Corporate Democracy: Are Apple’s New By-Laws Shareholder-Friendly Enough?

Shareholder democracy is different from political democracy. For example, its basic participation rule is one-share/one-vote, not one-person/one-vote. Another difference is that corporate democracy sees shareholders vote by way of proxies rather than the conventional ballots we encounter in political elections. However, just as the rules governing political candidates’ access to a place on the ballot is a source of controversy in politics (e.g., “third” parties’ access to ballot positions in U.S. jurisdictions), there is an ongoing controversy over candidate access to a corporation’s proxy process for electing members of the board of directors.

In this Reuters news story, we learn that Apple, Inc. permits shareholders to nominate candidates for only one of the company’s eight seats on the board of directors. Moreover, shareholder nominations can come from a group of no more than twenty shareholders owning collectively at least 3% of Apple, Inc.’s outstanding shares. (Read: holders of smaller numbers of shares are effectively locked out of the nomination process for that one seat.) Apple’s new by-laws remove a further restriction hampering the nomination process for shareholders: that no one may be re-nominated for a board election who did not secure at least 25% of the proxies in the last two board elections.

This piece could be used to jumpstart a classroom discussion on the values informing corporate democracy and their similarities to and differences from those informing political democracy. >>>

LINK: With bylaw tweaks, Apple grants activist one of three wishes (by Ross Kerber and Stephen Nellis for Reuters)

Apple Inc’s board relaxed some rules for director nominations by outside investors but stopped short of broader changes sought by an activist shareholder.
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Just how much influence to give such investors has been a hot topic with the rise of activist shareholders who some executives fear may not have long-term corporate interests at heart. At Apple, this debate played out several years ago when billionaire activist investor Carl Icahn successfully urged an increase in share buybacks.
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Thursday’s filing said shareholders also could re-nominate a director candidate regardless of the level of support he or she had won in earlier elections. Previously, shareholders were prohibited from re-nominating candidates who had gotten less than 25 percent at either of the company’s last two annual meetings.
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Independent shareholder James McRitchie, who has pressed Apple to grant more proxy access rights, said the changes were welcome, especially on the re-nomination question. But he said Apple failed to address two of his other, larger concerns.

McRitchie said in a telephone interview that he would prefer there be no limit to the number of investors needed to reach the 3 percent threshold for nominating a director and that the board should change its terms to allow investors to nominate up to two directors to its eight-member board, up from one currently.

What do you think?

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