Intellectual Dishonesty? The Steve Jobs Options

Corporate dishonesty continues to appear everywhere: at a time when one might have thought Sarbanes-Oxley, the SEC and various successful governance lawsuits would have led to a slowdown in dishonest practices, we got the options backdating scandals. Today, almost 200 different corporations have announced external and/or internal investigations, generally followed by resignations of top officers.

While this may only qualify as dishonest, one then comes to companies like Apple, which appear to want it both ways: tell the truth, but don’t necessarily tell the whole truth. If this is the case, Apple will end up being a model case of how NOT to handle such affairs, and Intellectual Dishonesty will have cost the company more than dishonesty itself.

Is that a serious charge? Don’t we live in a time when everyone lies, so why not you, too?

I’ve been warning SNS members that Steve Jobs is not out of the legal mess yet, and it increasingly now seems that we have a couple of distinct transactions to look at. For the record, the company issued denials when this story broke around October 5th.

At first, the company claimed that Jobs had not received any tainted options; then, a revision. According to the San Jose Mercury News:

Since disclosing in June that Jobs had received a tainted grant, Apple has maintained that Jobs “did not benefit” from them because he never exercised them. Some experts challenge that claim, however, noting that Jobs traded in the options for $75 million of restricted stock, which is stock that has limitations on when it can be cashed in.

Houston, we have several problems here.

First, we have a company that cannot prosper without Steve; No Steve is No Option for Apple. Second, there have been a series of half-truths, or worse, each suggesting an increasing likelihood that Steve Jobs:

  1. Did in fact receive tainted options.
  2. Did in fact exercise some of them, in some way, and receive personal benefit.
  3. Did in fact know about the backdating practice.
  4. You know, in this list, there is probably no need for a “d,” although being involved in approval of the transaction would be a definite zinger.

Here is one more bit from SJMN:

A Mercury News report in 2000 drew attention to the timing of Jobs’ first mega-grant. Though Jobs announced at a Macworld conference that he had committed to returning to his job as permanent CEO on Jan. 5, when the stock was at $26, his options were pegged to the price on Jan. 12, which was a monthly low of $21.80.

If the options he received had been pegged to the price Jan. 5, his profit on paper would have been $168 million less.

Now ask yourself: why is the Street writing this off? For the moment, it would seem that we are looking at perhaps the largest-ever options grants in history: 40 MM shares, in January of 2000, followed by 15MM shares in 2001.

How does the Apple co-founder, Steve Wozniak, feel? Here’s a quote from the Guardian (October 23):

‚ÄúI think that there are ways that the stock option programmes basically leave other shareholders treated at a disadvantage, and that‚Äôs illegal,‚Äù he told the Guardian. ‚ÄúI think Apple‚Äôs going to have to correct that for what they’ve done.‚Äù

Here is my conclusion: I think (and I have no direct evidence for this, other than the behaviors and quotes from those involved) that Steve Jobs was aware of the practice, did personally benefit, and had some role in the granting and dating of those options.

I expect that the company is doing its best to find fall guys and scenarios that will allow Steve to stay. Apple, I am afraid, has a real problem, the only problem that it can’t work around. It is trying, but time does not, in fact, heal all wounds. I’ve come to the tentative conclusion that Steve was involved.

I hope that it is not true, as anyone who has been reading SNS for long is aware.

A lot of people have called me the Guy Who Brought Steve Back, since I suggested the success of that move when Gil Amelio was CEO, and an avid reader of SNS. Gil, by the way, should always get the real credit for having saved Apple, by bringing Steve back, when no other CEO would touch him.

I’d hate to also be the guy who showed him the door. He’s doing a miracle job at Apple, and I, for one, would like to see it continue.

Is there a way out of this? I think so. Assuming that what I’ve written is correct, I suspect Steve could find a path, with legal counsel, that would allow return of some monies (it’s going to be paltry for Steve, say $85MM), a clearly written apology together with a description of an inadvertent mistake, and the chance to avoid shareholder suits and, more important, criminal culpability. That last is the sticking point, so get a good lawyer. Better than Sonsini.

Someone has to get this right for the SEC, and for the public. Yesterday would be good.