Steve Jobs was in geek-genius mode as he strode across the dramatically lit San Francisco stage. Wearing his faded jeans and black turtleneck...
Steve Jobs was in geek-genius mode as he strode across the dramatically lit San Francisco stage. Wearing his faded jeans and black turtleneck, Jobs gave a giant-screen tour of the iPhone, Apple’s gorgeous new super-phone. He had the Macworld audience in rapture.
But while the gadgeteers cheered the latest demo of the Jobs magic, a terrible noise was happening offstage. It was the sound of Apple stockholders crying rape and federal investigators rifling the corporate files.
Was the man who helped create the iPod, iMac and iPhone also into iDealing as Apple CEO? The feds are looking into Jobs’ possible role in attaching phony dates to stock options — an activity that fleeces stockholders. The company insists that Jobs didn’t know what was going on.
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The secret backdating of stock options has apparently become one of the more fashionable corporate-suite crimes. Federal authorities are now investigating 130 companies suspected of altering the dates on stock-option grants. Executives at two companies have already been charged with criminal fraud. Nearly 70 have been canned over the practice.
A stock option is the right to buy shares at a fixed price by a specified date. Because options grow in value as the stock’s price rises, companies issue them to managers as an incentive to perform.
Apple initially claimed that it had awarded 7.5 million stock options to Jobs at a special board meeting on Oct. 19, 2001. It turns out that the board meeting never happened — and that the options weren’t issued until several months later, on Dec. 18, 2001. Between those two dates the value of Apple stock had risen 15 percent. In other words, it seems that Jobs was given the right to buy Apple stock at $18.30 a share after it had already jumped to $21.01.
As an options-backdating deal, this would seem par. Ben Stein, the economist-columnist, has likened the practice to letting someone pick lottery numbers after the winning numbers are drawn.
How interesting that the company famous for its honest, clean design would get sucked in the mire of a corporate-governance scandal. Actually, the tawdry details in the Apple story sound fairly common.
When the backdating charges emerged, the company appointed a special committee of Apple board members — including none other than Al Gore — to look into the matter. While conceding that the October board meeting had been fictional, the committee declared Jobs in the clear. Corporate watchdogs have noted that a leader of the group, Jerome York, was not exactly a disinterested party. York had run a computer-resale business that accounted for $600 million of Apple sales from 2000 to 2003.
Apple argues that Jobs and other current executives were unaware of the phony records from the nonexistent October meeting. It also says that Jobs didn’t really understand the accounting significance of backdating the options — even though he had advocated “favorable” dates for some of them. (You’d think a CEO worth an estimated $4.9 billion would know that kind of thing.)
Investor advocates laugh at Apple’s contention that Jobs didn’t financially benefit from the backdated options, because he had exchanged them for restricted stock, which he couldn’t sell right away. Those restricted shares became worth hundreds of millions, and he sold half of them the minute he could.
It has been assumed that Apple would never fire Jobs, because in the public’s mind, Jobs is Apple. But Jobs has just hired his own lawyer, which means he and Apple may be going in different directions.
Sorry, Steve. Creating fabulous computers doesn’t give you the right to take your fellow shareholders to the cleaners. The yays don’t cancel out the boos.
Providence Journal columnist Froma Harrop’s column appears regularly on editorial pages of The Times. Her e-mail address is firstname.lastname@example.org