updated 07:00 pm EST, Wed February 13, 2013
Greed, misunderstandings appear to be at root of 'silly sideshow'
Piling on to hedge fund manager David Einhorn's misguided lawsuit over a change Apple is seeking in order to shareholders more say on the issuance of preferred stock, a second investor has brought a similar lawsuit against the company, seeking to stop another Apple proposal from coming to a vote. The new lawsuit covers the same proposal that Einhorn is suing over, and also objects to a proposal from Apple to give shareholders more say on the company's executive compensation.
The latest action was brought by a stockholder named Brian Gralnick in Pennsylvania, though no details are available about how many shares he holds. The attorney for the case, Arnold Gershon, said he would seek to have the new complaint heard at the same February 19 hearing that the Einhorn lawsuit is getting. Apple CEO Tim Cook has referred to Einhorn's lawsuit as a "silly sideshow," referring to what the company feels is a deliberate misinterpretation by Einhorn over the specifics of the shareholder proposal.
Both lawsuits seek to block the company from presenting the two company proposals at its annual shareholder meeting, set for February 27. The overlapping proposal between the two lawsuits is designated number two on the ballot. Both Einhorn and Gralnick claim, despite statements from Apple to the contrary, that the proposal would prevent the company from issuing a "preferred stock," or at least a plan for such issuance that Einhorn and his firm Greenlight approve of.
Cook has argued that the proposal not only doesn't block a preferred stock plan, it shifts approval for preferred stock giveaways to the stockholders. Under Apple's current charter, executives can presently issue preferred stock if they wish -- though they haven't in over a decade -- without stakeholder approval. However, he also said that Apple was studying Einhorn's proposal. He called the lawsuit "bizarre" and a waste of both parties' time and effort. Apple later filed a supplemental document with the SEC containing Cook's remarks on the topic.
Gralnick's suit also targets another Apple proposal, one that would again put more power in the hands of stockholders; an advisory vote for shareholders on executive compensation, which has previously been decided only by the board itself. Under the proposal, shareholders would also have a collective vote on whether to approve proposed executive compensation.
Gralnick's specific complaint is unclear, but claims that Apple has failed to disclose details of how it determines top executives' pay. In point of fact, Apple executives are often among the lowest-paid such management in the industry in terms of annual salary; they make most of their money through stock options issued periodically as either incentives to stay with the company or rewards based on performance. CEO Tim Cook, for example, was paid $1.36 million in salary for 2012, a fraction of the salary made by CEOs in other companies. Even at a total estimated compensation for 2012 of $15 million when potential earnings from stock options are added in, Cook placed 107th on an annual list of top-paid CEOs.
The "say-on-pay" proposal has been a contentious issue at other companies, with other lawsuits filed against those firms to try and prevent "say-on-pay" votes. Such cases have met with mixed results. Gralnick claims that Apple stockholders don't have the capacity to make an informed decision on executive pay, and thus is suing to stop the proposal from being voted on.
Both the Greenlight and Gralnick matters appear to have a not-well-hidden agenda in bringing the lawsuits; in challenging the method by which Apple wishes to issue preferred stock (and claiming in letters to stockholders that Apple is "restricting" itself from doing so), the materials show that what both parties really want is for Apple to return more cash to shareholders. At last estimate, the company had more than $137 billion in cash, a reserve that continues to grow despite the return of a dividend program and a stock repurchase program.