January 6, 2018
Board of Directors
1 Infinite Loop
Cupertino, California 95014
Ladies & Gentlemen,
JANA Partners LLC and the California State Teachers’ Retirement System (“we” or “us”) collectively own approximately $2 billion in value of shares of Apple Inc. (“Apple” or “you”). As shareholders, we recognize your unique role in the history of innovation and the fact that Apple is one of the most valuable brand names in the world. In partnership with experts including Dr. Michael Rich, founding director of the Center on Media and Child Health at Boston Children’s Hospital/Harvard Medical School Teaching Hospital and Associate Professor of Pediatrics at Harvard Medical School, and Professor Jean M. Twenge, psychologist at San Diego State University and author of the book iGen, we have reviewed the evidence and we believe there is a clear need for Apple to offer parents more choices and tools to help them ensure that young consumers are using your products in an optimal manner. By doing so, we believe Apple would once again be playing a pioneering role, this time by setting an example about the obligations of technology companies to their youngest customers. As a company that prides itself on values like inclusiveness, quality education, environmental protection, and supplier responsibility, Apple would also once again be showcasing the innovative spirit that made you the most valuable public company in the world. In fact, we believe that addressing this issue now will enhance long-term value for all shareholders, by creating more choices and options for your customers today and helping to protect the next generation of leaders, innovators, and customers tomorrow.
More than 10 years after the iPhone’s release, it is a cliché to point out the ubiquity of Apple’s devices among children and teenagers, as well as the attendant growth in social media use by this group. What is less well known is that there is a growing body of evidence that, for at least some of the most frequent young users, this may be having unintentional negative consequences:
Some may argue that the research is not definitive, that other factors are also at work, and that in any case parents must take ultimate responsibility for their children. These statements are undoubtedly true, but they also miss the point. The average American teenager who uses a smart phone receives her first phone at age 10vii and spends over 4.5 hours a day on it (excluding texting and talking).viii 78% of teens check their phones at least hourly and 50% report feeling “addicted” to their phones.ix It would defy common sense to argue that this level of usage, by children whose brains are still developing, is not having at least some impact, or that the maker of such a powerful product has no role to play in helping parents to ensure it is being used optimally. It is also no secret that social media sites and applications for which the iPhone and iPad are a primary gateway are usually designed to be as addictive and time-consuming as possible, as many of their original creators have publicly acknowledged.x According to the APA survey cited above, 94% of parents have taken some action to manage their child’s technology use, but it is both unrealistic and a poor long-term business strategy to ask parents to fight this battle alone. Imagine the goodwill Apple can generate with parents by partnering with them in this effort and with the next generation of customers by offering their parents more options to protect their health and well-being.
To be clear, we are not advocating an all or nothing approach. While expert opinions vary on this issue, there appears to be a developing consensus that the goal for parents should be ensuring the developmentally optimal amount and type of access, particularly given the educational benefits mobile devices can offer. For example, Professor Twenge’s research cited above has revealed peak mental health levels among teenagers who use devices 1 hour or less a day, with teens engaging in this limited use happier than teens who do not use devices at all. According to a study of more than 10,000 North American parents conducted by researcher Alexandra Samuel, the children of parents who focus primarily on denying screen access are more likely to engage in problematic behaviors online than the children of parents who take an active role in guiding their technology usage.xi Likewise, researchers at the University of Pittsburgh Center for Research on Media, Technology, and Health have found that while using a high number of social media platforms daily is linked to depression and anxiety in young adults, using a limited number does not have the same impact.xii
While these studies (and common sense) would suggest a balanced approach, we note that Apple’s current limited set of parental controls in fact dictate a more binary, all or nothing approach, with parental options limited largely to shutting down or allowing full access to various tools and functions. While there are apps that offer more options, there are a dizzying array of them (which often leads people to make no choice at all), it is not clear what research has gone into developing them, few if any offer the full array of options that the research would suggest, and they are clearly no substitute for Apple putting these choices front and center for parents. As Apple understands better than any company, technology is best when it is intuitive and easy to use. More importantly, technology will continue to evolve as time goes on and play a greater and greater role in all of our lives. 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 to an app designer, or more accurately to hundreds of app designers, none of whom have critical mass.
