Can Tim Cook Tame Washington?

Photograph by Xinhua via Redux

As a general rule, the tech world doesn’t think highly of Congress or Washington. Nevertheless, Apple Chief Executive Officer Tim Cook has agreed to testify before the Senate today at a hearing on repatriating offshore corporate profits. His inquisitors are not likely to be kindly disposed toward him. Apple has more than $100 billion stashed overseas, a significant chunk of which would help fill the U.S. Treasury’s coffers were the company to spend it here. Instead, Apple raised $17 billion last month in the biggest corporate bond offering in U.S. history, saving, according to Moody’s Investment Services, $9.2 billion in taxes in the process. Sorry, Uncle Sam!

Tuesday’s hearing of the Permanent Subcommittee on Investigations will feature a bipartisan roster of senators unhappy about this tax-dodging and looking for scalps. Apple will be the only corporation represented at the hearing because the subcommittee is working its way through the large tech companies one at a time. (Microsoft and Hewlett-Packard appeared before it last year.) This would be an unpleasant prospect for any company and CEO, but it’s especially intriguing that Apple is the guest of honor, since the company has had such a scant Washington presence. (And because Steve Jobs famously loathed Washington politicians.)

It’s more interesting, too, because Apple is the dominant tech company right now. The history of dominant tech firms that have tangled with Washington is deeply vexed—the leading example being Microsoft, whose clash with the Justice Department in the late 1990s—and its ensuing woes—became a case study in how not to deal with Washington. It’s apparent that Apple has drawn lessons from Microsoft and that Cook himself is seeking to differentiate the company’s Beltway strategy from what it was under Jobs. Some key points:

1) Cook himself is testifying. Rather than send an underling, Cook will appear before Congress. Steve Jobs never did. Cook lacks the talismanic aura of his predecessor and thus will have a harder time deflecting criticism. But senators are always more impressed with CEOs than with their underlings, and that can only benefit Apple. Cook’s appearance is also an example of a trend of CEOs taking a more active role in Washington. “There’s a growing sense in the financial community that as Washington becomes more involved in the economy, a CEO must step in as an advocate for his company,” says Brent McGoldrick, managing director at FTI Consulting, a global business advisory firm. FTI discovered this trend after surveying institutional investors. “Traditionally, wading into the public debate was viewed negatively because it was thought to court more risk,” he says. “We were surprised to see that that view has changed—now investors and analysts want CEOs getting involved in public policy, and Cook is a prime example of [a CEO] whose company has a lot at stake.”

2) Apple has learned to speak Washington’s language. What is that language? Jobs. Apple’s public relations team has implanted a chip in Cook’s brain (or perhaps just rigorously prepped him) that causes him to mention, in any media interview, that the company employs 50,000 U.S. workers spread across all 50 states. Microsoft fared poorly with Washington, in part, because it lacked champions in Congress. An easy way to win congressional backers is to employ people in their states and districts. That way, when the feds come knocking, they’re not just threatening Apple’s interests but the livelihood and well-being of some senator’s or congressman’s constituents—something lawmakers don’t take to kindly.

3) Cook will distract his inquisitors with a shiny object. Cook isn’t coming to Washington merely to answer questions about why Apple isn’t repatriating offshore profits. He has also prepared a plan for corporate tax reform. Presumably, he was inspired to rejigger the U.S. tax code not simply out of a burst of civic-mindedness, but by the realization that steering the conversation toward corporate tax reform—something both parties long to achieve—would be much more advantageous to him, and more pleasant to endure, than an afternoon spent fielding hostile questions about why Apple is dodging U.S. taxes. The written testimony [PDF: See page 16] Apple released on Monday night has Cook calling for “implement[ing] a reasonable tax on foreign earnings that allows free movement of capital back to the US.” Although he doesn’t specify what that rate should be, companies (including Apple) that have recently lobbied for a second repatriation holiday have called for a 5 percent rate. It’s also noteworthy that Cook is rolling out his plan before an investigative committee, rather than a policy committee, which would be tasked with rewriting the tax code. That’s further evidence that politics, as much as policy, is driving Apple’s strategy. After today’s hearing, we should have a clearer indication of whether Cook can navigate the rocky shoals of Washington better than Bill Gates did for Microsoft.

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