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From Securities Regulation Daily, December 28, 2017

Apple may not omit shareholder proposal seeking human rights committee

By Jacquelyn Lumb

Apple Inc. may not omit a shareholder proposal from its proxy materials which recommends that the company establish a human rights committee to review, assess, disclose, and make recommendations to enhance its policy and practice on human rights. Apple sought to omit the proposal on the grounds that it related to ordinary business operations, but the staff was not convinced that that the proposal was not sufficiently significant to Apple’s business operations to warrant its exclusion. The staff cited Apple’s own statement in its no-action letter that the board and management firmly believe that human rights are an integral component of its business operations.

Operations in China. The shareholder proponent, in a supporting statement, raised concerns about Apple’s operations in China and whether the company sufficiently promotes human rights by offering products that are designed to help Internet users evade censorship by the Chinese government. The proponent cited news reports about Apple removing apps from a China store that help Internet users evade censorship and Apple bowing to Chinese censors.

Current practices. Apple’s website includes a statement that the company has a responsibility to protect the rights of all people in its supply chain, and to do everything it can to protect the environment. Apple also noted that it requires its suppliers to agree to adhere to its code of conduct and supporting standards, which it said goes beyond mere compliance with the law. Human rights standards factor into every decision that management makes in Apple’s day-to-day operations, and it has a dedicated vice president for environment, policy, and social initiatives who advocates for government policies that protect individual privacy and civil rights.

Apple said the new board committee proposed by the proponent would be redundant given its existing practices and policies. In addition, the company’s compliance with governmental laws and regulations, including those related to human rights, is a key management function. Management has specific knowledge of Apple’s operations in China and is in the best position to assess the requirements of those regulations and its response, the company advised.

Apple concluded that the proponent’s interest in its human rights strategy is fully aligned with that of the company, so it did not believe that the proposal required a vote of shareholders at the 2018 annual meeting.

Verizon Communications, Hewlett-Packard, and Goldman Sachs. The proponent countered that his proposal was basically the same proposal that he had submitted to other companies, such as Verizon Communications in 2017 and Hewlett-Packard and Goldman Sachs in 2013. It is not ordinary business to follow the law wherever a company does business even where the law requires it to violate basic human rights, the proponent wrote.

Staff response. In denying Apple’s no-action request to omit the proposal, the staff advised that the board’s analysis did not explain how this particular proposal would not raise a significant policy issue for the company. Accordingly, the staff did not believe the proposal could be omitted in reliance on Rule 14a-8(i)(7).

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