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Pressure Builds on Apple To Document CEO Succession

Few companies are as thoroughly identified with their chief executives as Apple (AAPL) is with Steve Jobs. His third medical leave as CEO raises questions about CEO succession. And now the most influential proxy advisor in the U.S., Institutional Shareholder Services (ISS), has backed a shareholder move to make Apple file an annual succession plan. That could help pull enough support to pass the measure.

Last month, Apple's board recommended against two shareholder measures. One, by the Central Laborers' Pension Fund, would force the company to file an annual CEO succession plan. The board opposes the move, claiming that it already does much of what the proposal requires and that making the plan public would given competitors an insight into Apple's "confidential objectives and plans."

The other proposal, from the California Public Employees' Retirement System (CalPERS), would adopt a majority voting standard for director elections. Apple claims the laws create a risk that "directors who enjoy overwhelming shareholder support may fail to be elected because an insufficient number of shareholders voted in the election," and that CalPERS -- a savvy and sophisticated institutional investor -- doesn't take this into account.

ISS has only thrown its weight behind the first proposal:

A vote for the shareholder proposal to adopt a succession planning policy is warranted in light of the company's limited disclosure regarding this issue and the market's expression of concern over CEO succession at Apple," Rockville, Maryland- based ISS said in a report dated Jan. 28. The laborers' union announced the group's support in a statement today.
The limited disclosure is an ongoing issue for Apple. The last time Jobs took medical leave was for a liver transplant, even though the official word was that he was out because of a hormonal imbalance. Given the importance that Apple attaches to the presence of Jobs, misdirection becomes an issue for many investors.

The reason ISS's position is so important is because of the weight it holds with institutional investors. Studies have suggested that an ISS recommendation can influence shareholder votes by 6 percent to 19 percent. An ISS recommendation against a director candidate translates into a 20.3 percent drop in shareholder votes.

It could be that the move is meant as a way to pressure the board into providing more information without the ultimate need to file a plan. However, should the measure pass, it would force Apple into being more forthcoming -- to its shareholders and its competitors.


Image: morgueFile user jdurham.