Apple set to face proposals on apps and forced labor

Shareholders appear set to vote at Apple’s 2022 AGM on proposals falling under the ‘social’ element of ESG issues – including on government repression and employment transparency – after the SEC denied the company’s requests to greenlight their exclusion.

Among the measures at issue, Azzad Asset Management has filed a proposal requesting that Apple’s board revise the company’s transparency reports ‘to provide clear explanations of the number and categories of app removals from the App Store, in response to or in anticipation of government requests, that may reasonably be expected to limit freedom of expression or access to information.’

In its supporting materials, Azzad states that Apple’s transparency report for the first half of 2020 disclosed that the company complied with all 46 requests from the Chinese government to remove 152 apps from the App Store and did not explain which apps were removed or why.

‘Shareholders are deeply concerned about a material failure in Apple’s transparency reporting that seemingly highlights a contradiction between Apple’s human rights policy and its actions regarding China and its occupied territories, which represent almost a third of Apple’s customer base,’ Azzad writes. ‘This poses significant legal, reputational and financial risk to Apple and its shareholders.’

Apple urged the SEC to provide no-action relief if it excluded the proposal on the grounds that under Rule 14a-8(i)(10) the company has already ‘substantially implemented’ it.

‘The company publishes a bi-annual transparency report that provides comprehensive information regarding specific requests from governments for app removal, including requests that are reasonably likely to limit freedom of expression or access to information,’ it argues.

‘In certain circumstances, the company may be compelled by law to remove apps from [its] App Store. The company is committed to transparency in these situations and makes those app removal requests, as well as its response to such requests, available to the public in the transparency report.’

It adds: ‘Apple periodically reviews the type of information disclosed in the transparency report and modifies its content as appropriate to enhance transparency efforts.’

In its materials, Azzad suggests that Apple include in its transparency reports, or explain why it cannot disclose, information including:

• The substantive content of government requests, by country, including which government agencies made requests
• Any indications of the extent of impact on residents of those countries, such as the number of downloads of the app
• Any efforts by the company to mitigate the harmful effect on freedom of expression.

In response to Apple’s request, the SEC writes that the staff is ‘unable to concur in your view that the company may exclude the proposal under Rule 14a-8(i)(10). Based on the information you have presented, it does not appear that the company’s public disclosures compare favorably with the guidelines of the proposal.’

SUPPLY CHAIN
A second proposal also relates to concerns about repressive actions by the Chinese government. It asks that Apple’s board oversee the preparation of a report ‘on the extent to which Apple’s policies and procedures effectively protect workers in its supply chain from forced labor, including the extent to which Apple has identified suppliers and sub-suppliers that are at significant risk for forced labor violations, the number of suppliers against which Apple has taken corrective action due to such violations and the availability and use of grievance mechanisms to compensate affected workers.’

The proposal is submitted by Jane Saks and advocacy group SumOfUs. The proponents write that the US State Department and law-makers in the UK and Canada have determined that the Chinese government’s actions against the Uyghur people – millions of whom are widely reported to have been sent to internment camps and into forced labor programs – constitute genocide.

They add that the US Congress is working to pass legislation ‘to create a ‘rebuttable presumption’ that goods from the Uyghur region are made with forced labor and will be prohibited from entering the US unless ‘clear and convincing’ evidence can be shown to the contrary.

The proponents state: ‘The proposed report is intended to mitigate this regulatory risk, given Apple’s dependence on suppliers operating under a government accused of genocide.’ They note that Apple’s code of conduct cites forced labor as a ‘core violation’ of its policy and that the company’s human rights policy states its desire ‘to be a force for good in the lives of people in our supply chain.’

The company sought no-action relief for excluding the proposal on the basis that it has been substantially implemented.

‘Apple seeks to uphold the highest standards in the industry across its global supply chain and has teams of experts on the ground working closely with suppliers around the world,’ the company writes to the SEC. ‘Over the past year and a half, despite the restrictions of Covid-19, Apple has conducted [more than] 1,100 audits, including surprise audits, and interviewed more than 57,000 workers to ensure its strict standards are upheld. Apple found no evidence of forced labor anywhere in its supply chain and will continue its efforts to ensure workers are treated with dignity and respect everywhere the company works.’

The company adds that its existing public disclosures detail the extent to which its policies and procedures protect workers in its supply chain from forced labor, the extent to which Apple has identified suppliers and sub-suppliers that are at significant risk for forced labor violations, the number of suppliers against which Apple has taken corrective action due to such violations and the availability and use of grievance mechanisms to compensate workers who have been affected.

The company also states that its board oversees management in the ‘competent and ethical operation of Apple on a day-to-day basis.’ The board and its committees review and discuss with management Apple’s strategies and progress relating to its values, including supplier responsibility and a program to implement and monitor compliance with its supplier code and supplier standards, according to the company.

But the SEC’s response concludes: ‘We are unable to concur in your view that the company may exclude the proposal under Rule 14a-8(i)(10), as it does not appear that the essential objectives of the proposal have been implemented. We note that based on the information you have presented it does not appear that either the company’s public disclosures or the level of the board engagement compare favorably with the requests in the proposal.’

CONCEALMENT CLAUSES
Nia Impact Capital has filed a proposal asking that Apple’s board prepare a public report ‘assessing the potential risks to the company associated with its use of concealment clauses in the context of harassment, discrimination and other unlawful acts.’

In its supporting materials, Nia Impact Capital describes concealment clauses as employment or post-employment agreements – such as arbitration, non-disclosure or non-disparagement agreements – that Apple asks employees or contractors to sign.

‘Apple wisely uses concealment clauses in employment agreements to protect corporate information, such as intellectual capital and trade secrets,’ Nia Impact Capital states. ‘[But] Apple has not excluded from these clauses [its] workers’ rights to speak openly about harassment, discrimination and other unlawful acts. Given this, investors cannot be confident in their knowledge of Apple’s workplace culture.’

The company requested that the SEC provide no-action relief if it excluded the proposal on the basis that, according to Rule 14a-8(i)(10), the proposal has been substantially implemented and that, according to Rule 14a-8(i)(7), it relates to the company’s ‘ordinary business operations.’

‘Apple is deeply committed to creating and maintaining a positive and inclusive workplace,’ the company states. ‘Apple does not limit employees’ and contractors’ ability to speak freely about harassment, discrimination and other unlawful acts in the workplace. Instead, Apple supports the rights of its employees and contractors to speak freely about these matters, and it is the company’s policy that employees and contractors should not be prohibited from doing so.’

It states that Apple has substantially implemented the aims of the proposal – to disclose the risks of its use of concealment clauses – because its policy is to not use them, which it says is communicated in its publicly available business conduct policy. Apple adds that the proposal relates to the company’s management of its workforce, specifically the details of its contractual arrangements with employees, former employees and contractors.

The SEC did not agree, writing that the proposal ‘transcends ordinary business matters and does not seek to micromanage the company’ and that ‘it appears that the company’s policies, practices and procedures do not compare favorably with the guidelines of the proposal and that the company has not, therefore, substantially implemented the proposal.’

Apple’s proxy statement for 2022 has not yet been filed. The company’s 2021 AGM took place on February 23.

A request for comment from the company was not returned immediately.