CalPERS warns that Apple tempts downfall

One of the world’s most innovative and progressive companies, Apple, is the target of lobbying by CalPERS, demonstrating that dropping mandatory majority voting in director elections from the final version of the Dodd-Frank Act, hasn’t deterred shareowners from taking the matter into their own hands.

CalPERS recent battle with Apple Inc. over the introduction of a majority voting standard in all uncontested elections is part of a larger blast of shareowner activism in which the pension fund approached 58 companies which form the bulk of their investment portfolio, asking them to voluntarily adopt a majority vote rule.

Out of the 58 companies, 22 have so far adopted or committed to adopting a majority vote rule and disclosed publicly while a further six companies have done so privately. CalPERS lobbying has support from the wider corporate governance network, with  The International Corporate Governance Network (ICGN) is in support of majority voting, with its executive director, Carl Rosén, saying it’s of upmost importance for investors.

CalPERS’ proposal to Apple urges company adoption of a majority vote threshold where there is only one candidate for a board seat and the resignation of any candidate or incumbent who fails to win an affirmative vote of most shares represented.

The pension fund’s senior portfolio manager for corporate governance, Anne Simpson (pictured), warns the company responsible for the i-generation of technology not to be blinded by success, and to listen to its shareowners.

“Apple should not be seduced by success,” she says. “Good governance is a market fundamental. We’re asking for an election, not a coronation of the board.”

Sponsored Content

CalPERS claims Apple’s current plurality vote rule gives no voice to shareowners who oppose a candidate, since directors can be elected by a single “for” vote.

“The current rules are not Apple standard, they evoke the election standards of a banana republic – an election where you can be voted in without a majority lacks legitimacy,” says Simpson.

The pension fund’s support statement to Apple’s board of directors argued a majority voting standard would provide shareowners with a meaningful role in uncontested director elections, which is in sharp contrast to Apple’s current voting system “that effectively disenfranchises shareowners when directors run unopposed”.

CalPERS goes on to outline how under Apple’s current plurality standard, a director nominee can be elected with “as little as his or her own affirmative vote because ‘withheld’ votes have no effect”. According to CalPERS, this makes it impossible to defeat director nominees who run unopposed.

According to Nasdaq at December 31 last  year, CalPERS held about 2.2 million shares of the  921 million Apple Inc shares outstanding, but about 70 per cent of the stock is owned by institutions.

Three major proxy advisory services – Egan-Jones Proxy Services; Glass, Lewis & Co. LLC; and ISS Proxy Advisory Services – are backing CalPERS’ proposal.

But despite this support for CalPERS proposal, Apple’s board of directors has recommended shareowners vote against it at this year’s annual shareowner meeting (held on February 23), claiming “it is not in the best interest of the company and its shareholders, both for reasons of law and governance policy”.

Apple’s board claims dissatisfied shareowners can have their say in a multitude of ways, ranging from correspondence with the board to recall elections and alternative candidate nominations. They also assert that CalPERS did not take into account the “unusual mechanics of California law” which could lead to the failure of directors to be nominated even with no indication of any shareowner disapproval. Apple says it could therefore “lose its directors simply because too few shareholders cast their votes”.

CalPERS dismissed Apple’s concerns, saying the company would just need to engage more with its shareowners.

“Apple also posit that California law would require the board to accept the will of the majority – so that if all directors were rejected they would face a crisis,” says Simpson. “But the board would simply need to engage with its shareowners. Management would continue to run the company and the board would be reformed the next day – but would still have to face the electorate in due course – an essential discipline and one which would focus minds very well.”

CalPERS shouldn’t feel alone in this case, with the Apple board also recommending a vote against the proposal by the Central Laborers’ Pension Fund to amend the company’s corporate governance guidelines to adopt and disclose a written CEO succession planning policy.

“Capitalism relies upon two principles – transparency and accountability. The proposal on succession planning addresses the first and ours addresses the second,” Simpson says.

“Our economic system requires that those in power are held to account; the shareowners are the providers of that capital – the directors are their stewards. The mandate to the board of directors is the single most important decision capital providers can make. This is why governance matters.”

This proposal, announced last August, should come as no surprise considering the impact of the poor health of Steve Jobs – the current CEO and co-founder of Apple – and the subsequent time away from the job has had on Apple’s stock prices. While Apple announced Jobs’ leave on a public holiday, when Nasdaq and the New York Stock Exchange were closed,  Apple stocks on the European exchanges fell about 8-10 per cent.

The Central Laborers’ Pension Fund’s proposal asked for the following specifics to be adopted:

–          the board of directions will review the plan annually;

–          the board will develop criteria for the CEO position which will reflect the company’s business strategy and will use a formal assessment process to evaluate candidates; the board will identify and develop internal candidates;

–          the board will begin non-emergency CEO succession planning at least three years before an expected transition and will maintain an emergency succession plan that is reviewed annually;

–          and the board will annually produce a report on its succession plan to shareholders.

Apple’s board of directors recommended a vote against the proposal for a number of reasons, asserting Apple already fulfils several of the requests proposed, saying Apple’s corporate governance guidelines already required the board and CEO to conduct an annual review of succession planning for senior management, including the CEO. The board further says adopting the proposal would give Apple’s competitors an unfair advantage as it would publicise Apple’s confidential objectives and plans.

“Giving competitors access to this information is not in the best interest of the company or its shareholders,” says the board of director’s statement in opposition to the proposal.

The board also claims the proposal would undermine the company efforts to recruit and retain executives and it attempts to micro-manage and constrain the actions of the board.

Furthermore, the board also recognises that a highly talented and experienced management team, not just the CEO, is critical to Apple’s success – a sentiment that perhaps is not shared with investors.

At time of publication, Apple Inc.’s annual meeting of shareholders was underway.

Leave a Comment

Sort content by

California dreamin’ of responsible funding

Relief for Californian state fund investment chiefs, their bosses and their members – with CalSTRS and CalPERS both returning 20+ per cent for the financial year – has been usurped by a reminder to politicians that the funds cannot invest their way to good health and a responsible funding strategy is required. mrec4inarticleinline Sponsored Content

Manager selection a fortunate choice

Whether it involves skill, good judgment or just plain luck, choosing the right manager is never an exact science but recently published research reveals institutional investors can make better decisions by avoiding conventional wisdom around past performance.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Service providers key to ESG development

There is nothing like a bit of red-hot competition to get the blood pumping – 37 Principle for Responsible Investment (PRI) signatories are running for only six positions on the newly-structured PRI Advisory Council. Let’s hope this has the effect of actually transforming institutional investment portfolios, not just getting these responsible types a little spirited.mrec4inarticleinline

CalPERS looks for emerging private equity managers

Domestic emerging managers are the latest focus in the private equity portfolio of the $239 billion CalPERS, with the fund searching for a new investment vehicle, most likely a customised fund-of-funds, to invest in partnerships that may be under-capitalised.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Managers refine glidepaths for a smoother ride

Managers are continuing to refine their strategies for target date funds, with more than a third of managers incorporating a tactical overlay into their asset allocation, a recent survey has revealed.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Nasty surprises on the rise for investors, says ESG expert

Corporate disasters such as the BP Gulf of Mexico oil spill and the Fukushima nuclear disaster will be more prevalent and pose a greater risk to investors unless they act to comprehensively change the way they invest, a sustainability expert has warned.mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous