Human rights a matter of 'ordinary business' for Apple

Nov 30, 2017
Shareholder proposal highlights products' inadequacy for promoting Chinese users' freedom of expression

Human rights have been a growing concern for companies observing best governance and IR practices. According to a recent study by KPMG, nearly three quarters of company reports across 49 countries recognize human rights as a corporate responsibility issue that needs to be addressed, and many blue-chip initiatives have been highlighted, such as Unilever signing a human rights charter or Microsoft’s partnership with the UN Human Rights Office.

Not all firms are getting good press on this matter, however. Last week it was reported on Dodd-Frank.com, a blog run by law firm Stinson Leonard Street, that Apple was seeking to exclude a proposal requiring the set-up of a human rights committee from its proxy materials.

In August 2017, Jing Zhao, an Apple shareholder, sent a letter to the California-headquartered firm submitting a proposal to be voted on at next year’s AGM. Zhao asked that a dedicated committee be established in order to ‘review, assess, disclose and make recommendations to enhance Apple’s policy and practice on human rights’ on the basis that the firm’s operations in China weren’t sufficiently promoting the latter.

‘There have been too many negative reports on Apple’s human rights policy and practice, mostly related to Apple’s operation in China for many years,’ the proposal reads. ‘For example, recently, the New York Times reported Apple Removes Apps From China Store That Help Internet Users Evade Censorship on July 29, 2017; the Wall Street Journal reported Get Used to Apple Bowing Down to Chinese Censors on August 7, 2017.’

The fact that the tech giant is building its first China-based data center run by a Chinese partner ‘responsible (…) for managing the sales of its services in the country and handling legal requests for data from the government’ strongly adds to the concern, Zhao highlighted.

In a letter to the SEC, Apple has asked to exclude the request from its proxy materials, citing rule 14a-8(i)(7), which allows the omission of proposals relating to a company’s ordinary business operations. ‘The purpose of the exception is ‘to confine the resolution of ordinary business problems to management and the board of directors, as it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting,’ the letter explains.

A Securities Exchange Act Release from 1998 has further stated that proposals could be rejected if they were attempting to ‘micromanage’ a company by ‘probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.’

According to Apple, a board is best positioned to determine whether a proposal ‘transcends ordinary business’, and in this case has determined that ‘senior executives’ focus on reviewing, improving and implementing policies designed to promote human rights make these matters an integral part of the ordinary business operations of the company, and the issues presented in the proposal as a whole fit squarely within the company’s ordinary business mission to safeguard and uphold human rights wherever it does business.

‘The board considered the fact that it, along with management, is regularly and actively involved in the consideration, oversight and reassessment of the company’s human rights policies.’

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