To require incumbent directors to attract more than 50 per cent shareholder support to secure re-election to the board scarcely sounds controversial. Yet Apple, the highest flying of high-tech companies, is battling to ward off a shareholder resolution at its annual meeting on Wednesday that calls for precisely that.
Behind the proposal is Calpers, the Californian pension fund, which has been talking to 50 of the largest companies in its portfolio to request voting reform. It objects to the US plurality voting system whereby votes against a nominee for the board have no effect and re-election can take place even on the basis of only one favourable vote. In place of this farcical non-franchise, Calpers proposes majority voting in the interests of heightened accountability.
More than 69 per cent of companies in the S&P 500 have already adopted majority voting. So why should Apple, whose board includes a notable supporter of responsible governance in former vice-president Al Gore, say no?
The company’s rejection rests largely on what it calls “the unusual mechanics of California law” relating to the number of shares required for a quorum. In effect, an Apple director would have to have just more than 25 per cent of the outstanding shares to be re-elected under majority voting. Apple claims to be worried that it could lose all its directors simply because too few shareholders cast their votes. It fears the threshold has become more challenging since stock exchanges scrapped rules permitting brokers to cast their clients’ votes where there were no client instructions.
This is a curious argument, since the legitimacy of re-election on a turnout of only 25 per cent would anyway be highly questionable. Moreover, the quorum rule is healthy because it prevents companies bouncing things through on a small turnout and gives an incentive to ensure votes are cast. And since attempts to change the law to allow shareholders to put forward other candidates came to nothing last year, ejected directors could be reappointed anyway. That highlights the fact that majority voting is only a halfway house to sensible voting reform.
What makes Apple’s resistance all the more strange is that other Californian companies such as Cisco Systems and PG&E Corporation have adopted majority voting without apparent qualms. Apple is not, in other respects, a governance dinosaur. But on this issue, Calpers undoubtedly has the better of the argument.
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Behind the proposal is Calpers, the Californian pension fund, which has been talking to 50 of the largest companies in its portfolio to request voting reform. It objects to the US plurality voting system whereby votes against a nominee for the board have no effect and re-election can take place even on the basis of only one favourable vote. In place of this farcical non-franchise, Calpers proposes majority voting in the interests of heightened accountability.
More than 69 per cent of companies in the S&P 500 have already adopted majority voting. So why should Apple, whose board includes a notable supporter of responsible governance in former vice-president Al Gore, say no?
The company’s rejection rests largely on what it calls “the unusual mechanics of California law” relating to the number of shares required for a quorum. In effect, an Apple director would have to have just more than 25 per cent of the outstanding shares to be re-elected under majority voting. Apple claims to be worried that it could lose all its directors simply because too few shareholders cast their votes. It fears the threshold has become more challenging since stock exchanges scrapped rules permitting brokers to cast their clients’ votes where there were no client instructions.
This is a curious argument, since the legitimacy of re-election on a turnout of only 25 per cent would anyway be highly questionable. Moreover, the quorum rule is healthy because it prevents companies bouncing things through on a small turnout and gives an incentive to ensure votes are cast. And since attempts to change the law to allow shareholders to put forward other candidates came to nothing last year, ejected directors could be reappointed anyway. That highlights the fact that majority voting is only a halfway house to sensible voting reform.
What makes Apple’s resistance all the more strange is that other Californian companies such as Cisco Systems and PG&E Corporation have adopted majority voting without apparent qualms. Apple is not, in other respects, a governance dinosaur. But on this issue, Calpers undoubtedly has the better of the argument.
Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
source. http://www.ft.com/cms/s/0/a0c30680-3df5-11e0-99ac-00144feabdc0.html#axzz1Efe0tJID
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