This article is a follow up to two earlier articles on Apple's option woes here and here.
Apple Computer, Inc.'s (AAPL) said the following in its 10-Q filed on 29 December 2006:
The independent counsel and its forensic accountants (“Investigative Team”) reviewed the facts and circumstances surrounding stock option grants made on 259 dates. The Investigative Team spent over 26,500 person-hours searching more than one million physical and electronic documents and interviewing more than 40 current and former directors, officers, employees, and advisors. Based on a review of the totality of evidence and the applicable law, the Special Committee found no misconduct by current management. The Special Committee’s investigation identified a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices. The terms of these and certain other grants, as discussed below, were finalized after the originally assigned grant dates. The Special Committee concluded that the procedures for granting, accounting for, and reporting stock option grants did not include sufficient safeguards to prevent manipulation. Although the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications. The Special Committee also found that the investigation had raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants.
Let me see if I understand the situation. We learn that there has been no misconduct by current management. In the next sentence, we learn that "...identified a number of grants for which grant dates were intentionally selected in order to obtain favorable exercise prices." Now if we were to learn that management had a role in selecting those special dates, that would be misconduct, no? I mean, that is what all the fuss is about. Let us read on. "...CEO Steve Jobs was aware or recommended the selection of some favorable grant dates..." That cannot be good. "...he [Steve Jobs] did not receive or financially benefit from these grants or appreciate the accounting implications." Oh well, I guess that makes it okay. Steve Jobs had a role in selecting some favorable grant dates, though he did not financially benefit. Well, who did benefit? Did the shareholders benefit? Let us not forget is that it is stockholders who actually own the company, and Steve Jobs, is still just an important employee.
Imagine a kid working at a local gas station letting all his friends go through the car wash without paying. Finally, one day the owner of gas station catches on and grabs the kid by the lapels. The kid replies, "Honest sir, although I have let all my friends through your car wash, I did not personally benefit. And it did not cost you much, just some water, soap, power, and a bit of wear and tear on your equipment." If you were the owner of the gas station, how sympathetic would you be? Me, if I were in a good mood, I would simply fire him.
Steve Jobs is a mercurial genius who undoubtedly saved Apple and created billions in shareholder value for its shareholders. Steve Jobs is no bozo. He ought to have known that adjusting option granting dates is not a good thing to do.
Because Jobs has been so instrumental in the company's success, I am sure that the company and its directors will do everything possible to protect him. I am guessing that he will remain in his current roles. Apple shareholders will be better served if he remains in place. All that said, I do not think we should simply excuse his behavior because he did not personally benefit monetarily.
The photograph of Paula Anddrade is hosted at Flickr. If you click on her picture above, you will be taken to a larger version at her photostream on Flickr, where she has many other beautiful pictures. I like her treatment of this picture where she took a photo and made it seem like a high art drawing. Well done Paula.
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