild won't have massive returns to cover up their shortcomings. I just don't buy it with Jobs; as I mentioned earlier, he's a one-of-a-kind leader.
Apple customers
Customers love what Apple makes. The company creates dazzling products and incredible brand loyalty, and in that sense it's managed to be everything that low-cost-focused Dell (Nasdaq: DELL) is not.
Sales figures, word of mouth, or product reviews will confirm that. Customers rated the iPhone 3G 4.5 stars out of 5.0 on the online review site Epinions.com. It's believed that the iPad will be the electronic device with the fastest adoption rate in history. When iPhone 4 came out over the summer, people camped out in front of stores overnight to wait in line. Antenna issues and a public diss from Consumer Reports had no effect on iPhone sales.
And that's despite some missteps (e.g., the antenna issue) and annoyances. For example, every iPhone user to date has had to switch to AT&T (NYSE: T) -- although that's changing next year, when iPhones will reportedly be available through Verizon (NYSE: VZ) Wireless. Apple users are also locked into Apple's operating system -- a nonissue for some, an annoyance for others.
Apple suppliers
Apple seems to foster a culture of secrecy among its suppliers. According to a Reuters profile, its tactics "read like something from a spy novel … information is assiduously guarded and handed out only on a need-to-know basis."
But, as is a theme with its four key stakeholders, the company overcomes its flaws. I asked Fool.com technology editor Eric Bleeker for his take on Apple's relationship with suppliers:
It seems like Apple has a pretty healthy relationship with its suppliers. It's unique, to say the least. … Apple probably has greater demands on its suppliers than other companies do. There's little room for mistake, and Apple doesn't bend on its vision. If a company can't deliver precisely what Apple wants, it'll find someone else. At the same time, this can be good for suppliers. For example, Apple has expanded Cirrus Logic's (Nasdaq: CRUS) audio chips across its product lines. Despite Apple's accounting for 35% of Cirrus' sales, margins are increasing. While other device makers might be looking to squeeze costs, Apple's focus on quality leads it to pay more for some components if it can give its products things like greater battery life. If you're a supplier providing a unique product, that leads to a better relationship and better profits.
Adding it up
Studying how a company treats its main stakeholders can help you determine whether it's just average -- or something more. Running Apple through this exercise shows why it rules the world -- all in all, it has done right by them. If it can continue to do so, the business should stay healthy and growing. And the stock should follow.
If you're interested in Apple as an investment, be sure to follow it with the Fool's free My Watchlist feature. And if you're an Apple employee, shareholder, customer, or supplier, I'd be interested to hear your thoughts in the comments section below!
