Updated
A recent internal review by Apple concluded chief executive Steve Jobs didn’t do anything wrong even though he knew about the back-dated stock options. The review suggested Jobs didn’t appreciate the full consequences of what he was doing.
However, that doesn’t seem to square with fresh reports suggesting Jobs is strongly aware of the significance of back-dating, and has been for some time. John Heilemann in New York Magazine, reveals Steve Jobs pressured Apple’s board to reprice stock options as early as 1997:
Or so Jobs told Time magazine that August: “To restore morale, Jobs says, he went to the mat with the [Apple] board to lower the price of incentive stock options,” the magazine reported. “When the board members resisted, he pushed for their resignations.”
This revelation follows other troubling evidence that Jobs benefited from repriced options over time. A lawsuit filed last week, alleges, for example that from 1997 to 2004, five of seven grants by Pixar (where Jobs was owner and board member) were recorded at the lowest possible price within the months they were granted, and four of the seven were recorded at the lowest price within the fiscal years.
And at Apple, he exchanged his option for 10 million shares of restricted stock in Apple, netting $300 million in profit on stock sales on March 19, 2006, just a day after the Wall Street Journal first reported evidence of widespread backdating among U.S. corporations, the lawsuit points out.
Finally, even the impartiality of Apple’s internal review has come into question: Members of the special committee that oversaw the investigation — and more broadly, the board itself — have multiple potential conflicts of interest, the Merc points out.
What do VentureBeat readers think? How do you balance the tremendous benefits we get from having Jobs stay at Apple and continue to enrich our lives with things like the iPod (and iPhone, if it lives up to its hype), and the need for justice that lawsuits and — likely further investigations - are clamoring for?
(Illustration by Demetrios Psillos)
5 Comments
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DG said:
Law and order!
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Jay said:
This article and many of the articles I read are under the mistaken assumption that lowering the price of options was somehow wrong in the 1990s.
This is not the case– it was perfectly legal, and common, for companies to reprice options when their stock had taken a fall so that they could continue to hire new employees. Jobs going to the mat in 1997 or 2001 is perfectly fine, and options in those eras should have been priced at the lowest price in recent history.
The scandle is about backdating– and this only comes after the IRS changed the rules on everybody and options started having to be claimed as expenses. And this is only comes up because the IRS decided that options have to be priced at the price on that day, and not at the lowest price recently, etc.
And ultimately, of course, is the fact that there is nothing immoral about backdating options– companies have the unalienable right to compensate their employees on terms that they choose. And the option strike price is just a factor in the compensation they choose– not some sort of cheating.
Of course it wouldnt’ be the first time the government has thrown someone into jail for doing something perfectly reasonable and moral.
Back-dating laws doesn’t seem to be considered wrong.
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Matt Marshall said:
Ok, Jay, but Apple is apparently arguing that Jobs didn’t appear to understand why back-dating was a problem. I think the point is that he’s shown quite a bit of sophistication about these things over the years.
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dumbfounder said:
Jay, backdating on options is about the same as cheating on taxes. It is illegal now because you are actually giving someone something more valuable than you are claiming, and thus not allowing Uncle Sam to properly tax on it.
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Bjorn said:
i think jay’s point was valid that it was perfectly legal in the past before IRS decided the options backdating became an unfair practice.
I am taking the Jim Clark post into perspective here too and wonder aloud whether his resignation is a symptom of over-legislating in the corporate finance and option treatment field. Is Wall Street becoming less business-friendly, especially so on startups which had relied on options and IPO as HR carrots and exit financing options for their investors respective?