This is a complex issue and we hope that this is the start of a constructive and well-informed dialogue, but we think there are clear initial steps that Apple can follow, including:
It is true that Apple’s customer satisfaction levels remain incredibly high, which is no surprise given the quality of its products. However, there is also a growing societal unease about whether at least some people are getting too much of a good thing when it comes to technology,xiii which at some point is likely to impact even Apple given the issues described above. In fact, even the original designers of the iPhone user interface and Apple’s current chief design officer have publicly worried about the iPhone’s potential for overuse,xiv and there is no good reason why you should not address this issue proactively. As one of the most innovative companies in the history of technology, 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. Doing so poses no threat to Apple, given that this is a software (not hardware) issue and that, unlike many other technology companies, Apple’s business model is not predicated on excessive use of your products. In fact, we believe addressing this issue now by offering parents more tools and choices could enhance Apple’s business and increase demand for its products.
Increasingly today the gap between “short-term” and “long-term” thinking is narrowing, on issues like public health, human capital management, environmental protection, and more, and companies pursuing business practices that make short-term sense may be undermining their own long-term viability. In the case of Apple, we believe the long-term health of its youngest customers and the health of society, our economy, and the Company itself, are inextricably linked, and thus the only difference between the changes we are advocating at Apple now and the type of change shareholders are better known for advocating is the time period over which they will enhance and protect value. As you can imagine, this is a matter of particular concern for CalSTRS’ beneficiaries, the teachers of California, who care deeply about the health and welfare of the children in their classrooms.
While you may already have started work on addressing the issues raised here, we would nonetheless appreciate the opportunity to discuss this matter further with the board to bring in a wider range of voices. We also encourage you to discuss this matter directly with Dr. Rich, Professor Twenge, or any member of JANA’s board of advisors for our new impact investing fund, which includes Patricia A. Daly, OP, Professor Robert G. Eccles, Sting, and Trudie Styler. In the meantime, should you wish to contact us we can be reached at (212) 455-0900 or (916) 414-7410.
JANA Partners LLC
Director of Corporate Governance
The California State Teachers' Retirement System
JANA Partners LLC
JANA Partners is an investment manager specializing in event-driven investing founded in 2001 by Barry Rosenstein. JANA typically applies a fundamental value analysis discipline to identify companies that have one or more specific catalysts to unlock value. In certain cases, JANA can be the instrument for value creation by becoming an actively engaged shareholder.
The California State Teachers’ Retirement System
The California State Teachers’ Retirement System, with a portfolio valued at $219.6 billion as of October 31, 2017, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s more than 914,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.
Dr. Michael Rich
Michael Rich, MD, MPH, is Associate Professor of Pediatrics at Harvard Medical School, Associate Professor of Social and Behavioral Sciences at the Harvard School of Public Health, and practices Adolescent Medicine at Boston Children’s Hospital. He is the Founder and Director of the Center on Media and Child Health (CMCH) as well as a pediatrician, researcher, father, and media aficionado. As The Mediatrician®, Dr. Rich offers research-based answers parents’, teachers’, and clinicians’ questions about children’s media use and implications for their health and development. Ask the Mediatrician® provides information and strategies that are balanced, practical, and based in scientific evidence from the Database of Research (soon to be relaunched as Mediatrics), the comprehensive CMCH library of rigorous science from more than a dozen academic disciplines that address the effects of media on health and human development.
Professor Jean M. Twenge
Jean M. Twenge, Professor of Psychology at San Diego State University, is the author of more than 140 scientific publications and books. Dr. Twenge frequently gives talks and seminars on teaching and working with today’s young generation based on a dataset of 11 million young people. Her research has been covered in Time, Newsweek, The New York Times, USA Today, U.S. News and World Report, and The Washington Post, and she has been featured on Today, Good Morning America, CBS This Morning, Fox and Friends, NBC Nightly News, Dateline NBC, and National Public Radio.
