Apple Inc. (AAPL), facing behind-the-scenes pressure from some shareholders to add more female directors and executives, has taken a step to address the criticism and diversify its board.
The world’s most valuable company recently added language to a board committee charter vowing to diversify its board. The move follows objections from shareholders Trillium Asset Management LLC and the Sustainability Group, who said they’re disappointed that the iPhone maker has only one woman on its eight-member board, and one incoming female member of the executive team that reports to Chief Executive Officer Tim Cook.
The shareholders met with Apple representatives several times in the past few months and said they would bring the issue to a vote at a Feb. 28 shareholder meeting. They said they backed off after Apple added language to the charter that promises to consider women and minorities as board candidates, without making any specific commitments.
“There is a general problem with diversity at the highest echelon of Apple,” said Jonas Kron, director of shareholder advocacy at Boston-based Trillium, which manages $1.3 billion. “It’s all white men.”
The new language shows how scrutiny of Apple’s diversity practices has now ramped up after other Silicon Valley companies faced questions over their male-dominated leadership ranks. Social-networking companies Facebook Inc. and Twitter Inc. (TWTR) were criticized leading up to their initial public offerings for not having any female directors.
Only 17 percent of board seats on Fortune 500 companies and 15 percent of executive officer positions were held by women in 2013, according to a report last month by Catalyst Inc., a non-profit researcher.
“There is a lot of room for improvement,” said Larisa Ruoff, who runs shareholder advocacy and corporate engagement for the Sustainability Group, which manages more than $1 billion as part of Loring Wolcott & Coolidge Trust LLC. “We live in an increasingly complex global marketplace, and the companies that can hire, attract and retain women and people of color are better equipped to capitalize on global opportunities and avoid missteps that may not be apparent to a more homogeneous group.”
The Sustainability Group said it sent a letter to Apple in August, seeking to get the company to address diversity issues. The group also filed a proposal to be considered at Apple’s February shareholder meeting that would ask the company to make adding women and people of color a priority, and to report back to investors on how it’s making those changes.
The Sustainability Group, working with Trillium, had about five meetings with Apple’s investor-relations team and worked out a compromise in which the company added new language to the board committee charter, Ruoff said.
“This is an issue the company is taking seriously, and is discussed at the highest levels of the company,” she said.
Apple is now adding the following language to the charter: “The nominating committee is committed to actively seeking out highly qualified women and individuals from minority groups to include in the pool from which board nominees are chosen.”
While the statement was included in the company’s proxy for the past several years, it hadn’t been part of the board’s governing document. Apple also vowed to continue discussions with shareholders about ways to improve diversity, Ruoff said.
Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment beyond the new charter language.
Trillium and the Sustainability Group are groups that use their positions as shareholders to lobby companies for improved environmental protection, corporate governance and diversity within leadership ranks. Trillium successfully lobbied Apple in 2012 to add new language to the board’s audit and finance committee charter about privacy and the handling of customer data.
“We believe that as investors it’s our right and responsibility to be active investors,” Ruoff said.
Andrea Jung, the former CEO of Avon Products Inc., is the lone woman and person of color on Apple’s board, which otherwise includes seven white men all over the age of 50. Angela Ahrendts, the former CEO of Burberry Group Plc, will be the only woman on the company’s executive team when she takes over Apple’s retail operation in the first half of this year.
Adding more gender, generational and cultural diversity to a board improves financial performance and corporate governance, according to Susan Stautberg, the co-founder of Women Corporate Directors, which promotes more female membership on boards, citing recent studies by Credit Suisse and Catalyst. Apple has a diverse customer base and should have a board and executive team representative of that, Stautberg said.
“You need to have people on your board knowledgeable in the different markets of where you’re competing and in the areas where you want to go,” Stautberg said.
Board diversity isn’t the only area where Apple has faced criticism from shareholders. The company has also been scolded by groups including shareholder-voting service Institutional Shareholder Services Inc. for what it calls excessive executive compensation. Shareholders last year approved a proposal to more closely tie executive pay to stock performance.
Apple, whose stock price trailed the Standard & Poor’s 500 Index (SPX) last year, reduced the amount handed out to its top executives in 2013. Apple rose 5.4 percent while the index climbed 30 percent.
Top-paid executives received more than $68 million in 2012, compared with less than $4.3 million in 2013. Cook, who received a package valued at $378 million in 2011, also agreed last year to link some of his compensation to Apple’s stock performance.
Under Cook, Apple has shown a more conciliatory approach when dealing with investors. In addition to acquiescing to demands about pay and diversity, the company also instituted in 2013 one of the largest dividend and buyback programs among U.S. companies after years of shareholder requests.
Cook has also been outspoken about improving equality since succeeding Steve Jobs as CEO in 2011. Cook and Apple have advocated legalizing same-sex marriages in the U.S., and for legislation that prohibits companies from discriminating based on sexual orientation. Cook recently gave a speech about his childhood in Alabama and how witnessing a cross-burning left a lasting impression on him to fight for equality.
Ruoff, the shareholder pushing for the company to improve its diversity, said changes by Apple, an iconic global brand, will set an example for others.
“I remain hopeful that over the next couple of years we will see a more diverse board that reflects the company’s customer base,” Ruoff said. “Given its influence, it is particularly important for the company to be a strong leader in this area.”