The rising stench at Apple

by admin on January 12, 2007

in Tax and Ethics


On 2nd, January I wrote in respect of the Apple back dating options scandal:

Jobs’ excuse is that he didn’t benefit personally. Well who did and to what extent? If there is any whiff of favouritism anywhere then Jobs must surely be up for an SEC spanking.

At the time, I had in mind that certain employees or family members might have been given the opportunity to get their snouts in the trough. What I didn’t expect is the current report that it is fact Jobs who benefits but in a round about manner. Silicon Valley Watcher says:

According to Apple filings with the SEC, Jobs exchanged his options for $75 million worth of restricted Apple stock – 5 million shares – just about the value of the options he gave up

Even so, things are not as clear cut as you might imagine. According to the Washington Post:

Backdating stock options is not illegal. But not disclosing the practice to investors or falsifying documents to cover it up may be.

How crazy is that? I don’t see this thing going away any time soon. While Jobs may be an industry icon, he’s not Superman even if showing all the signs of being Teflon coated. If Jobs gets a free pass by the SEC then it sends a clear signal to every other company. If you can get away with it, fine. What kind of standard is that setting? Even now I don’t believe what I’m reading. In one WP passage:

Though Apple said Jobs may have recommended the selection of some favorable dates for options, it said he did not appreciate the accounting significance of choosing false dates

Yet in another:

Apple reported in its filings that Jobs voluntarily gave up his stock options in March 2003 and “in exchange for his cancelled options” received the 5 million shares of restricted stock. The filing said Jobs relinquished the options partly because he was concerned that the number of unexercised options at the company had grown too large for its financial health.

Do those two statements gel? Never in a million years. I’ve seen back dating in action on tax returns, contracts and share certificates. Experience tells me that those who engage in this practice know exactly what they’re doing. Any pretense to the contrary is a lie and a fraud on the shareholders.

I don’t know what’s going on in Jobs head but it can’t be healthy. Look no further than Paul Kedrosky’s analysis of Apple’s cavalier attitude towards Ciscos’ pre-existing trademark filings. Jobs and Apple must be insane if they think Cisco will take this lying down or that they can beat them in court. It will be settled but that misses the point that at the very top of Apple – which means Jobs – there is ‘screw’em all’ attitude.

I don’t care how great Jobs has been for Apple. Heck – I’m a Mac fanboy fer chrissakes. He’s gotta go before the customer handling reps from Club Fed come to pick him up for an unscheduled vacation.

UPDATE: Hugh’s cartoon is a perfect accompaniment

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Paul Fabretti January 12, 2007 at 6:35 pm

I couldn't agree more with you Dennis. In fact, the more I think about my comments about the iphone as well as those on mobilecrunch about the "we are Apple, you WILL like our product mentality (even if it isn't THAT great)" the less I admire them.

I think I am typical of Apple fans, buying into the romance of the brand that looks good and sounds ethical, yet let slip the fact that they as commercial an operation as Microsoft.

Look with how much disdain they were treated when their philosophy seemed to be "you will use Windows XP and as a result, you will have to use IE, you will have to use WMP".

Apple don't even blog!

They are walking a slippery slope, but then again when you are out front (not in commercial terms but perception) then there is only one place to go…down.

Charles H. Green January 15, 2007 at 8:27 am

I too could not agree more.

There are three interesting aspects of this situation. One is the questionable ethics of Apple's, and Jobs' actions. One is the likely politics going forward. And one is the busines culture Jobs created.

On the ethics front, this is a textbook case. Apparently the false papers were signed by a relative newbie lawyer, who says she followed instructions–but the line of command disappears quickly into San Francisco fog. No one seems to be available, or to remember, or to be able to get their lawyer to return calls. Find someone expendable and hang them out to dry appears to be what's going on. And I share your scepticism about Jobs' "who me?" supposed ignorance. The man's no dummy.

On the politics side, if it goes badly for Jobs, expect to hear a lot of, "Hey this Sarbanes Oxley stuff is way out of hand, we're crippling business, don't be a wuss," and so forth. Watch who says these things. My prediction is it'll come from a few money-happy techsters, and a whole lot of old-line, very Republican, right-wingers who don't believe in global warming.

Regardless, the rule of law shouldn't much be influenced by that. Past achievements can mitigate penalties, perhaps, but shouldn't be relevant to culpability.

But the real interesting one to me is the business culture that Jobs created. No question he's talented, has created a worldclass brand and company. He also did it in a very autocratic manner. Read quotes from his early bosses, read people who've worked for him; all will say, at the very least, the man does not suffer fools gladly.

I can't speak first-hand, but the culture from what I've heard second-hand is very much a one-man firm, with all the good and bad that entails.

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