Here’s Why Einhorn’s Apple Action Was Vital

David Einhorn may have succeeded in preventing Apple (NASDAQ:AAPL) from putting its preferred stock-limiting proposal to shareholder vote through legal might, but the Greenlight Capital fund manager has been much criticized for standing up to the world’s most valuable company.

Apple chief executive Tim Cook called Einhorn’s lawsuit, which ultimately succeeded in its objective, a “silly sideshow.” The California Public Employees’ Retirement System, a larger Apple shareholding body, also put its weight behind the company’s proposal and against Einhorn.

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However, Jonathan Weil writes for Bloomberg that instead of publicly vilifying him, investors and securities regulators should thank Einhorn for “upholding shareholders’ rights” in what amounted to public service at his own expense.

“Here’s what Einhorn did. He saw that one of the proposals in Apple’s proxy statement forced shareholders to vote yes or no on a bundle of unrelated issues — a violation of the [U.S.] Securities and Exchange Commission’s rules,” Weil writes. “The SEC’s staff had missed the problem and wasn’t doing anything about it. By early February, when Greenlight sued Apple, Einhorn’s only chance to get someone to fix it was through the courts. So that’s where he went, at considerable expense to his fund.”

According to Weil, while the SEC could be accused of “dropping the ball” on a key rule this time, it is hard for the regulatory authority to review each company’s filings every year…

“The next time something like this happens, perhaps the SEC will be more attuned to the issue and won’t let it slide,” Weil writes. “Or maybe companies won’t be as inclined to try to pull the same trick in the first place. The winner is the investing public.”

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In addition, the criticism that Einhorn is telling a supposedly highly visionary company how to operate is also unfounded. The Greenlight manager has no intention of offering suggestions on Apple’s strategic plans to operate its business, as he clarified in his slide presentation last week.

Instead, he just wants the debate on the company’s capital allocation policies to be done more widely. Whether you like Einhorn’s preferred-stock idea is beside the point, because it at least sparked a discussion.

“He’s far from alone in criticizing Apple for hoarding cash,” Weil points out.

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