Patricia A. Daly, OP
Patricia A. Daly is a Dominican Sister of Caldwell, NJ and has worked in Corporate Responsibility and Socially Responsible Investing for 40 years. She most recently served as the Director Emeritus of the Tri-State Coalition for Responsible Investment after almost 24 years as Executive Director, and as the Corporate Responsibility Representative for the Sisters of St. Dominic of Caldwell, NJ.
Over the years Pat has negotiated with companies on issues of human rights, labor, ecological concerns, militarism, equality, health and tobacco, and international debt and capital flows. Pat has played a role in forcing General Electric to pay for a clean-up of the Hudson River , positioning the agenda of global warming into the priorities of Corporate America, and is a founder of Campaign ExxonMobil: calling this oil giant to task on matters related to climate change. Pat received an Honorary Doctorate in Business Leadership from Duquesne University in 2010.and an Honorary Doctor of Laws Degree from William Paterson University in 2003. Sister Pat is the recipient of the 2017 ICCR Legacy Award from her colleagues at the Interfaith Center on Corporate Responsibility and the 2014 Joan Bavaria Award, presented by Ceres and Trillium Asset Management. Pat serves on the Advisory Board of the Lamont Doherty Earth Observatory at Columbia University and the Earth Council of the Dominican Sisters. Sister Pat works to encourage investors to integrate sustainability into their investment programs and to participate in the work and oversight of companies in portfolios. She continues to mentor people in effective strategies for systemic change.
Professor Robert G. Eccles
Robert G. Eccles is the world’s foremost expert on integrated reporting and a leader on how companies and investors can create sustainable strategies. He is the Founding Chairman of the Sustainability Accounting Standards Board (SASB) and one of the founders of the International Integrated Reporting Council (IIRC). In 2011, Bob was selected as one of the Top 100 Thought Leaders in Trustworthy Business Behavior, for his extensive, positive contribution to building trust in business, and in 2014 and 2015 was named as one of the 100 Most Influential People in Business Ethics. He is also an Honorary Fellow of the Association of Chartered Certified Accountants (ACCA)
Sting & Trudie Styler
Sting is a composer, singer-songwriter, actor, author, and activist. As one of the world’s most distinctive solo artists, Sting has received 10 Grammy Awards, two Brits, a Golden Globe, an Emmy, four Oscar nominations, a TONY nomination, Billboard Magazine’s Century Award, and MusiCares 2004 Person of the Year. Before becoming a solo artist, he was a member of The Police, together with Stewart Copeland, and Andy Sumers, which released five studio albums, earned six Grammy Awards and two Brits, and was inducted into The Rock and Roll Hall of Fame in 2003. Also a member of the Songwriters Hall of Fame, Sting has received the Kennedy Center Honors, The American Music Award of Merit and The Polar Music Prize. Throughout his illustrious career, Sting has sold close to 100 million albums from his combined work with The Police and as a solo artist. Sting’s support for human rights organizations such as the Rainforest Fund, Amnesty International, and Live Aid mirrors his art in its universal outreach.
Trudie Styler is an actress, director, film producer, wine producer, organic farmer, environmentalist, human rights activist, and UNICEF Ambassador. Styler has produced many award-winning documentaries and feature films since the mid-1990s. As an Ambassador for UNICEF, Trudie has been responsible for raising $5million for their projects all over the world, such as building schools for children who live and work on the dumpsites of Ecuador, providing them with education, regular meals and support for their families. She also initiated a clean water project in Ecuador, partnering the Rainforest Fund with UNICEF Ecuador and the Amazon Defense Fund to build water filtration tanks for rainforest communities whose environment has been catastrophically poisoned by irresponsible oil production methods in the region over a period of forty years.
Sting and Styler founded the Rainforest Foundation (now Rainforest Fund) in 1989. Initially created to protect the rainforest and its indigenous people in Brazil, the RF now works in more than 20 countries over three continents. Together they have held 18 benefit concerts to raise funds and awareness for our planet’s endangered resources.
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