Apple under fire from shareholders for iPhone addiction

Apple has come under fire from two of its largest investors for failing to address the growing problem of young people becoming addicted to iPhones.

Jana, a leading activist shareholder, and CalSTRS, one of the largest public pension plans in the United States, delivered a letter to Apple on Saturday asking the company to consider developing software that would allow parents to limit children’s phone use, the Wall Street Journal reported earlier on Sunday.

Jana and CalSTRS also asked Apple to study the impact of excessive phone use on mental health, according to the publication.

CalSTRS did not immediately respond to requests for comment.

Jana and CalSTRS together control about US$2 billion worth of Apple shares, the Journal reports.

The social rights issue is a new turn for Jana, which is known for pushing companies it invests in to make financial changes.

However, the issue of phone addiction among young people has become a growing concern in the US as parents report their children cannot give up their phones. CalSTRS and Jana worry that Apple’s reputation and stock could be hurt if it does not address those concerns, according to the Journal.

Half of teenagers in the United States feel like they are addicted to their mobile phones and report feeling pressure to immediately respond to phone messages, according to a 2016 survey of children and their parents by Common Sense Media.

The phone addiction issue got a high-profile boost from the former Disney child star Selena Gomez, 24, who said she cancelled a 2016 world tour to go to therapy for depression and low self-esteem, feelings she linked to her addiction to social media and the mobile photo-sharing app Instagram.

Reuters tweeted Apple's response on Tuesday, with a spokesperson saying that 'effectively anything' a child could access online on IOS devices can be blocked by parents.

Addiction is profitable

Not all of Apple's shareholders seemed to share the same concerns, however.

“We invest in things that are addictive,” said Apple shareholder Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management.

He also owns stock in coffee retailer Starbucks, casino-runner MGM Resorts International and alcohol-maker Constellation Brands.

“Addictive things are very profitable,” Gerber added.

Still, the investment community is increasingly holding companies to higher social standards, and there is some concern that market-leading tech companies could draw attention from regulators much like alcohol, tobacco and gambling companies have in the past.

Apple shares traded marginally lower on Monday. CalSTRS holds US$1.9 billion in Apple stock, a sliver of the company’s nearly US$900 billion market value, while JANA declined to disclose the size of its smaller stake.

“Before Apple speaks, I think it’s too early to change the narrative” for investors, said Peter Jones, vice president of research for Ferguson Wellman Capital Management, which has about 350,000 Apple shares.

Social media companies, not hardware makers, are more deserving of any addiction-related scrutiny, some said.

Jordan Waldrep, who invests in alcohol, tobacco and gambling stocks as manager of the USA Mutuals Vice Fund, said blaming Apple for their customer’s addiction was analogous to blaming makers of cigarette packs instead of tobacco companies.

“The social media, the cigarettes, are the addictive product,” he said. Waldrep’s Vice fund does not own Apple but he said he would consider including social media companies.

Kim Forrest, senior portfolio manager and vice president at Fort Pitt Capital Group, agreed that companies like Facebook, Twitter and Snap might be more at risk than Apple if investors and regulators push back on how much time people spend on mobile devices.

“Apple is just the delivery device,” said Forrest, who said Fort Pitt has limited Apple holdings. “It’s only compelling with software. Software is the dopamine releaser that keeps you coming back.”

Twitter declined to comment and Snap could not immediately be reached.

The letter from Jana and CalSTRS recommends Apple set up a committee of child-development experts and make more new tools available to parents.

Even tech insiders are among the vocal critics of social media and its addictive potential.

“Apple Watches, Google Phones, Facebook, Twitter - they’ve gotten so good at getting us to go for another click, another dopamine hit,” said Tony Fadell, a former Apple executive, on Twitter.

John Streur, chief executive of Calvert Research and Management, an Apple shareholder that focuses on social responsibility, said it is plausible that tech devices may someday be understood to hold risks we do not currently understand well.

That would hurt investors if evidence later emerged that companies intentionally built features that create dependency and had evidence that doing so was unsafe.

For the time being, John Carey, a portfolio manager at Amundi Pioneer Asset Management in Boston, said concerns over the human impacts from being glued to screens are not likely to cut into profits. The company holds Apple stock, but the funds Carey manages do not.

“I doubt there will be any impact on the use of smartphones. We’re already addicted to them,” he said.

Reporting by Trevor Hunnicutt; Additional reporting by Ross Kerber, April Joyner, Sinead Carew, David Ingram and Elizabeth Dilts; Editing by Megan Davies and Meredith Mazzilli