The people and
companies driving the innovation of Silicon Valley
new way to deny investors ’say on pay’
Troy Wolverton on
April 24th, 2009 at 6:07 pm
Sometime in the last year,
Apple seems to have changed the way it tallies shareholder votes.
annual meeting with investors in February, Apple announced that
shareholders had voted down all investor-sponsored proposals, including a
widely watched one that urged the company to allow shareholders to vote
every year on its executive compensation practices.
The result was something of a
surprise, given that a similar say-on-pay proposal had passed the previous
year and the say-on-pay movement has been gaining strength ever since.
Because Apple doesn’t
immediately report voting tallies, it wasn’t immediately clear how much the
vote had shifted year over year to turn a victory into a defeat for
Apple finally cleared up the
matter on Thursday when, inside its
latest quarterly financial report, it released the voting results from
its meeting. And, indeed, there were significant changes in the “say on pay
To wit, shares voted in favor
of the proposal increased by more than 20 million shares; shares voted
against it increased by nearly 11 million; and shares that abstained from
voting fell by nearly 19 million.
“But wait a second,” you
might say, “the net results of that change means that more votes at Apple
were cast in favor of ’say on pay’ this year than last.” Which might lead
you to wonder how the resolution passed last year and failed this year.
To which I’d respond:
Inside its quarterly report,
Apple noted that if you combine the number of shares that voted against “say
on pay” with those that abstained from voting on the matter, some 51.7
percent of shares voted at this year’s meeting did not vote in favor of the
resolution. To put it a different way, only 48.3 percent of total votes were
voted in favor of it.
But, as can be gleaned from
the numbers above, if that’s the way Apple counts shareholder votes, “say on
pay” was even more clearly defeated
last year, when only 45.7 percent of total shares were voted in favor of
the proposal. So, why did it report that the proposal won last year?
Apple spokesman Steve Dowling
couldn’t immediately explain the discrepancy, but said he would look into
What seemed clear last year
was that Apple, when tallying shareholder votes, threw out those that
abstained. If you do that and look just at those shares that were voted for
or against “say on pay,” you find that about 50.7 percent of shares voted in
favor of the proposal last year. That proportion rose to 51.6 percent of
shares at this year’s meeting.
As might be expected, that’s
how shareholder activists look at the tallies and expect companies to do so
too. Including abstentions in determining whether a shareholder proposal
passed or failed is rare in corporate America, said Scott Adams, a pension
analyst at the
American Federation of State, County and Municipal Employees (AFSCME)
union, which sponsored the “say on pay” proposal at Apple’s meeting this
year. Adams charged that Apple changed the rules after losing the vote on
such a basis last year.
“Clearly, they’re trying to
game an election,” he said. “It’s clear that Apple doesn’t care what
shareholders say (about) improving corporate governance at the company.”
Whether or not abstentions
should be counted in tallying shareholder votes isn’t necessarily all that
clear. Shareholder activists point to an
obscure memo from Securities and Exchange Commission staff to support
their position. But at least some companies have it in their bylaws that
abstentions must be counted and included as a vote not in favor of a
What is clear, though, is
that companies can’t just randomly change their methodology from year to
Gary Lutin, chairman of the
Shareholder Forum, a group which has held a series of discussions among
investors about “say on pay” and other corporate governance-related issues.
“People can argue for either
one method or the other for calculating votes, but you do have to be
consistent about it,” Lutin said.
Regardless of how Apple
tallies the votes, what has been consistent is that shareholders
representing a sizable portion of Apple shares favors having a “say on pay”
at the company.
Since 2007, the number of
shares voted in favor of the proposal has grown from 230.5 million to 266.3
million. Including not just abstentions, but non-voted shares, those in
favor “say on pay” at Apple have gone from about 26.7 percent of all shares
to 29.9 percent.
(In contrast, the shareholder
proposal that was the next most popular after “say on pay” at this year’s
Apple meeting was supported by shareholders representing about 90 million
shares or just 10 percent of all outstanding shares.)
What’s also been consistent
is the company’s resistance to adopting “say on pay” — or even somehow
responding to shareholder support for the issue — no matter its popularity
among shareholders at Apple, its support among investors in general or the
wider political climate.
Along those lines, Dowling
declined to comment on how Apple might respond to this latest vote on “say
on pay.” Adams, of course, was more than willing to comment on how Apple has
responded in the past.
Apple’s “still got the iron
first of Steve Jobs and his belief that shareholders’ voices are not
important,” he said.
Apple’s governance practices
have been under scrutiny since at least the turn of the millenium, when the
company’s board awarded CEO Steve Jobs two massive stock options grants and
an airplane worth $90 million, including the taxes the company paid on Jobs’
behalf that he owed for the receipt of the plane.
Such concerns were revived in
2006 when the company acknowledged that Apple officials had backdated
thousands of options grants in preceding years, that Jobs had been the
beneficiary of a backdated grant, that the CEO was aware that others were
backdated and that he had even helped pick dates for certain grants.
investigation cleared Jobs of wrongdoing, though, and federal investigators
declined to press charges against him.
More recently, though,
Apple’s governance again raised the ire of investors with how the board has
handled information about Jobs’ health. Despite reports and widespread
speculation that Jobs was inpoor health, Apple said little about his status
for months. Earlier this year, Jobs issued a statement saying he was
essentially fine. Then little more than a week later, he turned around and
said he was essentially taking a five-month sabbatical from the company.