Apple faces request for board talks with successful shareholder proponents

Jan 12, 2023
Proposal asks for engagement with those bringing resolutions that get majority support

Apple faces a potential shareholder vote on a resolution calling for it to have a board member talk to the proponents of future shareholder proposals that garner majority backing. 

The SEC earlier this month denied a request from Apple for no-action relief if it excludes the resolution, which calls for Apple’s board to adopt a policy that, ‘should holders of a majority of non-insider shares voted support a shareholder proposal… a board member or members, identified by the nominating committee chair, will be made available for a discussion with the proposal’s proponents within three months of Apple filing its report on Form 8K containing the voting results.’

A supporting statement reads: ‘Neither the board nor Apple nor the resolution’s proponents would be obligated to take any action as a result of this discussion.’

Nia Impact Capital and the Minderoo Foundation have lodged the resolution. In their filing they write: ‘In our view, a high vote for a shareholder proposal indicates that investors believe insufficient attention has been paid by the company’s management or board to the issue at hand.’

According to the proponents, Apple’s corporate governance guidelines state that the board oversees the company’s CEO and senior management and ‘seeks to ensure that the long-term interests of shareholders are being served’ but that management speaks for the company.

The proponents write: ‘If Apple’s board members are restricted in when they speak with stakeholders, this may undermine the board’s ability to, per the corporate governance guidelines, proactively ensure that the corporation is committed to business success through the maintenance of high standards of responsibility and ethics.’

The proponents note that a resolution brought by Nia Impact Capital last year received just over 50 percent of the votes cast at the 2022 AGM. That proposal asked that Apple’s board ‘prepare a public report assessing the potential risks to the company associated with its use of concealment clauses in the context of harassment, discrimination and other unlawful acts.’

They write in the latest filing: ‘Despite the high vote showing that other investors shared these concerns and an explicit request made by Nia and other investors for a meeting, no board member has agreed to a meeting.’

Companies are not typically required to act on shareholder resolutions, even if they receive majority backing, although they often respond where there are significant levels of support.

Apple unsuccessfully sought no-action relief from the SEC for excluding the latest proposal, arguing that under Rule 14a-8(i)(7) it relates to the company’s ordinary business operations.

Apple’s argument is that the resolution ‘primarily concerns the company’s practices with respect to shareholder communications, in particular regarding shareholder proposals… [T]he question of when and how a company chooses to communicate with its shareholders, and who at the company should be involved in such communication, is a decision in management’s and the board’s purview that falls squarely within the ordinary business exclusion according to long-standing precedent.’

The SEC wrote in response that it was unable to agree, and that ‘[i]n our view, the proposal does not address ordinary business matters.’

In the company’s proxy statement released yesterday, the board urges shareholders to vote against the proposal, arguing that:

  • ‘Apple has an active shareholder engagement program, and our directors can, and do, participate directly in discussions with shareholders
  • ‘Apple’s current policy does not restrict the board’s ability to engage with shareholders and instead reflects a thoughtful and mainstream approach to shareholder communications
  • ‘[T]he proposal is overly prescriptive and would detract from the board’s ability to effectively discharge its duties by restricting when, how, and through whom shareholder engagement is conducted
  • ‘[T]he board takes shareholder engagement and feedback seriously, has already proceeded to implement the majority-supported shareholder proposals from our 2022 [AGM], and has already engaged with this proponent on their majority-supported shareholder proposal from the 2022 [AGM].’

The company’s AGM is scheduled for March 10.

The SEC in July proposed amendments to Rule 14a-8, which offers several bases on which companies can apply for no-action relief if they want to omit a proposal from their proxy statement.

The proposed changes would revise the following grounds for exclusion:

  • Substantial implementation – if approved, the changes would specify that a proposal may be excluded if the company has already implemented the ‘essential elements’ of the proposal
  • Duplication – the amendments would specify that a proposal ‘substantially duplicates’ another proposal previously submitted for the same AGM if it addresses the same subject matter and seeks the same objective by the same means
  • Resubmission – the amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s previous shareholder meetings.

The initiative follows the SEC’s division of corporation finance in 2021 updating guidance on its process for deciding whether to give no-action relief under Rule 14a-8. This was seen as making it less likely that the agency would grant such relief and, as such, mean that a wider number and array of ESG-related proposals would get onto proxy statements. Industry professionals say that expectation has come true.

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