Management Toolkit

Why Jobs has the backing of Apple's board

Tags:
Stock Options,
Steve Jobs

Tom Krazit CNET News

Published: 02 Feb 2007 09:07 GMT

For the hundreds of companies accused of inappropriately backdating stock options, there's no pat answer for what to do.

Some, such as security software maker McAfee, have asked their chief executive and other top executives to step down, even without acknowledgement of wrongdoing or of executives benefiting financially from the backdating. Others, such as Apple, have taken the opposite approach, defending the actions of their chief executive, Steve Jobs, and taking a wait-and-see approach to federal investigations.

As you would expect, boards have different tests for this kind of stuff

David Larcker, accounting professor, Stanford University

Is one approach right and the other wrong? A stickler for corporate governance would say McAfee and other companies, including CNET Networks (publisher of ZDNet UK), have done the right thing by shareholders. But a realist would say some chief executives have been unfairly booted with a career-damaging footnote to their CVs and that the public doesn't know the details of what's really going on inside a company and shouldn't try to judge.

Even the Securities and Exchange Commission (SEC) hasn't figured out the proper penalty for companies and executives embroiled in the scandal, according to recent reports. Some executives may have known they were doing something illegal, some might have known it was a murky area, and still others might have had no idea of the accounting mess they were in store for later on.

A realist would also say it's foolish to kill the golden goose unless it's absolutely necessary. At Apple, the golden goose is Jobs, and it is, of course, a board's duty to act on behalf of shareholders.

"Steve Jobs is so closely tied to the success formula of Apple that nobody is going to believe nearly as much in the future of that company the day he walks out the door," said Stephen Mader, vice chairman of executive search firm Christian and Timbers.

Federal investigators are looking into Apple's practice of backdating stock option awards. Hundreds of companies — including CNET Networks — have become embroiled in the problem, in which companies preparing stock option awards occasionally cherry-pick a grant date when the stock price was low, rather than using the price on the date the options were actually awarded.

Technically, backdating is legal (though certainly controversial) if properly accounted for and disclosed, Mader said. Apple has revealed that Jobs was aware that favourable grant dates were being selected, and personally approved some of the dates. However, an investigation conducted by the board of directors and outside counsel found that Jobs did not profit from the backdating and was unaware of the accounting implications, Apple said in announcing the results of its internal inquiry.

Apple has also admitted that someone invented minutes for a meeting that never took place — the one in which Jobs' grants were supposedly approved. The company has said it found no evidence that current members of the company's management team were aware of the fictitious meeting, but the incident clearly occurred on Jobs' watch, as he said when announcing the resignation of former chief financial officer Fred Anderson from Apple's board of directors. An Apple representative declined to comment beyond the public statements about its internal investigation.

In the case of McAfee, chairman and chief executive George Samenuk was said to have "retired" in the company's press release announcing his departure, while president Kevin Weiss was "terminated". Samenuk made a statement that didn't touch on his involvement in McAfee's backdating, but included this line: "I regret that some of the stock option problems identified by the Special Committee occurred on my watch."

So why does Jobs get a pass when other have been given the boot? Of course, it's difficult to say what exactly each board knows beyond its public statements. But experts say a high-flying company such as Apple would be…