Apple shareholders decide not to axe golden goose

The papers this morning were trying to build up a false sense of drama about today’s meeting of Apple shareholders. The Merc reported:

Prominent research firms are urging shareholders not to vote for the re-election of most of Apple's board in light of its handling of the company's stock-option-backdating controversy. Activist shareholders are calling for the company to change the way it grants options to senior executives and to reform its executive-pay practices.

As it turns out — surprise! — shareholders decided not to kill the goose that has been laying all those golden eggs. Maybe it’s because the allegations, complaints and shareholder proposals came from all the usual suspects:

“There's a lot of different issues at Apple,” said Rich Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees union, which plans to send a representative to Apple's meeting.

Of course, the articles had to admit there was no chance of Apple actually taking real sanctions against the leading beneficiary of the questionable option grants, CEO Steve Jobs.

For many investors - the majority of whom likely won’t be at the meeting but will vote on the company’s directors and the non-binding proposals presented there - a company's financial performance trumps concerns about how executives are paid.

Such concerns are just “noise,” said one portfolio manager who owns Apple's stock, but asked not to be named.

In the end, all the activist proposals were voted down, and Jobs got a few laughs at the expense of his critics:

When pressed by the Teamsters, Jobs said, “If you feel so strongly about this, you should run for a position on our board of directors next year.”

Why no consequences for the (reported) option backdating? It may be that shareholders have noticed that Apple’s equity performance has far outstripped its industry peer group over the past five years, and thus the ends justify the means.

Or it may be because they believe there’s no “scandal.” Perhaps they share the skepticism of a few analysts towards the whole backdating controversy. But as I analyze it, the anger over the stock option grants at other companies has been over letting execs time their strike price at the bottom, so they can make money off of cyclical fluctuations of the price.

More simply put, other shareholders are mad because incentive payments are being made to reward random noise rather than actual business growth. On the other hand, if stock option grants are supposed to provide incentives to align the interests of managers to shareholders, Apple shareholders believe those interests (however the grants were timed) have been well aligned.

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