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The Resource for the Global Finance Profession

Bottom Line: One Company, People and Cash

  • By Elizabeth Johns
  • Published: 2014-08-13

At AFP, we have been fielding questions from reporters on when corporate America might begin to spend the huge cash piles that have accumulated in recent years.  

In addition to economic shifts, attitudes toward global risk and changes in business outlook, there's another factor that might influence cash spend, and some say it is simply the people involved in decision making.

As we all know, an enormous amount of corporate cash is held by one company, Apple.  Last month, Apple announced that Susan Wagner, a founding partner of investment management company BlackRock, would join Apple’s board of directors. Almost immediately, the financial press began to speculate about what this might mean for Apple’s gigantic cash hoard.

While Apple has indeed begun to spend a bit of its cash in the last year, for example on the $3 billion purchase of the headphone company Beats (in addition to the acquisitions of 24 other companies in the past 18 months), analysts have been quoted as wondering whether a new board member might advise the company to make further strategic acquisitions.

Wagner is one of the few people on Apple’s board with a true finance background, an undergraduate degree from Wellesley College in English and economics and an MBA in finance from the University of Chicago. She has been an important influence on BlackRock since its early days, most recently serving as chief operating officer. She has the perfect background to provide advice.

In announcing Wagner's appointment, Apple CEO Tim Cook specifically cited her “strong experience, especially in M&A and building a global business across both developed and emerging markets.”

We know from AFP’s most recent liquidity survey that companies are experiencing good cash flow from operations on top of existing cash reserves and many are deploying cash for strategic acquisitions, to pay down debt, repurchase stock or for various capital expenditures. If Apple begins to spend more, it wouldn’t be a surprise.

Meanwhile, there’s an undercurrent running through some of the articles about Wagner's appointment that seems to be just under the surface. Much is made of the fact that Wagner is female, which in itself seems to add to the perception that change is in the air at the company. Okay, fine, you might say.  By changing the board, the company might be signalling a shift in direction and any shift in direction might influence what a company does with its cash.

But read together, the stream of articles speculating about a potential change in Apple’s cash position mention this in the same breath as an appointment of a woman to the board, as if spending were somehow the natural outcome of this change.  One would hope that in evaluating the strategic deployment of cash, good sense and experience would outweigh what seems to be implied in the press, if I am reading this right, the desire to go shopping.

This article appears in the July/August edition of AFP Exchange.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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