Apple investors say no to ESG-comp proposal

Feb 28, 2020
Issues on AGM ballot included freedom of expression

Apple shareholders have rejected three proposals, including one relating to sustainability and executive compensation, each of which the board had opposed.

The tech firm faced the shareholder proposals at its AGM, which took place on Wednesday at its base in Cupertino, California. One requested that the board’s compensation committee prepare a report ‘assessing the feasibility of integrating sustainability metrics into performance measures, performance goals or vesting conditions that may apply to senior executives under the company’s compensation incentive plans.’

The proposal defined sustainability as ‘how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term.’

Linking executive compensation to ESG-based metrics is expected to be an increasingly common shareholder request as pressure grows for companies to take such issues into consideration in terms of disclosure and strategy. In Apple’s case, the measure received 312,936,051 votes in favor but 2,282,664,277 against, according to an SEC filing.

The proponents wrote in the company’s proxy statement: ‘Effectively managing for sustainability offers positive opportunities for companies and should be a key metric by which senior executives are judged. Linking sustainability metrics to executive compensation could reduce risks related to sustainability underperformance, incentivize employees to meet sustainability goals and achieve resultant benefits, and increase accountability.’

They added: ‘Numerous studies suggest companies that integrate [ESG] factors into their business strategy reduce reputational, legal and regulatory risks and improve long-term performance.’

The board had recommended that shareholders vote against the measure. It wrote in the proxy statement that ‘Apple cares deeply about the people who build our products and the planet we all share’ and noted that each year the company issues a supplier responsibility progress report and an environmental responsibility report outlining its efforts toward reaching ESG-related goals.

Apple’s executive compensation program involves incentives ‘focused on commonly recognized measures of overall company performance and profitability that drive long-term shareholder value creation,’ the board wrote.

It added: ‘Preparing a report to assess the feasibility of integrating sustainability metrics into the incentive compensation plans of our senior executives would not further the environmental and social ideals that we already embrace in our business practices. An effective approach to sustainability, as that term is defined by the proponent, requires more than simply tying executive compensation to the achievement of [ESG] goals.’

Another shareholder proposal requested that the board report each year regarding the company’s policies on freedom of expression and access to information, including ‘whether it has publicly committed to respect freedom of expression as a human right; the oversight mechanisms for formulating and administering policies on freedom of expression and access to information; and a description of the actions Apple has taken in the past year in response to government or other third-party demands that were reasonably likely to limit free expression or access to information.’

The proponent noted that Apple sells products and services in countries where governments limit free expression and punish dissent, such as China. It stated that ‘Apple has co-operated with requests made by the government of China to restrict free expression and access to information’ ­– for example, by removing almost all virtual private network providers’ apps from its Chinese app store following a request from that country’s government.

The board again opposed the proposal, stating: ‘Free expression is central to our company and its success, and we hold passionately to the belief that the world is made better when more people enjoy greater freedom in more places. In the countries in which we operate, we have an obligation to comply with local laws and to protect the safety of our customers and employees. For example, local law may require us to limit the availability of a particular app in the app store.’

It added: ‘[W]hile we may disagree with certain decisions at times, we do not believe it would be in the best interests of our users to simply abandon markets, which would leave consumers with fewer choices and fewer privacy protections.’

Shareholders voted down the proposal, but it received more support – almost 41 percent – than the executive compensation measure, with 1,005,572,589 votes for and 1,468,580,016 against.

A final shareholder proposal asked Apple’s board to amend its proxy access bylaw in such a way as to increase the potential number of director nominees. Specifically, the number of shareholder nominees eligible to appear in proxy materials would be 20 percent of the directors then serving or two, whichever is greater.

The proponent stated that current proxy access bylaws restrict shareholder nominees to 20 percent of directors rounded down to the nearest whole number. With Apple having eight directors, 20 percent rounded down to the nearest whole number is one, so shareholders can nominate only one director, the proponent added.

The board recommended that shareholders vote against the proposal, stating: ‘We continue to believe that the changes advocated by the proponent are not necessary because Apple shareholders already have an effective mechanism for proxy access.’

It argued that the proposed changes might have unintended effects that could harm shareholder value, such as promoting the use of proxy access to ‘lay the groundwork for effecting a change of control; encouraging the pursuit of special interests at the expense of a holistic, long-term strategic view; or otherwise disrupting the effective functioning of the board.’

The proposal was backed by 808,812,063 votes (31 percent) versus 1,790,041,302 votes against.

An Apple spokesperson did not respond immediately to a request for comment.

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