Apple 2021 annual meeting is February 23, 9AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit virtualshareholdermeeting.com/AAPL2021 and enter the 16-digit control number. Of course, I recommend voting in advance. To enhance long-term value. Vote AGAINST Gore, Levinson, Sugar, the Auditor, and Pay. Vote FOR Proxy Access Amendment and Improve Executive Pay.
Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells related services. Most shareholders do not vote. Reading through 80+ pages of the proxy takes time but your vote could be crucial. Below, how I voted and why.
If you have read these posts related to my portfolio and proxy proposals for the last 25 years and trust my judgment, skip 7 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
I voted with the Board’s recommendations 42% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Apple 2021: ISS & Sustainalytics Ratings
From the Yahoo Finance profile: Apple Inc.’s ISS Governance QualityScore as of December 2, 2020 was 1. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 1; Compensation: 3.
Apple 2021: Board Proposals
Egan-Jones Proxy Services recommends against Gore, Levinson, and Sugar. Directors who served for much longer than 10 years are not independent.
Vote: AGAINST Gore, Levinson, and Sugar.
2. Ratification of Independent Auditor
I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Ernst & Young, LLP served more than seven years. No other issues appear significant
3. Executive Compensation
Apple’s Summary Compensation Table shows the highest paid named executive officer (NEO) was SVP/Deirdre O’Brien at $26.3M. I’m using Yahoo! Finance to determine market cap ($2.3T) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Apple Inc is certainly a large-cap company.
According to MyLogIQ, the median CEO compensation at large-cap corporations was $13M in 2020. CEO Tim Cook is at $14.8M, so not too far off considering Apple’s size. Apple’s shares tromped large-caps over the most recent one-, two-, and five-year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 256 to 1. Of course, Mr. Cook was not the highest-paid employee.
Egan-Jones Proxy Services found pay aligned with the long-term interest of its shareholders. They recommend voting For. Given my concern for the growing wealth disparity, I could not in good conscience vote that way. See Proposal #5, which expresses similar concerns.
Apple 2021: Shareholder Proposals
4. Shareholder Proxy Access Amendments (click to hear presentation)
This good corporate governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones also recommends For.
In 2002 I petitioned the SEC to allow proxy access proposals. It took 8 years for the SEC to agree. In 2014, I presented a proxy access proposal at Apple. The Board adopted a flawed proxy access a year later.
Unfortunately, it only allows shareholders to nominate one candidate, not “20% or 2, whichever is greater.” That’s the industry standard. It takes two directors to ensure a discussion at a Board meeting, one to move an item, the other to second it. That’s why the standard is 2.
Apple says its provisions are “well within the mainstream.” Yet, Arch Coal is the only one I could find that allows only one nominee. Are they mainstream? No.
Apple says “special interests” could disrupt the board if they allow for two candidates. Why is Apple so much more vulnerable to disruption than Adobe, AES, AutoZone, or hundreds of others?
86% of companies with proxy access allow shareholders to nominate at least 2 directors. 14% have a standard like Apple. BUT, those companies, such as Amazon, have boards of 10 or more, so 20% still yields at least 2 candidates.
We have directors, our representatives, who have served for more than 18 years. Maybe they just aren’t open to new ideas. Think of an upcoming election where you nominate two candidates and the 8 Board members nominate themselves. Wouldn’t you like options?
Real proxy access creates a more competitive environment for directors. That increases the value of your shares.
In 2020 I had an almost identical proposal on the proxy. Some of the largest funds voting FOR included:
Northern Trust, Morgan Stanley, Nuveen, UBS, Legal&General, Wells Fargo, RBC Global, Fisher, Parametric, DWS, Norges, AllianceBernstein, CalPERS, NY State Common, Amundi Pioneers, and CalSTRS.
5. Improve Executive Compensation Program
This proposal from is Jing Zhao, who usually files proposals around human rights. Here, he notes that Apple only looks to ensure pay is “aligned with shareholder interests and company performance.” His proposal asks the Board to also consider ethical, social and economic factors, such as the NEOs (named executive officers) pay ratios. That is reasonable and still gives the Board tremendous latitude in what to consider.
Egan-Jones and Apple note, beginning in 2021, an ESG modifier based on Apple Values and other key community initiatives will be incorporated into NEO annual cash incentives. I doubt they would have made that change without Mr. Zhao’s proposal. However, most of NEO pay is in the form of stock awards. Adjusting cash payments may have little or no impact.
Apple 2021 CorpGov Recommendations
Proxy Insight reported that Calvert voted For all items. CBIS voted Against the auditor; For all other items.
In looking up a few funds in our Shareowner Action Handbook, I see Australia’s Local Government Super voted For all except #5. Trillium voted For Auditor, Amend Proxy Access, and Improve Executive Compensation; Against all other items.
- Directors: AGAINST Gore, Levinson, and Sugar.
- Auditor: AGAINST
- Executive Pay: AGAINST
- Amend Proxy Access: FOR
- Improve Executive Compensation: FOR
Apple 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair
- Tenure of Chair and directors exceeds the average, which likely reduced independence.
Apple 2021: Mark Your Calendar
Proposals and director nominations must be sent either by mail to Apple’s Secretary at One Apple Park Way, MS: 169-5GC,Cupertino, CA 95014 USA, or by email to firstname.lastname@example.org. Matters for inclusion in the proxy materials for the 2022 annual meeting of shareholders, other than nominations of directors, must be received on or before September 7, 2021. All proposals must comply with Rule 14a-8 under the Exchange Act.
Be sure to vote for each item on the proxy. Any items left blank get automatically voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group.” Peer groups are often chosen by aspiration. The “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average.” However, corporations live in the real world. All CEOs are above average. Ignoring that fact partly explains why their collective pay spiraling out of control. We need to slow the pace of money going to the 1% or our economy will fail to serve the majority. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.
My proposed proxy access amendments (#4) won 34.2% of the vote, compared to 30.3% last year, so up by 3.1%. The proposal to improve principles of executive compensation (#5) won 5.6%, so enough to be resubmitted next year. Gore, Levinson, and Sugar won but with 1%, 0.7%, and 5.5% less than last year. Auditor and Pay were approved.