NEWS

By Phyllis Diamond

Nov. 1 — Apple Inc. can't omit from its 2017 proxy materials shareholder proposals that it amend its proxy-access bylaws and hire experts to reform its executive-compensation practices, the SEC staff said ( Apple, Inc., SEC No-Action Letter, 10/26/16; Apple, Inc., SEC No-Action Letter, 10/27/16).

The Division of Corporation Finance said it couldn't agree that the executive-compensation proposal is unduly vague or that it relates to an ordinary business matter. The proxy access proposal can't be omitted as substantially implemented, the division said.

Proxy Access

In the 2016 proxy season, companies asked the SEC staff for relief from proxy-access proposals more than any other shareholder resolution. The staff allowed most such proposals to be omitted based on 1934 Securities Exchange Act Rule 14a-8(i)(10), which allows companies to omit shareholder proposals that have been substantially implemented. However, late in the proxy season, the staff disagreed that H&R Block Inc. could exclude a proxy access proposal from shareholder activist James McRitchie and Myra Young as substantially implemented.

Drop Limits

In this case, McRitchie asked Apple to include a proposal that would:

•  raise the number of shareholder nominees eligible to appear in proxy materials;
•  drop limits on the number of shareholders that can aggregate their shares to meet 3 percent ownership requirements; and
•  drop limits on the re-nomination of shareholders nominees based on the votes received.

In a letter signed by Associate General Counsel Gene D. Levoff, Apple asked to omit the proposal as “substantially implemented” even though its proxy access bylaw doesn't “exactly match” the proposal.

The SEC staff didn't agree. In a letter signed by Special Counsel Evan S. Jacobson, it said it couldn't concur “that Apple's proxy access bylaw compares favorably with the guidelines of the proposal.”

The SEC staff consistently has denied no-action relief to companies where the proponent asks for modifications to proxy access bylaws and where the companies have made no such modifications, McRitchie told Bloomberg BNA in an e-mail Nov. 1. “Apple is no exception.”

Access ‘Lite.'

In his view, the staff's move “means that companies with proxy access ‘lite’ can continue to expect proposals to bring their bylaws into better alignment with best practices as outlined by the Council of Institutional Investors.”

"Proxy access at Apple is largely illusionary, since those most likely to use it cannot do so with a nominee group limitation of 20,” McRitchie said.

“Even if shareholders successfully used proxy access at Apple, they would be only able to elect one director under the current bylaws,” he said. “One director would likely have little impact, since it is unlikely they would even get a second on significant motions before the Board.”

Executive Comp

In the executive compensation proposal, Apple shareholder Jing Zhao asked Apple to include a proposal that the company “engage multiple outside independent experts” in order to reform its executive-compensation practices. Apple argued that the proposal could be omitted under Rule 14a-8(i)(7) as dealing with hiring decisions—a matter of ordinary business.

The SEC staff didn't agree. In a letter signed by Jacobson, it said the proposal “focuses on senior executive compensation” and can't be excluded under the rule.

Activists have been using shareholder proposals to show their disfavor with soaring pay in corporate America. The SEC staff this year has rejected requests by several companies for assurance they could omit compensation-related shareholder resolutions from their proxy materials.

To contact the reporter on this story: Phyllis Diamond at pdiamond@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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