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Apple CEO Cook Signals New Era in Heeding Shareholder Concerns

Apple Inc. (AAPL) Chief Executive Officer Tim Cook, who yesterday told investors they would get more say in picking board members, signaled greater willingness than his predecessor to heed the concerns of his company’s shareholders.

Apple said at its annual shareholder meeting that it would adopt a policy that says a majority -- rather than only a plurality -- of shareholders is needed to elect directors. Cook also reiterated that the company is exploring how to use its $97.6 billion in cash in investments, responding to investors’ criticism that its balance sheet holds too big a hoard.

The shifts, following last month’s decision to open supplier factories to inspections by an independent labor organization, may indicate a new era in Apple’s interaction with investors. Anne Simpson, head of corporate governance for the California Public Employees’ Retirement System, said the changes are befitting of the world’s most valuable company.

“This is setting the stage for a much more open dialogue with investors,” said Simpson, who led a more than two-year effort to persuade Apple to change its stance on board elections. “Apple is entering a new phase. Rethinking capital distribution, its global footprint and corporate governance is something 10 years ago that it wouldn’t have had to consider.”

Shares of Cupertino, California-based Apple rose 1.2 percent to $522.36 at 1:30 p.m. in New York. The shares had climbed 28 percent this year before today.

Majority-Vote Change

Investors at yesterday’s meeting passed a nonbinding measure in favor of the board-election change. The resolution calls for board members to elected by more than 50 percent of shareholders voting. Previously, a director could be voted in simply by getting more yes votes than those opposed -- even if most shareholders hadn’t voted in the person’s favor.

Apple didn’t adopt a similar initiative approved at the gathering last year, saying the change would cause board members to lose seats in cases where too few shareholders cast votes.

Corporate-governance experts say that requiring a majority vote gives shareholders more influence over board composition. More than 80 percent of companies in the Standard & Poor’s 500 Index already have majority-voting measures, said Robert J. Jackson Jr., an associate professor at Columbia Law School.

“Apple’s move is really just catching up with the best governance practices of other companies of its size and scope,” said Jackson, who studies corporate governance issues.

Photographer: Kevork Djansezian/Getty Images

Apple Inc. Chief Executive Officer Tim Cook. Close

Apple Inc. Chief Executive Officer Tim Cook.

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Photographer: Kevork Djansezian/Getty Images

Apple Inc. Chief Executive Officer Tim Cook.

‘Steady Progression’

All of the board members on the slate were elected by a wide majority: Genentech Inc. veteran executive Art Levinson, who serves as Apple’s chairman; Intuit Inc. Chairman Bill Campbell; former U.S. Vice President Al Gore; Walt Disney Co. CEO and Chairman Bob Iger; former head of Northrop Grumman Corp. Ron Sugar; J. Crew Group Inc. CEO and Chairman Mickey Drexler; Avon Products Inc. Chairwoman Andrea Jung; and Cook.

Yesterday’s meeting was the first since the death of Jobs, who sometimes eschewed interaction with shareholders. Apple’s evolution is natural because Cook’s previous role as chief operating officer made him more involved with investors, said Brian Marshall, an analyst at ISI Group.

“It’s not a 180-degree turn,” Marshall said. “This is more a slow, steady progression. No two people are created alike, and that’s the case with Steve and Tim. He’s putting his own mark on the company, slowly but surely.”

Cook said Apple was holding “active discussions” about what to do with its cash and investments, saying the stockpile was “more than we need to run a company.”

Rising Cash Pile

“The board and management team are thinking about this very deeply,” said Cook, reiterating earlier comments.

The money pile, which includes short- and long-term investments, has risen more than 63 percent since last year’s annual meeting of shareholders.

“If they want to deploy the cash for the benefit of shareholders, that’s a good thing,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “At least they’re talking about doing something with the cash now.”

Cook said he’s not convinced of the effectiveness of a stock split, though the company didn’t elaborate on how it might spend cash.

One option is to return part of the amount to shareholders in the form of a dividend, which provides a recurring payment to shareholders, typically each quarter. The company could also pay a one-time dividend, similar to the one Microsoft Corp. paid in 2004.

Microsoft’s Footsteps

Flush with cash, the Redmond, Washington-based software maker said in July of that year that it would return $75 billion to shareholders over four years, including a $32 billion one- time dividend of $3 a share.

Analysts at Morgan Stanley, JPMorgan Chase & Co., Mizuho Securities USA Inc. and Sterne Agee & Leach Inc. predict that Apple will institute a dividend some time soon.

“The likelihood of it happening is higher than ever,” Shaw Wu, an analyst at Sterne Agee, wrote today in a research note. He’s predicting a dividend that would yield 2 percent to 3 percent.

Apple last paid a dividend in 1995, before co-founder Jobs returned as CEO to set in motion a revival at the struggling company. The final dividend, of 12 cents a share, was announced on Oct. 6, 1995. The company stopped paying the dividend amid leadership upheaval and dwindling computer-market share.

In the years since then, the introduction of the iPod, iPhone and iPad have turned the company into a profit engine, letting it accumulate a stockpile of cash and investments that exceeds the market value of Citigroup Inc. Jobs had long rebuffed calls to return the money to investors.

No Greek Bailout

Instituting a dividend would provide a long-term boost to Apple’s stock price by bringing in a new class of investors who only buy shares in companies with a dividend, according to Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co.

At yesterday’s meeting, investors also voted down a proposal calling for Apple to release a “conflict of interest report” that outlines how board members may financially benefit from company decisions. Another rejected measure would have asked Apple to release a report on its political contributions and expenditures. The company opposed those initiatives.

Responding to a question from a shareholder, Cook said Facebook Inc. (FB), the world’s largest social-networking company, is more of a “friend” than a competitor. Apple and Facebook “could do a lot more together,” he said.

Cook also said Apple was working on new products that will “blow your mind.”

Turning the conversation back to cash, an investor asked whether Apple would consider using its cash to buy Greece, which faces a debt crisis.

“We’ve looked into many things,” but not that, Cook said.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

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