The behind-the-scenes story of why Apple received a letter from 2 huge investors about child safety features

Tim Cook. Photo: Astrid Stawiarz/ Getty Images for RFK Human Rights.
  • Apple didn’t know that two of its biggest investors, Jana Partners and the California State Teachers’ Retirement System, wanted it to take a bigger role in children safety.
  • Apple was given a heads-up call shortly before the investors publicly released a letter calling for changes, but the letter wasn’t the result of previous talks or suggestions made privately to Apple.
  • The letter received an immediate response from Apple promising to add features and upgrade its existing child safety features. Apple also pointed out that it has offered child safety features since 2008.

Last week, Apple was the target of an interesting PR situation in which everyone involved walked away winners.

Apple was somewhat blindsided by an open letter by activist hedge fund JANA Partners and powerhouse institutional investor the California State Teachers’ Retirement System (CalSTRS) demanding that the iPhone maker do more to protect kids from the dangers of too much screen time, a person familiar with the situation tells Business Insider.

The company received a “courtesy call,” shortly before this PR campaign launched, as this person described it, but the investors had not been in talks behind-the-scenes with Apple prior to the letter being made public.

In the letter, investors that jointly owned $US2 billion worth of Apple stock, asked Apple to invest in research on the topic and to create a committee that included academic researchers to help it create new child safety features.

Apple promptly responded with a statement, pointing out that it’s had parental controls in its software since 2008 but promising to update them. “Apple has always looked out for kids, and we work hard to create powerful products that inspire, entertain, and educate children while also helping parents protect them online. We have new features and enhancements planned for the future to add functionality and make these tools even more robust.”

As to why Jana chose Apple, “Apple was a logical place to start,” this person said, because Apple is “socially responsible and they are perfectly positioned because they are the gateway for teens to get to these things. If you are trying to stop water from coming out of a hose it’s more effective to grab the hose than try and grab every drop of water coming out of the hose.”

We’re looking at you, Facebook

Interestingly, the motivation behind targeting Apple in this way wasn’t Apple at all. It was Facebook.

Mark ZuckerbergJustin Sullivan/Getty ImagesFacebook CEO Mark Zuckerberg

Last month, Facebook said that using Facebook helped improve feelings of “depression and loneliness.” It cited as evidence, in part, a study that Facebook itself conducted with Carnegie Mellon University, along with a few other studies from other universities.

Naturally, Facebook’s blog post didn’t mention a large study published a few months earlier by researchers at Yale and UC San Diego that found the reverse: the more that people used Facebook, the worse many of them felt.

The folks at Jana felt that Facebook was being somewhat disingenuous about the research and didn’t want Apple to “take the same kind of insular approach and say, ‘Don’t worry about it. We’ll get our software engineers together and figure this out,” this person said. “This needs to be a public discussion. You need to involve experts.”

“Shareholders care about this,” the person added.

On top of that, Apple was chosen because Jana and CalSTRS thought that it would be easier for Apple to move on this and it could influence others in Silicon Valley.

Jana spokesperson Charles Penner explained during a CNBC interview, “It’s not part of Apple’s business model to encourage over usage the same way it is, arguably, for a Facebook or a Twitter.”

Another reason for the PR campaign

But there was another reason at play for this whole letter being done as a public relations campaign rather than a behind-the-scenes discussion.

The hedge fund Jana, founded by billionaire Barry Rosenstein, is just about to launch a new socially responsible investment fund. It is out seeking limited partners investors to be part of it, it said.

Pushing Apple to help kids was a way to show its potential LPs it could be influential in a new kind activism. Jana has been the classic type of activist investor that bought stakes in underperforming companies and pressured them into mergers, acquisitions or management changes. It’s perhaps best known for pushing Whole Foods to sell itself but it has also targeted Walgreens, ConAgra and many others over the years.

Recently, Jana has been on the wane, finishing December with $US4.6 billion of assets under management, down more than half from the $US11 billion it had in 2015, Bloomberg’s Suzy Waite and Scott Deveau reported.

While Apple could not have loved to be targeted like this – and there’s no indication yet that Tim Cook is talking to Jana and CalSTRS about its new child safety plans – Apple has walked away a winner too.

It gets to show that it cares about kids and listens to investors all with one swift PR statement.

Best of all, should Apple really come through with industry leading child safety controls, the biggest winners of all will be the kids.

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