Apple tax query becomes Cook’s latest crisis-management test

Tim Cook’s tenure at the helm of Apple Inc. has been a crash course in crisis management.

In almost two years since Cook became chief executive officer, Apple has lurched from one reputation-threatening public-relations predicament to the next -- from criticism of its labor practices in China, to faulty mapping software that marred the release of the iPhone 5. Most recent case in point: Cook testified yesterday before Congress to defend Apple against allegations that it dodged $9 billion in taxes in 2012.

In two hours of testimony, Cook calmly parried questions from a Senate subcommittee, urged reform of U.S. corporate tax code and even shared a laugh with Senator John McCain about the hassles of iPhone updates. Even so, continually coping with crises threatens to divert management’s attention from building better products and reversing a share slump. The accusation that Apple shifted billions of dollars to offshore affiliates to avoid paying taxes will alienate some consumers, said Jack Ablin, chief investment officer of BMO Private Bank in Chicago.

“There is a reputation risk,” Ablin said. “Being in the news, testifying before Congress and sound bites about avoiding billions of dollars in taxes has the potential to ruffle their customers’ feathers. This issue is on the front page, not the business page.”

That helps explain why Cook went to Washington, D.C., to face questioning by Senator Carl Levin of Michigan and other members of the Senate Permanent Subcommittee on Investigations, which said that Apple relied on loopholes and a web of offshore entities to avoid paying U.S. taxes.

Taxes Paid

“It’s important to tell our story -- and I’d like people to hear it from me,” Cook said in testimony. “We pay all the taxes we owe -- every single dollar.”

The remarks exemplified how Cook has handled other crises - - quickly and personally -- when they crop up for Cupertino, California-based Apple.

“They are happening in every dimension of the business, whether it’s taxes, offshore production or product design,” said Stephen Diamond, a law professor at Santa Clara University who has worked with technology companies and studies corporate governance. “He’s had to dive in personally and manage these.”

While management can shrug off perceived missteps when the going is good -- as was often the case under co-founder Steve Jobs -- Apple’s leadership has lately had to cope with a stock price that’s declined 37 percent since reaching a record on Sept. 19. The shares are falling amid concern that the company won’t quickly be able to produce a blockbuster gadget that can build on the success of the iPhone and iPad. Apple rose 1.1 percent to $444.32 at 12:35 p.m. in New York.

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