AAPL Shareholders Came Close to Supporting Privacy in China (at the Expense of Profits)

An interesting thing happened during this week’s Apple shareholder meeting in Cupertino—Apple shareholders came closer than I can recall to voting for a shareholder proposal opposed by Apple management. That shareholder proposal (proposal 6) called on Apple to uphold the same privacy protections in China it extolls elsewhere.

China and the rule of lawls

The measure ultimately failed, with a preliminary vote of 40.6% for and 59.4% against, but most shareholder proposals opposed by Apple go down to crushing defeats. What makes this one even more unusual is that it surely would have cost Apple money, meaning that 40.6% of shareholders were voting against their own financial interests in the name of privacy and freedom of expression.

In comparison, a shareholder proposal (proposal 5) that would have tied executive compensation to sustainability went down 12.1 for and 87.9% against, while proposal 4 that would give shareholders influence over more seats on Apple’s board, went down 31.1% for and 68.9% against.

Apple’s defense in urging shareholders not to vote for proposal 6 is that it must abide by local laws wherever it does business. It’s the rationale given every time Apple removes censored content from its online stores, blocks content, removes apps, and moved Chinese iCloud data to servers in China controlled by a joint venture with a Chines-owned local business.

On Friday’s TDO with Dave Hamilton and Charlotte Henry, I asked at what point Apple ceases being Apple when it makes so many compromises in China. In this same shareholder meeting, for instance, Apple CEO Tim Cook gave a wonderful and passionate statement on the importance of privacy being a human right. In China, though, not so much.

But that’s not really the issue here. What is the issue is that if Apple stopped kowtowing to China on issues of privacy, it would be in violation of local law. That would, at the very least, result in significant repercussions for Apple imposed by the government. In reality, it would probably result in Apple having to pull out of the Chinese market altogether.

And yet 40.6% of Apple shareholders voted in favor of this proposal. I’ve no doubt that made Apple’s management sit up and take notice. At least I hope it did. One company, two policies when it comes to privacy is not sustainable, as kowtowing in China will some day be leveraged by other authoritarian regimes and liberal democracies alike to exact their own concessions at the expense of privacy.

3 thoughts on “AAPL Shareholders Came Close to Supporting Privacy in China (at the Expense of Profits)

  • Bryan:

    Great discussion, and many thanks for highlighting this.

    I have a slightly different take.

    I have argued before, and do so now, that corporations, while they can be societal change agents, are not designed to be the moulders of legislation or the instruments of intentional social structural change. They can be, and have been, the objects of new legislation with wide ranging social repercussions, and through their products, have reshaped societal norms and culture, but they are limited in the extreme in coercing governments, particularly authoritarian and totalitarian regimes, to do what those governments do not wish to do, even when those governments are relatively small and poor. That they can take advantage of extant corruption to further their own interests and those of corrupt government officials, certainly. History is replete with examples across industries. However, that should not be confused with corporations’ ability to compel such governments to go against what they perceive to be their own interests, particularly anything that the government perceives as lessening its hold on power. Corporations have had their assets seized, even their sector nationalised, and their local C-suite thrown in jail for less.

    It is also understandable that persons who live in Western liberal democracies where individual liberties enshrine personal privacy, freedom of assembly speech and movement, would want those liberties respected by corporate practice abroad, perhaps even more so when those liberties are under assault at home from both foreign and domestic actors. However, it does put corporate leadership, in a publicly traded company that is accountable to shareholders for maximising profits, in a bind when a board or shareholders recommend that the company effectively voluntarily withdraw from an emerging and substantial market, at the same time that their competitors are going all in. The resulting negative impact on growth over the subsequent quarters can cost a CEO their job, and the likelihood that those same shareholders would stand by that CEO and their team is vanishingly small.

    Corporations are going to behave like corporations, meaning that they will compete in every available market. Expecting them to behave otherwise is like expecting your pet cat to become a vegan and eschew killing mice, goldfish and small birds because this conforms to your sensibilities. Corporations, though run by them, are not people and will not behave as such. Even when they self govern by an admirable ethical standard that protects the rights of their employees, competition between corporations is war by other means, and decisions will be driven by competitive advantage.

    Rather, it is nation states and consortia of nations states that can and must level the playing field on which corporations will play by creating a climate of standards, enforced amongst those member states, and non-member state trading partners, at pain of penalty. This is effectively done by large trading partnerships that can wield enormous bargaining power. This does two things. It renders moot the need for the individual corporation to negotiate terms of engagement in the local market in the setting of a power imbalance between a sovereign state and a company. Second, by setting sector-wide standards and rules of engagement, no one company is asymmetrically disadvantaged, irrespective of the level of their investment in that market.

    Ultimately, this is an issue of political leadership, which has been alarmingly absent in recent times on the question of human rights, as well as on the formation of trading partnerships aimed at not only protecting human rights, but intellectual property. That shareholders are turning to the likes of Apple and other tech giants to step forward and protect those rights, while a good sign that the consciences of those shareholders are intact, is not only misplaced but a tacit acknowledgment of the dereliction of their respective governments. It is the right vote, just simply the wrong voting booth.

  • “n this same shareholder meeting, for instance, Apple CEO Tim Cook gave a wonderful and passionate statement on the importance of privacy being a human right. In China, though, not so much.”

    That’s called being a hypocrite.

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