Time & Attendance
By Staff Report
Feb. 25, 2011
While more stringent Securities and Exchange Commission guidelines calling for greater corporate transparency have many companies assessing their succession plans and other areas of corporate governance, Apple Inc. shareholders rejected a proposal Feb. 23 to disclose their plan for finding a replacement for CEO Steve Jobs, who announced last month that he is taking his third medical leave.
The proposal, which was filed in August by the Central Laborers’ Pension Fund in Jacksonville, Illinois, asked the maker of the iPhone and iPad to amend its corporate governance guidelines to publicly outline a written CEO succession plan and provide shareholders with yearly written reports.
But Cupertino, California-based Apple’s board of directors urged shareholders to reject the proposal, arguing that publicizing its succession plans and forcing the company to identify candidates would give competitors an unfair advantage and “undermine the company’s efforts to recruit and retain executives,” according to its proxy statement for the 2011 annual shareholders meeting.
“Apple misconstrued its intent,” says Jennifer O’Dell, assistant director of corporate affairs for the Laborers’ International Union of North America, many of whose members contribute to the Central Laborers’ fund, which owns about 11,000 shares of Apple stock.
“They suggested we wanted to know the names, but that couldn’t be further from the truth,” she says. “We agree 100 percent that they shouldn’t give out information that names a successor or gives away a business strategy. Instead, we want to know that they are thinking about this issue and putting time and energy into it. None of that gives away any kind of competitive advantage.”
David Larcker, director of the Corporate Governance Research Program at Stanford University’s Graduate School of Business, says it’s important for shareholders to know that a succession plan is in place, but he doesn’t see the need for companies to expose “the gory details.”
“I find putting this on the agenda for a vote to be a little over the top,” Larcker says. “In Apple’s case, clearly the board has thought about this. What I want to know if I’m a shareholder is that if something happens that you have a plan in place. I don’t need to know specifics. You want to be careful about releasing proprietary information.”
Indeed, Apple’s board stressed in its proxy statement that a succession plan is in place, which would make adoption of the proposal unnecessary.
But in the wake of SEC guidelines issued in the fall of 2009, Larcker and other experts say that shareholders are becoming more vocal about matters of corporate governance. The regulations provide support for shareholders demanding more transparency around CEO succession planning by eliminating the “ordinary business exclusion” defense used by companies reluctant to disclose their plans
“Shareholders, like Apple’s, can now make a proposal to companies that they disclose their succession plans,” says Bruce Newsome, a lawyer who is a partner in the corporate/securities practice in the law firm Haynes and Boone. “This used to be considered company business but now that’s excluded. Shareholders now have an avenue to put it to a shareholder vote and more will take advantage of it.”
O’Dell says that the union has filed similar proposals with more than 30 corporations since 2009 and most, including Allstate Corp., Comcast Corp., Hewlett-Packard Co., Verizon Communications Inc., and Whole Foods Market Inc., adopted them without fanfare.
“Most companies say, ‘Oh, this is an easy one; we already do all of this. It’s a part of our culture,” O’Dell says.
She says the union plans to refile their proposal with Apple in 2011.
“If they continue to ignore us, we will hold the directors accountable and withhold our vote for re-election. This is definitely not over.”
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