Fortune (which shares parent Time Warner (NYSE: TWX) with BloggingStocks) provides at least two examples which raise questions about whether Apple Inc. (NASDAQ: AAPL) CEO Steve Jobs pushed the Apple board into violating the law.
Two revelations in the article -- that Apple's board decided not to disclose Jobs's pancreatic cancer, for which he delayed surgery because he wanted to try a diet cure, and that Jobs set a backdated options date of January 16, 2001 which the board rubber-stamped, giving recipients a profit of either $1.6 million or $3.9 million -- make me wonder whether Jobs convinced Apple's board to break the law.
As I posted in 2006, Lazard, Ltd.'s (NYSE: LAZ) board may have failed to disclose the illness of its CEO, Bruce Wasserstein, when reports surfaced that he was out of the office with a heart ailment. A lawyer I spoke with said that if a CEO is unable to do his or her job due to illness, the board must disclose it. If Jobs's pancreatic cancer surgery kept him away from doing the CEO's job, how did Apple's lawyers defend the failure to disclose? It surely couldn't have been the lack of materiality -- some estimated that if his illness had been disclosed, Apple stock would have lost 20% of its value.
Meanwhile, the 2001 backdating allegations appear to constitute a clear legal problem. Jobs was trying to retain top employees after the dot-com crash and wanted to give them valuable options as an incentive to stay. He picked January 16 for the executive team grant, a date when Apple shares still had a nice low closing price. By February 7th when the board signed the papers for the grant, the stock was up 23%.
The SEC alleges that Apple -- by giving executives in-the-money options worth either $1.6 million or $3.9 million -- had violated the law. The SEC charges that Apple had engaged in illegal backdating, awarding in-the-money options without disclosing it and inflating company earnings by failing to record the $18.9 million expense on its financial statements. Did Jobs have a role in encouraging the board to approve these violations?
These questions about whether Jobs has pushed Apple's board to overstep its legal obligations are troubling. No doubt Apple shareholders hope those questions are behind Apple and that Jobs is now working on the next big thing.
When a company is so dependent on one person, investors can be taken for a wild ride.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
3-05-2008 @ 1:12PM
Boring Market said...
"...If a business requires a ‘superstar’ [CEO] to produce great results; the business itself can not be deemed as great. " Warren Buffet, 2008 Annual Shareholders Letter
http://www.boringmarket.com
3-05-2008 @ 1:44PM
Beltway Greg said...
Posted quickly to try and cover the other ridiculous post. He and they have been cleared. Google dude. Old news. At least you didn't stoop so low as to write a story about unlocked IPhones. Obviously, any health concerns that Jobs may have suffered have greatly hurt the long-term stock holders and of course the current market conditions are directly related to the health of Steve Jobs. (Sarcasm) Try this......Apple was up big and investors on the margin are afraid and are always on the fear side of the equation when it comes to a company that completely reconfigures the equation. 90% of music was delivered via CDs last year and more tween girls, the largest consumers of music, turn thirteen every year. Where do you think will happen to that 90% figure? And where do you believe that market share will go? BTW, you need only buy me an IPhone and pay for two years of service. I'll still risk $5K.
Beltway Greg
Stop IPhoning it in.
3-05-2008 @ 3:44PM
John Blackburn said...
The article indicates that the law wasn't broken:
"Palo Alto attorney Larry Sonsini, the company's longtime outside counsel, advised the directors that the CEO's right to privacy trumped any disclosure requirement as long as he could continue to perform his duties. A second outside lawyer agreed."
John Blackburn
http://watchingapple.com
3-06-2008 @ 11:44PM
FMarra7777 said...
*Sigh* Slow news day, huh?