Truthiness takes another bite from the Apple

Any post relating to the health of Apple CEO Steve Jobs has to start with two obligatory statements, he is a business genius, and I wish him a speedy recovery.

Now, with that out of the way, my focus will return to Apple’s long-standing, troubling and somewhat distant relationship with the truth.

Last night’s disclosure from Steve Jobs should not come as a surprise. Jobs and Apple have a long history of misleading the public.

Apple, the company that touts its care and committment to the environment, the comapny that has planet saver Al Gore on its board. Problem is, environmental groups say that Apple has the worst environmental record in the information technology sector. That’s one example. Here’s another.

Today’s news is a major reversal from only a week ago, when Jobs issued a statement downplaying any concerns about his health.

Apple CEO Jobs backtracks on health, takes leave

SEATTLE—Apple Inc. co-founder and Chief Executive Steve Jobs said Wednesday he is taking a medical leave until June, even though just a week ago the cancer survivor tried to assure investors and employees his recent weight loss was caused by an easily treatable hormone deficiency.

Yes, there is an ethical line that Jobs and Apple are walking here. As a human being, Jobs has a right to privacy with regard to his health. As a CEO who is considered indespensible to his company, Jobs has an obligation, legal or otherwise, to keep investors informed about his condition. I’m not a securities lawyer, but it is clear from all the chatter about Jobs health, that the company is walking a fine line between his rights and those of his shareholders. Here is an interesting interview with New York Times business columnist Joe Nocera, who says Steve Jobs cannot be trusted!

The problem for Jobs and Apple is that the company has a history of dispensing misinformation (see above), if not outright lies (keep reading).

Back in 2006, controversy around Jobs was not health related, but ethics related. Jobs and others within Apple (and his other company Pixar for that matter) were accused of backdating stock options. How did Jobs and Apple handle the issue? In a way that would make a state rep. blush. As I said at the time,

Apple did what everyone caught with their hand in the cookie jar does, they appointed a blue ribbon panel to investigate.

The chair of this panel, none other than Apple board member Al Gore. How convenient. Miraculously, despite the preponderance of evidence, the Gore panel absolved Jobs of any wrongdoing. I know, your shocked, shocked. Me too. For me, this was yet another example of Al Gore’s Rotten Apple.

The question for Apple shareholders today is, what should they believe? With Apple, it is hard to know where the marketing and showmanship ends and the truth begins.

Al Gore’s Rotten Apple, part 2

May 09, 2008: Gore: No cabinet position for me

“I won’t accept a cabinet post regardless of which of the three candidates wins the presidency,” Gore said yesterday. “I am looking for a way to bring about change in other ways,” the former vice president and former Democratic presidential candidate said.

One place Al could start to look for “a way to bring about change’ is at Apple Computer, where he serves on the board of directors. Instead of enriching himself on stock options and covering up for the misdeeds of Steve Jobs, Al should take a look at the environmental record of the company whose cash he is so happy to pocket.

May 09, 2008
Apple slammed on climate change
ClimateCounts survey on climate friendliness rates Apple far behind other computer companies

Apple is once again being pilloried on the strength of its green credentials, taking last place among computer firms rated within a recent ClimateCounts survey on climate friendliness.

Apple achieved just 11 points in the survey, far behind other computer companies rated in the annual list. IBM, Canon and Toshiba took first, second and third place with scores of 77, 74 and 70, respectively. The maximum score was 100 points.

If climate change is indeed the most serious threat mankind has ever faced, how can Gore be on the board of a company with such a shoddy record on environmental issues? Al’s fellow environmentalists have been urging him to act and influence Apple for a more than a year.

In fact, Gore has been on the Apple board for more than five years now! He has had plenty of opportunity to insist that the company live up to the standards he demands everyone else follow. What could possibly explain his refusal to do so? I wonder…

Al Gore’s Rotten Apple

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.”

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.