By Stephen Nellis and Ross Kerber
(Reuters) - An Apple Inc shareholder proposal critical of the company's app removals in China received a relatively high level of support at the iPhone maker's annual meeting on Wednesday, enough to push the company to respond, experts said.
The proposal, which called for Apple to report whether it has "publicly committed to respect freedom of expression as a human right," was defeated, but 40.6% of votes cast supported the measure, according to company figures.
The proposal highlighted Apple's 2017 removal of virtual private network apps from its App Store in China. Such apps allow users to bypass China’s so-called Great Firewall aimed at restricting access to overseas sites, and Apple's action was seen as a step to preserve access to the country's vast market.
Wednesday's vote stood in contrast to previous years when critics made little headway with big investors on the issue.
"A total this high is a striking warning — and it must have come from big institutional investors, not just retail shareholders — that Apple’s human rights policy in China has become a material risk for the company’s reputation," said Stephen Davis, a senior fellow at Harvard Law School's Program on Corporate Governance.
"Apple will be under great pressure to respond rather than ignore this vote," Davis said.
An Apple spokesman declined to comment on the results. Apple had opposed the proposal, saying it already provides extensive information about when it takes down apps at the request of governments around the world and that it follows the laws in countries where it operates.
SumOfUs, the group that put the measure on the ballot, celebrated the totals.
"Apple’s investors have sounded the alarm that Tim Cook needs to listen to the concerns raised by frontline communities such as Tibetans and Uighurs who have long suffered under a tech dystopia," said Sondhya Gupta, a campaign manager for the group.
Cook is Apple's chief executive.
In the past, Apple shareholders have voted down human rights measures related to China by much larger margins. A 2018 proposal that urged Apple to create a human rights panel to oversee issues such as workplace conditions and censorship in China was defeated, with 94.4% of votes cast against it.
Sentiment appears to have shifted, experts said.
"Given the high level of support received for the proposal, we expect to see the company engage with its shareholders on the issue and report to shareholders about what happened in the engagements, including any potential actions it intends to take as a result," said Kern McPherson, vice president of research and engagement for proxy advisory firm Glass, Lewis & Co, which supported the measure.
Apple has signaled it is considering action. In a letter earlier this month to Access Now, an open-internet advocacy group, Apple's senior privacy director, Jane Horvath, wrote: "Apple has and always will consider freedom of expression a fundamental human right." The company, she said, "will consider providing additional details on our commitment in the future."
The proposal was one of six topics to be voted on at Wednesday's shareholder meeting. By wide margins, shareholders approved Apple's executive pay, existing board of directors and the retention of Ernst & Young as its accounting firm, results that were widely expected.
A "proxy access" proposal to allow shareholders to nominate more than one director to Apple's board was defeated, with 68.9% of votes cast against. Also voted down was a measure to tie executive compensation to environmental sustainability metrics, with 87.9% of votes cast against it, according to the company.
Shareholders defeated a "proxy access" proposal to allow shareholders to nominate more than one director to Apple's board, with 68.9% of votes cast against. They also voted down a measure to tie executive compensation to environmental sustainability metrics, with 87.9% of votes cast against it, according to the company.
Apple had opposed both proposals.
(Reporting by Stephen Nellis in San Francisco and Ross Kerber in Boston; Editing by Matthew Lewis and Leslie Adler)