What is backdating of stock options? Fortune’s Adam Lashinsky explains,
Stock options grant the recipient the right to buy shares at the stated price after a certain period of time has gone by. If the market price is higher than the so-called strike price, the employee makes money. Find a way to lower the price of the grant – by moving back the grant date during a rising market, for example – and the option is worth even more.
…the system of awarding options has gone from an incentive program to an entitlement. Companies that can’t or don’t offer rich options are at a disadvantage to those that do. Executives – with the complicity of their accountants, lawyers, compensation consultants and boards of directors – game the system to ensure not that employees are working for the shareholders, but rather that employees will make extra money in all but the gravest of circumstances. Options were considered so sacrosanct that Silicon Valley bigwigs fought tooth and nail to avoid having them accounted for as a compensation expense.
Who is responsible for granting stock options?
The Board of Directors. The backdating scandal brought with it calls for reform and an end to insider, absentee boards.
Among the most high profile company’s implicated in this scandal was Apple Computer. When things at Apple are going great, all the credit goes to Steve Jobs, the co-founder who came back and rescued the company with the iMac and iPod. When Apple gets implicated in the backdating scandal, suddenly they aren’t sure who really runs the company. Could the great Steve Jobs be implicated himself? Do you know what that could mean for the stock price?
Apple did what everyone caught with their hand in the cookie jar does, they appointed a blue ribbon panel to investigate.
New York Times
Apple Panel On Options Backs Chief
December 30, 2006
…a special committee of its (Apple’s) board had found that its chief executive, Steven P. Jobs, was not responsible for improper dating of stock options at the company.
Not only was Jobs not responsible, the special committee had, “complete confidence in Steve Jobs and the senior management team.â€
What did Apple admit to in this report?
The disclosure yesterday by Apple in filings with the SEC said that 6,428 grants of options at Apple on 42 dates between 1997 and 2002 were improperly dated, resulting in charges to earnings for those years. Apple restated its financial results between 1998 and 2006 to recognize a new after-tax, noncash expense of $84 million in connection with the improperly dated options.
Many well regarded subject matter experts came to a different conclusion,
Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission, ”It appears as if Jobs is playing the role of a monkey: See no evil, hear no evil, speak no evil. If he truly were fulfilling his role as C.E.O., it is highly questionable as to why he didn’t know about such poor management and oversight of the option granting process.”
Rob Enderle, principal analyst at Enderle Group, a high-tech research firm, “If Steve Jobs were anything other than what he is, he’d already be gone. There was a crime committed . . . it looks like Steve Jobs was kind of the ringleader.'”
This Apple appointed committee was led by none other than Al Gore. Having an insider like Gore, or any board member for that matter, as part of this investigation is a joke, kind of like having Jamie Gorelick on the 9/11 Commission.
The wrongdoing admitted to by Apple in this report does not square with the notion that Steve Jobs was not directly involved. The Gore report threw two other Apple executives under the bus. It was entirely their fault.
Why do I bring all this up? Because today, one of the scapegoats, former CFO Fred Anderson, settled with the SEC. Anderson issued a remarkable statement that placed the blame squarely on Steve Jobs.
Fred was told by Steve Jobs in late January 2001 that Mr. Jobs had the agreement of the Board of Directors for the Executive Team grant on January 2, 2001. At the time Mr. Jobs provided Fred this assurance, Fred cautioned Mr. Jobs that the Executive Team grant would have to be priced based on the date of the actual Board agreement or there could be an accounting charge. He further advised Mr. Jobs that the Board would have to confirm its prior approval in a legally satisfactory method. He was told by Mr. Jobs that the Board had given its prior approval and the Board would verify it. Fred relied on these statements by Mr. Jobs and from them concluded the grant was being properly handled.
Did Al Gore help cover up for a corporate fat cat who was ripping off shareholders? Was he part of the problem in corporate board rooms? How does this square with his boilerplate speech about shameless corporate corruption? Or his role as Chairmen of Generation Investment Management, a company that is “Dedicated to thought leadership on sustainability and capital markets”?
My chad isn’t hanging, I vote YES.
Oh, one more thing. Steve Jobs other company, Pixar, the animation studio, they are also implicated in the backdating scandal. No need for Jobs to worry, a Disney (Pixar’s parent company) “special committee” has cleared him of any wrongdoing. A mere coincidence I’m sure.