San Jose Mercury News
funds joined Apple dissenters
OPPENHEIMER, VANGUARD VOTED WITH ACTIVISTS
San Jose Mercury News
Launched:09/19/2007 01:40:46 AM PDT
When Apple held its
annual meeting in May, activist investors made a lot of noise about the
company's backdating scandal and the job Apple directors were doing.
It turns out that these
generally small but vocal shareholders weren't alone in their concerns. Many
of the leading mutual fund investors in Apple - including household names
such as Vanguard and Oppenheimer - sided with the activists, recent
regulatory filings reveal.
"It's pretty clear that
you had a much broader rebellion than Apple would like the investing public
to believe," said Patrick McGurn, special counsel at the corporate
governance unit of RiskMetrics, a financial research firm that advises
investors how to vote in corporate elections.
An Apple representative
was not available for comment.
Of the 50 mutual funds
with the largest stakes in Apple, at least 38 voted against Apple's
management on at least one issue. And at least 18 of those decided not to
vote for two or more of the company's directors up for re-election.
Vanguard, for instance,
withheld its votes from Apple directors Bill Campbell, Art Levinson and
Jerry York, who make up the company's audit committee, which oversees the
company's financial statements. One of the upshots of Apple's backdating
investigation was that it was forced to restate and lower its past earnings
by $84 million.
Vanguard is the
fourth-largest institutional investor in Apple, holding some 23.9 million
shares at the end of June, according to FactSet Research's LionShares site.
Like many mutual fund
companies, Vanguard does not comment on particular shareholder votes. The
company's voting guidelines state that Vanguard will vote against members of
particular board committees when the actions of that committee are
"inconsistent with (Vanguard's) other guidelines."
Last year, Apple
revealed that it had backdated about 6,400 options grants from 1997 to 2002.
The board said it found no wrongdoing by current management, but said its
investigation had raised "serious concerns" about two former executives,
whom it did not identify.
Earlier last year, Apple
said former Chief Financial Officer Fred Anderson had resigned from the
board, and that Nancy Heinen, the company's longtime general counsel, had
quit her job.
The Securities and
Exchange Commission this year charged Heinen and Anderson with violating
securities-fraud laws for their involvement in backdating at the company in
2001. Anderson simultaneously filed a settlement with the SEC that requires
him to pay $3.5 million in fines and penalties, but not to admit liability.
Heinen is fighting the charges.
investors went further than Vanguard. Funds managed by T. Rowe Price,
Oppenheimer and Transamerica, for instance, declined to vote for the
re-election of any Apple director except Chief Executive Steve Jobs.
Oppenheimer and Transamerica declined to comment on their company's Apple
votes. Representatives for T. Rowe Price were not available.
The funds' votes, which
they revealed late last month, follow Apple's own disclosure in August that
nearly half of the shares voted at its annual meeting were cast in favor of
a shareholder proposal that would essentially bar the company from
backdating stock options. Apple also revealed that more than a third of
shares voted were withheld from directors Campbell, Levinson and York.
Mutual funds typically
vote with management, especially when the company, like Apple, has seen its
share price do so well. But they have become increasingly willing to
challenge corporate managers.
Jobs has apologized for
his role in the scandal and promised not to let the issue recur.
To be sure, not all
mutual fund managers were up in arms. At least three of the top 50 mutual
funds sided with management. (Voting records for some funds were not
Even among those
investors that took stronger stands, outrage at Apple's board could fade
with time, particularly if the company's stock price continues to boom.
Apple shares are up 66 percent for the year and 31 percent just since the
But Apple shouldn't
expect the issues to just fade away, said Nell Minow, editor of the
Corporate Library, a research and watchdog group.
"If the shareholders
feel that the board isn't getting the message, they will continue delivering
the message more and more forcefully until the board does," Minow said.
Copyright 2007 San Jose Mercury News