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Apple's Board Embraces Democracy

Apple's Board Embraces Democracy

Apple's new majority-rule policy for electing board members may have far-reaching symbolic value. "As companies such as Facebook, Twitter and others go public and rely on global financial markets for their shareholding, they should do more to respect the wishes of the stakeholders," said N. Venkat Venkatraman, a management professor at Boston University. "Otherwise, the corporate governance is weakened."

By Erika Morphy MacNewsWorld ECT News Network
02/24/12 9:57 AM PT

Much of the activity at Apple's annual shareholder meeting was business as usual, according to reports. The company's directors and CEO Tim Cook were endorsed by a very wide margin. There was talk of the issues facing the company, such as what to do with that cash hoard, and why Apple hasn't handled the treatment of the factory workers issue better.

Another event occurred at the meeting -- seemingly small but quite crucial to Apple, its investors and probably the tech industry as a whole: Apple agreed to change the way it elects directors. Going forward, each director must receive a majority of votes instead of a plurality.

The measure was originally proposed by the California Public Employees' Retirement System, but Apple deep-sixed it on the grounds that it would be too complicated to implement.

Apple did not respond to our request for further details.

Unintended Consequences?

In practical terms, the move won't have much impact, said Jim Post, a professor of strategy and policy at Boston University School of Management. The nominating committee will be sure to take great care to make sure no candidate presented to the board will run into opposition.

"Substantively, it won't change the outcome in who is elected to the board of directors," he said.

On the other hand, the move could have some unintended consequences for Apple, which has been used to getting its way with shareholders, suggested Bruce White, professor of computer information systems at Quinnipiac University.

For example, Al Gore, who has more than his fair share of both fans and detractors, was one of the candidates up for re-election, White noted.

"With the new policy, if a majority vote was not to re-elect Mr. Gore to the board, he would be off; while the old policy -- even if a majority wanted him off the board, if even just one voted for him, he would return to the board," he explained.

Say 15 people do not want a particular person on the board, while 14 people do, White said. "In the old policy, that would mean 14 votes "for" and 15 "withheld" votes -- so the person would be elected, or re-elected. In the new policy, the person would not be elected to the board by a 15 to 14 majority vote."

Whether or not the move gives shareholders greater power in directing Apple, one point is clear: Apple's acquiescence on the matter is highly symbolic.

A Win for Corporate Governance

Apple's move to adopt the measure has delighted corporate governance advocates -- in large part because other tech companies are likely to follow suit.

The reason is two-fold, Paul Levinson, professor of communications and media studies at Fordham University, told MacNewsWorld. "Apple's success and iconic status make everything it does a model for others, including Facebook. And, democracy is always appealing."

Indeed, Apple's disdain for shareholders in the past has been thinly disguised, setting a poor precedent for other companies.

"As companies such as Facebook, Twitter and others go public and rely on global financial markets for their shareholding, they should do more to respect the wishes of the stakeholders," N. Venkat Venkatraman, a management professor at Boston University, told MacNewsWorld. "Otherwise, the corporate governance is weakened."

The Institutional Investor and Apple

Apple investors can thank their institutional counterparts -- the pension funds, the insurance companies, the mutual funds -- in large part for Apple's decision.

Apple has become a major stock for these companies, and it has become increasingly difficult to ignore their calls for transparency, Post said.

"This send a message to institutional investors that Apple recognizes the importance of their opinions. It says that this is no longer Steve Jobs acting like Apple is a privately held firm but that Apple will act like a publicly held company that is found in most institutional portfolios now," Post said.

These firms will likely mount a similar campaign with Facebook, said Venkatraman.

"I expect Facebook in the beginning to have relative small float in term of liquidity," he said, "but as institutional investors become more active, there will be greater pressure on transparency and participation."

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