By Richard Beales
NEW YORK, Feb 25 (Reuters Breakingviews) - No one looks too
good in Apple's fight with David Einhorn. The Greenlight Capital
founder scored a legal point, but better governance wasn't his
main objective. Apple comes off amateurish. The California
Public Employees' Retirement System, despite worthy
shareholder-friendly aims, seems careless. The Securities and
Exchange Commission also missed a trick.
The general bumbling leaves Einhorn least blemished. He
wants Apple to issue preferred stock to his own specifications,
and doesn't like a provision the company planned to put to
shareholders at Wednesday's annual meeting that would have made
it impossible for the board to do so, at least without
shareholder approval. So he sued to block the vote based on
Apple's combining of the issue with several others. He won - but
not on the merits of his "iPref" idea.
Apple, presumably thanks in part to its lawyers, ends up the
worst for wear. Chief Executive Tim Cook called Einhorn's
lawsuit a "silly sideshow," but the SEC's rules make clear
companies can't combine separate matters into one vote. Even
without legal certainty - the judge acknowledged the issue has
received scant court attention - the simple and safe, not to
mention gracious, move would have been to untether the proposed
changes when the issue came up, even if it meant delaying them.
Other companies are now surely scouring their proxy statements
for similar transgressions.
Then there's Calpers, which gave full-throated support to
Apple. That's understandable in a sense because the package of
measures included majority voting for directors as well as
ending the board's ability to issue preferred stock without
shareholder approval. Good governance could be threatened,
however, if companies bundle dodgy proposals with sound ones -
not to mention the questionable message sent by neglecting SEC
The regulator perhaps isn't blameless either. Apple filed
its proxy statement in December. As the judge noted, SEC
inaction doesn't mean it has approved anything. Yet Apple, with
its $420 billion market value, is the largest company under the
watchdog's jurisdiction, so a degree of scrutiny is merited.
Either way, the end result is a distraction for
shareholders, who now must wait to vote on desirable changes and
figure out how to unbundle, in a different sense, Einhorn's
legal victory from his preferred stock idea. It all takes more
shine off Apple's halo.
(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own.)
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