Apple’s proxy access lite led me to a little thought experiment after reading the following reaction at Mac Rumors: “Maybe if all macrumors members who are shareholders band together, we can nominate one of our own!” What are the possibilities that members of Mac Rumors, any, or even all of the thousands of Apple-centric groups around the world could join together and nominate directors? (Find Apple group near you.)
Apple’s opposition statement to my proposal for real proxy access cites a statement made by Patrick McGurn, special counsel at ISS, the shareholder advisory group, who responded to Apple’s adoption of proxy access by stating that “other boards are likely to look to such respected companies and are likely to examine this issue now.” Yes, Apple’s proxy access lite got the attention of other companies but once we peel away the layers, we see the Board’s new bylaw is mostly for show, like greenwashing a product that pollutes. Although Mr. McGurn noted the importance of Apple’s proxy access lite, that doesn’t mean ISS thought it was good. In fact, ISS urges its subscribers to vote for my proposal to create real proxy access at Apple, as do early vote announcers Trillium, TRS, Australia’s Local Government Super, Canada Pension Plan Investment Board, Christian Brothers Investment Series, Unitarian Universalist Common Endowment, Florida SBA, Calvert, and Domini.
Apple will hold their annual meeting on February 26, 2016. If you are a shareholder, there is still time to vote your proxy in favor of real proxy access at Apple. Vote in favor of item #8, Adopt Proxy Access Right. I’ll analyze the other proxy items as we approach the meeting date.
Apple’s Proxy Access Lite: A Faulty Product
Let’s conduct a thought experiment around three provisions that would make using Apple’s proxy access lite provisions impossible for our hypothetical Mac Rumors group and nearly anyone else.
1. Group Limitations. Although it would be very interesting to get Mac Rumors members to agree on anything, it would be impossible for members to employ proxy access under Apple’s proxy access lite provisions. The bylaws limit the number in groups making nominations to 20 and the group must have owned 3% of the stock for 3 years. Therefore, each average member of such a group needs to hold a little less than 10 million shares (worth close to $100M). How many Mac Rumors members hold even a measly million shares? Why is Apple afraid to let more than 20 shareholders for a group? Cognizant Technology Solutions Corporation (CTSH) placed no limit on the number of shareholders forming a nominating group and its market cap is $32B, not $525B, so it should be much easier to form a smaller group at Cognizant.
2. Renomination Limitations. Even if MacRumors members held sufficient stock and could agree on a nominee, Apple’s proxy access lite bylaws provide that nominees who receive less than 25% of the votes are ineligible for nomination for the next two (2) annual meetings. Sometimes issues and people take time to take hold. How many years did Apple director Al Gore show his An Inconvenient Truth before it gained wide acceptance? Why place such restrictions on a second run?
3. Viable Number of Nominees. Mac Rumors members would only be able to nominate one candidate. Apple’s proxy access lite bylaws provide that shareholders can nominate up to 20% of the board, rounding down to the nearest whole number. With an 8 member board, that means one. Boards act by making and voting on motions. It takes a ‘second’ to make a motion and begin a discussion, so anyone elected through Apple’s proxy access lite could end up talking mostly to themselves.
Apple’s Proxy Access Lite: Fails Best Practices Test
The Council of Institutional Investors represents members with more than $3 trillion in investment. Every member is probably a shareholder in Apple. How do they feel about Apple’s proxy access lite? From their publication Proxy Access: Best Practices:
1. Caps on Nominating Groups
CII policies and related public positions do not endorse limits or caps on the number of shareowners in the nominating group.
CII believes that shareowners should be allowed to aggregate their holdings in order to meet the ownership eligibility requirement to nominate directors. The ability to aggregate holdings is crucial to the effectiveness of proxy access—without it, a proxy access provision would not be viable.
We note that without the ability to aggregate holdings even CII’s largest members would be unlikely to meet a 3% ownership requirement to nominate directors. Our review of current research found that even if the 20 largest public pension funds were able to aggregate their shares they would not meet the 3% criteria at most of the companies examined.
CII’s position is generally consistent with the view of the SEC. In 2010, the SEC considered, but rejected imposing a cap on the permitted number of members in a nominating group. The SEC found that individual shareowners at most companies would not be able to meet the minimum threshold of 3% ownership for proxy access unless they could aggregate their shares with other shareowners.
2. Renomination Limitations
CII has publicly opposed restrictions on re-nominations when a nominee fails to receive a specific percentage of votes.
CII believes that since resubmission requirements aren’t applicable to management’s candidates, they shouldn’t apply to candidates suggested by shareowners.
CII’s position is generally consistent with the view of the SEC, which in 2010 considered, but rejected, imposing such restrictions. The SEC did not believe it was necessary or appropriate to include a limitation on the use of proxy access by nominating shareowners or groups that have previously used proxy access. The SEC also found that such a limitation would not facilitate shareowners’ traditional state law rights and would add unnecessary complexity.
3. Viable Number of Nominees
CII has publicly opposed limitations on the percent or number of shareowner director nominees that would prevent shareowners from nominating at least two candidates.
CII believes that it is important that shareowner nominees have meaningful representation on the board and that one director is insufficient to achieve that goal. Having at least two nominees helps ensure that the nominees, if elected, can serve on multiple committees and have greater opportunities to bring an independent perspective into board decisions.
Move Apple’s Proxy Access Lite to Best Practices Bylaws
There’s still hope. The Apple Board enacted proxy access lite to convince shareholders that proxy access is fully accomplished… hoping shareholders won’t vote for a shareholder proposal. Don’t be fooled.
In their opposition to my proxy access proposal, Apple cites press reports that since they have adopted proxy access other boards can no longer avoid examining the issue. Apple claims its proxy access proposal is consistent with “market practice and other Fortune 500 companies.” However, the vast majority of proxy access bylaws adopted by Fortune 500 companies do not place restrictions on renominations and they allow shareholders to nominate at least two directors.
Proxy access at Apple should be at least as robust as that passed by the SEC after years and years of debate and which placed none of the restrictions discussed above on shareholders. Vote in favor of item #8, Adopt Proxy Access Right. Costco shareholders recently passed a similar proxy access proposal by a vote of 65%. Apple shouldn’t be a laggard when it comes to shareholder rights.