U.S. stocks climbed last week, with the Dow Jones Industrial Average (DJINDICES:^DJI) climbing 423 points or 2.5% and the S&P 500 (SNPINDEX:^GSPC) gaining 55 points or 2.8% despite a slight drop in Friday. Yet the best holiday gift for investors arguably came on Monday, when Apple (Nasdaq: AAPL) made a big move toward greater board participation among shareholders.
Early in the week, the iPhone maker amended its corporate bylaws to enable a shareholder, or a group of shareholders numbering no more than 20, that has owned at least three percent of Apple's shares outstanding continuously for at least three years, to nominate candidates to fill up to 20% of Apple's board of directors.
The board currently has eight members, so, until scientists devise a process for manufacturing fractional people, that works out to a single director spot (20% of eight is 1.6 -- the new provisions state specifically when the number is not whole, it must be rounded down).
This is significant for Apple shareholders, of course, but, coming from the largest company by market value, it has a broader impact on U.S. corporations. Indeed, the Financial Times quotes the New York City comptroller as saying the company's decision represents a "tipping point."
That looks like a reasonable claim: Earlier this month, three other blue-chips, AT&T, Pfizer, and Wells Fargo, adopted similar "proxy access" provisions. Interestingly, all three have the same 3% and three-year requirement on shareholders that would nominate someone to fill a board seat.
This is all to the good for corporate America. In a 2003 paper, Lucian Bebchuk, Professor of Law, Economics, and Finance at the Harvard Law School, examined the objections to establishing a well-designed shareholder access regime and concluded that to "[require companies, under certain circumstances, to include in their proxy materials shareholder-nominated candidates for the board] would contribute to making directors more accountable and would improve corporate governance."
When Tim Cook replaced Steve Jobs at the head of Apple, there was a lot of concern regarding whether he had what it took to fill the "Messiah's" shoes. Nonetheless, he has proved himself to be a first-rate chief executive in terms of taking Apple's business operations forward. He now deserves shareholders' gratitude and respect for opening up Apple's governance culture, which has traditionally been relatively insular.
Cook had already proved, in his interactions with an exacting and brash shareholder, billionaire investor Carl Icahn, that he is willing to listen to shareholders and depart from Apple's old ways. This week's announcement is another step forward for the iPhone maker and sends a strong message to boardrooms across America.