To be clear, I didn’t say in my comment that the Apple backdating was wrong - I was speaking of backdating per se. The issue - at least the legal issue - as I understand it, is authorization and disclosure. Backdating itself is not, as I understand it, illegal. The illegality generally comes from trying to hide it from the shareholders, regulators and investing public. There may well be good reasons to backdate an option. But it can’t be done unless, as I understand it, it is properly authorized, disclosed and accounted for (including in publicly-filed financial statements). As I recall, Mathew, you commented in our original discussion that you don’t like backdating under any circumstances. And you suggest in this post that backdating itself is the issue. I get that, but but as far as the legality of it is concerned, the circumstances do actually matter quite a lot.

I had then and still have no idea of what happened in the Apple case. No one seems to know the key facts, or is at least able to report them with precision. The WSJ piece is a factual muddle. Surprising, frankly, given their reputation for good business reporting. Honestly - “The practice can violate securities laws and accounting rules.”??? Thanks for showing up!! How, exactly, can the practice violate rules? By violating disclosure rules? By violating accounting treatment rules? It actually matters…

Hypothetical situation - Jobs properly approved the backdated grants, provided they received all other required authorizations and were properly disclosed. Someone else (a general counsel, perhaps?) mistakenly neglected to obtain those other approvals (from a board committee, for example), and then later tried to cover up that mistake by faking a signature, or something like that. Meanwhile, someone else intentionally did not properly account for them or report them in the financials (a CFO perhaps?), looking to avoid the earnings hit. If I’m reading the known facts properly, this is a possible explanation of what happened. And if this is what actually happened, it’s hard to see why Jobs should wear it at all, unless you accept that his head should roll because he was “in charge at the time of the illegal activities”. Given the value of Apple that is tied up in Jobs’ being CEO, it’s hard to understand how that response would in that case be appropriate, by any reasonable standard. Funny coincidence - it actually was the GC and the CFO who ‘left to pursue other opportunities …’. Hmmm …..

On the other hand, Jobs could have approved the backdating and nudge-nudge wink-winked someone to slip it through, and someone else to slide it past the financials. Or he could have created a culture in which this kind of wrongdoing was encouraged. If that happened, his a** should be grass, no question. If this happened, the former seems more likely to me than the latter. But who knows.

You say the facts are pretty clear, but I don’t get that from the reporting - perhaps I’ve missed it - I haven’t really been paying much attention. But from what I’ve seen, the facts that matter aren’t out there yet.

As for whether the quote you mention at the end of your post makes any sense, the quote is of course either an uninformed or deliberate misstatement of the facts - the writer is either deliberately asserting or disingenuously or innocently but ignorantly implying that Jobs knew that that the activities he approved were illegal. But those circumstances, as far as I know, are not known yet.

Does that make sense? Only in Blog-land.

Jobs’ reality-distortion field still intact via Mathew Ingram: mathewingram.com/work January 3rd, 2007 at 17:52

I apologize if I misrepresented your argument, Rob. And you are quite right that backdating is not illegal — although as you also noted, I am against it on principle regardless of whether it is properly structured, legally disclosed, etc. etc.

And you are also correct in saying that many of the crucial facts about the Apple case in particular are missing. My only real point is that no one — including the WSJ — seems all that interested in the details of what occurred, and I would argue that’s because it involves Apple and Steve Jobs. If it involved Bill Gates and Microsoft it would be on the front page for weeks.

No question but that that’s true. I think that’s the real Hurd defense - barring outright fraud, people are willing to put up with an awful lot from someone so closely associated with creating that much value.

Back in Bubble 1.0 I was an unwelcome troll on Stockhouse and similar boards whenever I criticized shady or obviously excessive option grants to execs of bubblicious companies - the prevailing view was always along the lines of “keep your voice down until *after* the IPO - I’ve got skin in this game!!”. No different here, really.

Agreed.

Glad to see you weighing in on the Apple fiasco, Mathew.

