Shareholder advisory firm criticizes Apple's board

With Apple’s annual shareholder meeting just a week away, the company’s current board of directors is getting a cold shoulder from a leading advisory firm for institutional investors. Proxy advisory firm Institutional Shareholder Services is recommending that investors withhold their votes for most of Apple’s current board at the May 10 shareholder meeting, citing the stock-option backdating investigation that culminated in the SEC settling with one former Apple executive while pursuing a case against another.

ISS has told its clients to withhold votes for all members of the past and present compensation committee—Millard S. Drexler, William V. Campbell, Al Gore, and Arthur Levinson—and the special committee—Gore, Jerome B. York, and Eric E. Schmidt. Apple CEO Steve Jobs was left off the ISS’s list.

“As for Steve Jobs, ISS will continue to monitor the situation as it unfolds and update our vote recommendation, if necessary,” the ISS report said.

The recommendation from ISS is unlikely to cost current board members their seats, given that Apple uses a plurality or “single winner” voting system to select board members. But its report said that a “no” vote on the targeted board members would “serve as a strong signal” to the board about investor unhappiness in the wake of an investigation into Apple’s stock-option backdating practices.

ISS cited several concerns with the how Apple’s board conducts business. Specifically, its report criticizes Apple for not providing shareholders with details about the safeguards it plans to impose to prevent a repeat of the backdating practices that drew the attention of the Securities and Exchange Commission. Further, ISS contends that Apple provides no details about the timing of its equity awards or the grant approval process. It also criticizes the members of Apple’s compensation committee and the special committee for failing to cancel, re-price the backdated options or recoup the gains of exercised options received by executives in January 2001.

This is not the first time Apple has raised the ire of the ISS. In 2003, the proxy advisory firm recommended withholds from almost all members of the board, including Steve Jobs, for conducting an option exchange program without prior shareholder approval.

“Once again, Apple is displaying a pattern of poor pay practice and disregard for shareholders’ input on compensation issues at the company,” the ISS report said. “The Apple board’s handling of the entire options imbroglio does not inspire investor confidence.”

Apple holds its annual shareholders meeting on May 10, 2007, at the company headquarters in Cupertino, Calif.

Last week, the SEC alleged that former Apple general counsel Nancy Heinen helped backdate options given to Apple’s top executives, causing the company to under-report expenses by almost $40 million. Similar charges against former chief financial officer and board member Fred Anderson were settled when Anderson agreed to pay $3.5 million in penalties. Anderson blamed the backdating imbroglio on Jobs, a statement that brought a public rebuttal from Apple’s current board members.

Subscribe to the Best of Macworld Newsletter

Comments