Under other circumstances, Apple’s annual meeting today might be a celebration of the company and CEO Steve Jobs.
Apple’s stock price is soaring. Sales and profit are growing rapidly. Its Macintosh computers are gaining market share. Its iPod players and iTunes store dominate the digital music scene. And the long-anticipated iPhone is imminent.
Yet this year’s shareholder meeting at corporate headquarters in Cupertino probably won’t be a love-fest.
Even with all that’s going in the company’s favor, there’s more than an undercurrent of discontent. Prominent research firms are urging shareholders not to vote for the re-election of most of Apple’s board in light of its handling of the company’s stock-option-backdating controversy. Activist shareholders are calling for the company to change the way it grants options to senior executives and to reform its executive-pay practices.
“There’s a lot of different issues at Apple,” said Rich Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees union, which plans to send a representative to Apple’s meeting.
Still, for all the Sturm und Drang that the meeting may bring out, at the end of it, Apple’s board probably will still be in place and its policies unchanged. For many investors – the majority of whom likely won’t be at the meeting but will vote on the company’s directors and the non-binding proposals presented there – a company’s financial performance trumps concerns about how executives are paid.
Such concerns are just “noise,” said one portfolio manager who owns Apple’s stock, but asked not to be named.
Much of the disgruntlement that might be voiced at the meeting stems from Apple’s acknowledgment last year that it regularly backdated stock options in the late 1990s and earlier this decade. The board has drawn fire not only for allowing the practice, but for what some investors and analysts see as a shoddy, compromised internal investigation into the matter.
That investigation found Chief Executive Jobs received a large backdated grant, was aware of backdating at the company and picked favorable dates in some cases. But it found Jobs didn’t commit wrongdoing. Instead, the company largely blamed two unnamed executives, later identified as Nancy Heinen, the company’s former general counsel, and Fred Anderson, its former chief financial officer. The Securities and Exchange Commission filed civil fraud charges against both. Anderson settled with the agency, but Heinen is fighting the charges.
Some analysts and investors have criticized the board for not disclosing more information about the internal investigation and questioned the board’s decision to clear Jobs.
The company “has seemingly absolved Mr. Jobs of all blame in an attempt to whitewash the backdating scandal as being the result of a few bad apples,” research firm Glass Lewis said in a report late last month. “In our view, the special committee’s finding that there was not misconduct by any member of (Apple’s) current management team raises questions about its credibility.”
Glass Lewis and Institutional Shareholder Services, both of which advise big investors how to vote on proposals at company meetings, urged shareholders to withhold votes from nearly all of Apple’s directors, excluding Jobs.
Withholding votes is largely symbolic at most companies, because directors generally run unopposed and can be re-elected with as little as one vote. Still, if they draw widespread support, such actions can send a message and spur change.
Cody Willard, a New York-based hedge-fund manager, said he “100 percent agrees” with the notion of withholding votes from Apple’s directors. Backdating deceived shareholders and was tantamount to theft, he said. But the board’s actions indicate it was more concerned about protecting Jobs from being forced out than standing up for shareholders, he said.
“I don’t care that Jobs may get in trouble,” said Willard. “I need to know that the CEO of my company is not actively trying to steal the value of my shares.”
But other shareholders were more willing to forgive and forget Apple’s backdating business. Alan Lowenstein, a portfolio manager for American Fund Advisors in Great Neck, N.Y., said he plans to vote to re-elect all of Apple’s directors. “If they were (backdating) today, it would be major concern. But it happened four years ago now,” Lowenstein said. “I think you learn from that.”
Separate shareholder proposals up for a vote would urge Apple to adopt a policy prohibiting future backdating of options to executives; allow investors to vote yearly on executive pay; tie executive pay to predefined standards of company performance; and require executives to hold on to a sizable chunk of their options or shares.
“We’re very concerned about the options scandal,” said Julie Gazon, the director of corporate governance at Amalgamated Bank, which will have a representative at Apple’s meeting.
The labor-union-backed institution proposed the resolution targeting backdating and voted in favor of the three other executive-pay proposals, Gazon said. Even though Apple’s financial performance has been outstanding lately, Gazon noted that backdating forced the company to restate earnings and delay filing some financial reports, and led to shareholder lawsuits.
“Adopting a best-practices policy can only enhance its performance,” Gazon said.
Contact Troy Wolverton at twolverton@mercurynews.com.