I am of the view that the company’s independent directors took an overly narrow approach to their mandate. They should have probed further into what was done, why it was done and the implications for the company’s reputation and culture. It is not enough to say that CEO Steve Jobs did not make unlawful or improper gains from options manipulation. Improprieties occurred on his watch. He permitted or encouraged backdating in his capacity as the most senior executive of the organization. He is the one who sets the moral tone for the rest of the company. I am unaware in either the pre or post Enron era where it was acceptable that there could be the slightest doubt in the word or integrity of the company’s CEO. Concerns must, therefore, also focus on specifically how Jobs assisted in the backdating, what his precise role was and whether he misled investors as to the disclosures that were made at the time and have subsequently been proven false to the tune of $84 million.

The report also asserts that Mr. Jobs was unaware of the “accounting” implications involved. He has been CEO of the company for a considerable period and is widely reputed to be a “hands-on” manager. A Ken Lay type excuse that Mr. Jobs was not aware of what was happening around him or did not understand even the ethical implications of what he was doing, and was not bright enough even to seek counsel about any uncertainty, not only is not plausible, but even if it were would still raise serious questions about the standards of competency in the company’s top management.

Inasmuch as CEOs have been fired for making false statements on their resumes and have had their bonuses reduced because of plagiarism, it appears that Apple’s board has not adequately considered the full implications, including far-reaching ethical implications, of what has occurred. What failures in governance oversight, along with the size and functioning of the board, that may have contributed to the fiasco, and what needs to be done to address these shortcomings, also appear to have escaped the board’s gaze.

It’s pretty clear from the actions of all the players involved that there should be more fallout from Apple’s revelations. The failure of the board to probe deeper and give Jobs a pass for this kind of conduct is bad enough. I have already talked with a number of CEOs and directors who are astonished at the board’s obvious and ill-advised attempts to sweep Jobs’ role under the carpet. But the failure of the SEC and the media to prevent that from occurring carries profound implications for the governance and leadership of corporate America and the confidence of the investors who rely upon it. We’ re talking about a lot more than Nanos and Ipods.

I have a number of posts on this subject, including the issue of stock options for Apple’s own directors and the other shortcomings of Apple’s board, at http://www.finlayongovernance.com.

Thanks for adding your perspective, Richard. I would agree that the board’s report seems like a bit of a whitewash.

[...] Jobs’ Reality-Distortion Field Still Intact By: Mathew Ingram 2007-01-03 I know this is probably going to trigger a wave of enraged emails from Apple fans - or “Macolytes,” as I like to call them - but… …I can’t resist writing something about the latest chapter in the ongoing saga of Steve Jobs and the backdating of Apple’s stock options, which Dan Farber of ZDNet wrote about recently. I wrote an earlier post about it here. In that post, I said that I thought Apple - and Steve Jobs - had been getting a free ride on the whole options thing because the company and its products are so popular, and I still think that (it’s either that or the legendary Jobs “reality distortion field”). Everyone would much rather talk about how the iTV unit is going to be announced at Macworld. Of course, it’s possible that everyone is willing to overlook the Apple case because a) they are tired of the whole options-backdating issue, b) they don’t think it’s really that important - or even wrong, as my friend Rob argued in the comments on my previous post - or c) the company has absolved Jobs of any direct liablity, and therefore the whole issue is effectively closed. That could be. But as far as I can see it, the facts are pretty clear from the WSJ story: Steve knew about the backdating, and while he didn’t benefit from it, he either actively agreed to it or approved it. He also personally benefited from a huge grant that was backdated, although he apparently didn’t know about it. As a blog called The Secret Diary of Steve Jobs puts it, this is the Hurd defense (named for the CEO of HP), which in a nutshell says, “Did illegal activities occur? Yes. Was the current CEO in charge at the time of the illegal activities? Yes. Did the current CEO authorize said activities? Yes. And benefit from them? Yes. Therefore, the CEO is not responsible.” