When Apple Inc. (AAPL) shareholders gather in the Steve Jobs Theater on Feb. 13 for the iPhone maker's annual meeting, they will cast votes on whether to establish a human rights committee on the company's board.
Shareholder Jing Zhao of Concord, Calif., who owns $2,000 worth of Apple stock, according to Apple's shareholder proxy, proposed setting a committee to establish human rights principles and report to the shareholders and the public.
"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," read a statement from Zhao, which Apple included in the proxy. The investor noted that he had made similar proposals to shareholders of Verizon Communications Inc. (VZ) , former Yahoo! parent Altaba Inc. (AABA) and Goldman Sachs & Co. (GS) .
Shares of Apple rose 1% to $174.07 on Wednesday, Jan. 3 and were up another 0.3% on Thursday afternoon. The stock is up about 50% in the last 52 weeks.
While Apple supplier Foxconn Technology Co. Ltd. has drawn scrutiny for working conditions, Zhao cites stories in the New York Times and Wall Street Journal about Apple's cooperation with Chinese government censors.
Apple asked the Securities and Exchange Commission for clearance to omit the proposal in a Nov. 20 email. The company said the proposal involved "ordinary business operations" that did not merit a vote at the annual meeting. The SEC denied the request on Dec. 21. Bloomberg wrote that Apple's request was the first by a company to block such a shareholder proposal.
UCLA School of Law professor Stephen Bainbridge suggested the SEC is wrong to require the inclusion of such proposals, writing that the motions force companies "to include statements adverse to its interests in its disclosure documents," in a blog post.
Apple argues that the committee is not necessary because of steps the company has already taken. The Audit Committee monitors business risks such as damage to its reputation. The company's "supplier responsibility team" works with partners to "make lasting change to improve lives worldwide," Apple added. The company publishes an annual report on working conditions, worker treatment and environmental effects of manufacturing.
"The proponent focuses on human rights in China, and in particular, access to the internet in China," Apple stated. "We do not have the option to ignore laws, either in China or in any other country where we provide products and services." If Beijing outlaws a virtual private network app, Apple says, it can not sell the app in China.
Chinese iPhone sales have declined in fiscal years 2016 and 2017, but have shown signs of a rebound. Apple's revenue in China grew by 12% in the fourth fiscal quarter, and UBS analyst Steven Milunovich called China a "swing factor" for Apple in fiscal year 2018.
"We increased market share for iPhone, Mac, and iPad during the quarter," Apple CEO Tim Cook said during a November earnings call. "We hit all-time revenue records for Services and for Mac for the PRC during the quarter."
Apple recommended that shareholders vote against the proposal, which requires a majority of shares voted at the meeting.
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