The Activist Investor Blog
The Activist Investor Blog
What Just Happened at the AAPL Annual Meeting?
When Apple CEO Tim Cook says "If you want me to do things only for ROI reasons, you should get out of this stock," it gets attention. What prompted his “angry” answer to a shareholder question? And what should investors make of this?
We think Cook properly told off the oddball shareholder who asked the question. We also disagree strongly with his rationale for telling off that shareholder.
Not Just Another Shareholder, or Proposal
It started with a shareholder proposal at the annual meeting, which took place last week (Friday, February 28). If one didn’t pay close attention, Proposal 9 in the 2014 Proxy Statement simply demands disclosure of trade association memberships. We’ve seen many of these, part of an ongoing effort by labor union pension funds to improve disclosure of corporate political and lobbying expenditures.
But wait, who filed this one? The National Center for Public Policy Research (NCPPR)? A Washington, D.C. think tank “dedicated to providing free market solutions to today's public policy problems,” it researches and advocates for deeply right wing policy on a range of issues. Not exactly who’d we expect to get on the same side as labor unions at a corporate annual meeting.
But, this is no ordinary conservative think tank, or shareholder proposal. Most other think tanks write papers and testify to Congressional. This one makes its points at the annual meetings of iconic corporations. They’ve submitted similar proposals at General Electric, Monsanto, Walgreens, Home Depot, and Costco.
They’ve also mixed it up with AAPL at least once before. In 2012, they proposed a resolution seeking an investigation into BoD member Al Gore’s potential conflicts related to Apple’s policy on greenhouse gas emissions. That proposal garnered less than 2% of the votes.
The proposal also deceives. While it seeks better disclosure of trade association costs, it confines the scope to associations that promote “sustainability.” The proposal essentially seeks a disclosure of the cost of Apple’s membership in environmental sustainability groups, such as the American Sustainability Business Council (ASBC). Based only on the proposal content, it seems that NCPPR wants to allow investors to weigh the costs and benefits of Apple’s participating in these organizations.
A Senseless Proposal
This proposal does not belong on the annual meeting agenda. Apple executives should decide which associations make sense for its business, without interference from investors. The cost of membership in all of its business associations doesn’t come close to material for shareholders to consider. We actually wonder why Apple didn’t succeed in excluding it as “ordinary business”, or whether they even tried.
Does NCPPR instead seek a more general debate over the extent to which Apple should follow sustainable business practices? If so, we disagree that shareholders should consider even this subject, and should leave it to management to decide. In any event, if NCPPR wants that debate, the proposal doesn’t come close.
The proposal could also express what amounts to an intramural fight between NCPPR and sustainability groups such as ASBC. Perhaps NCPPR thinks that revealing sustainability groups’ supporters might diminish that support. If so, that fight hardly belongs at Apple’s annual shareholder meeting.
A More Senseless Response
Apple captured these points perfectly in its opposition statement in the proxy materials:
[Apple] is constantly monitoring and reviewing its participation and membership in associations and initiatives, and believes the reporting that would be required by this proposal is not necessary to protect shareholder value.
Cook, though, botched it when this item came up at the annual meeting. In presenting the proposal, the NCPPR proponent evidently asked Cook to undertake only “profitable” projects, implying that sustainable practices aren’t profitable. In response, Cook evidently went bonkers, or bonkers for him:
❖“We do a lot of things for reasons besides profit motive. We want to leave the world better than we found it.”
❖“When we work on making our devices accessible by the blind, I don't consider the bloody ROI.”
❖“If you want me to do things only for ROI reasons, you should get out of this stock.”
Rational investors have a big problem with this way of thinking.
Stated differently, Apple should disclose what things it does “for reasons beside profit motive.”
And, Apple investors absolutely should want Cook to “do things” only for ROI reasons. We can’t think of any other reason for him, or any other corporate CEO, to do things.
If any CEO persists in thinking that we investors want he or she to do things for any other reason than ROI, we don’t want to be told to get out of the stock. Instead, we will tell that CEO to get out of the company.
Tuesday, March 4, 2014