Apple shareholders are demanding more diversity, but the company is fighting back

Jacob Kastrenakes
Tim Cook
Mark Neuling | CNBC

Silicon Valley has a long way to go on diversity, but most tech companies would argue that they're making progress. Intel beat its initial hiring goals; Microsoft is tying executive compensation to diversity success; and Google says it's made changes to remove pay inequality, even though the diversity of its workforce has remained flat.

Apple also claims to have removed pay disparities and has made slight gains on hiring women and people of color. It's even launched an "Inclusion & Diversity" page with visualizations of its hiring data.

But a small group of Apple investors believe the company isn't making progress fast enough, and they're trying to force the company to pick up the pace. "Some of the excuses given by Apple and others — there's not sufficient people in the pipeline, this and that," says investor Tony Maldonado. "Excuse my language, it's bulls**t."

Apple wants investors to shoot down the proposal

Maldonado is leading an effort to mandate that Apple accelerate its work toward becoming a more diverse company. For the second year in a row, he's submitted a shareholder proposal asking that Apple "adopt an accelerated recruitment policy ... to increase the diversity of senior management and its board of directors."

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If approved, Apple would have to prioritize diversity at the top levels of its organization. How exactly it accomplishes that, and on what timeline, would be entirely up to Apple — but it'd have to do something. Maldonado says that could include tying executive pay to diversity goals, as Intel and Microsoft have done, or adopting a board refreshment policy, requiring the company to regularly explore potential new board members from diverse backgrounds.

This year, Maldonado is submitting his proposal alongside Zevin Asset Management, an investment firm that specializes in "socially responsible investing." While that amplifies Maldonado's voice, it still doesn't give him anywhere near the Apple holdings needed to pass the proposal. Maldonado and Zevin will need help from other investors. And right now, there's a major voice standing in their way: Apple.

In a filing with the SEC, Apple's board wrote a note recommending that shareholders vote against the proposal. The company argues that it already has "much broader" diversity efforts at work and, in the past three years, has made "steady progress in attracting more women and underrepresented minorities." The proposed policy, Apple concludes, "is not necessary or appropriate because we have already demonstrated our commitment to a holistic view of inclusion and diversity."

Apple declined a request for further comment.

The company's answer isn't good enough for Maldonado. He says Apple is leaning too heavily on retail stores to improve its diversity figures while doing little at the senior level (82 percent of Apple's leadership is white, versus only 56 percent of its retail employees). If that practice continues, Maldonado fears it'll hurt Apple's business in the years to come.

The board and their leadership needs to expand their viewpoints.

"In the long term, this will affect them," he says. "The more this becomes public and the more they provide pushback and resistance to this, then the people [this affects] will happily shop somewhere else."

Pat Tomaino, an associate director at Zevin, agrees that Apple faces a "reputational risk" by not addressing diversity. Tomaino also says that Apple risks losing top talent by not casting its "search light as wide as possible" for new engineers and executives. That'll be particularly important, he says, as Apple begins losing longtime employees who are "basically irreplaceable."

Maldonado adds that failing to hire more diverse talent could hurt Apple's decision-making abilities when it comes to different areas of the world. The company's efforts in China and India are two particular areas of concern. "The board and their leadership needs to expand their viewpoints, and only by allowing others to come in to provide them their insight will [Apple] be able to tackle those challenge."

For Zevin, challenging Apple on diversity is both a financial issue and a social one. Investors are beginning to look for returns in both areas, Tomaino says, and that's led Zevin to work on issues like climate change and improving supply chain conditions. On climate change, Zevin worked with companies to "to get ahead of carbon pricing;" on supply chains, it was about managing reputation. "You have increasingly a large portion of the investment community that is attuned to these issues," Tomaino says.

"Most of our colleagues, we choose issues to work on that we know we can move forward," says Tomaino. "With Apple and diversity, the case is clear."

For Maldonado, diversity is solely a business issue

Maldonado, who is Hispanic, makes a pure business case for diversity. He identifies as a "fiscally conservative, socially moderate person," clarifies that he doesn't want this turned into "a social justice warrior issue," and says he's simply "looking at things in black and white in terms of money." He's also a "diehard" Trump supporter, who ends many of his tweets with "#MAGA" and says he both donated to and volunteered for the campaign.

"I know it sounds as if it's socially progressive, but it's not a socially progressive issue," he says. "Money talks, okay?"

Maldonado says Apple's leadership diversity became an issue for him after his son brought it up a few years ago. "I was actually quite blind to this as an investor and a business person," he says.

"I dug into it and saw Apple has rarely ever had many people of ethnic or racial diversity within their board or senior leadership," he says. For a 40-year-old company "that's laughable. That's racism plain and simple. That's all it is. There has to be plenty of people with sufficient qualifications."

At the company's 2015 shareholder's meeting, Maldonado managed to get a question in with Apple CEO Tim Cook. He wasn't happy with the answer.

"Tim Cook was very defensive, and he presented the two back people on their leadership — but not senior leadership — as a sign of their diversity," Maldonado says. "Personally, I took it as an insult. They were put on the spotlight as 'here's tokenism,' and he didn't seem to accept that."

Six percent is this year's goal

Later that year, Maldonado filed his proposal with Apple for the first time. The company tried to have the proposal dismissed, but was ultimately shot down by the SEC. It went up for consideration at Apple's 2016 shareholder's meeting, where it received only 5.1 percent of the vote.

That may have been an overwhelming failure, but it was high enough — above 3 percent — to allow Maldonado to submit the proposal again this year (missing the target would have let Apple bar similar proposals for three years). It'll go up for a vote again at the company's shareholder's meeting on February 28th.

Maldonado doesn't expect to win this year, but he's hoping to get enough support to keep the proposal going. This time, the threshold he needs to reach is 6 percent in order to resubmit. "If I can reach six percent," he says, "then I can live again to fight another day."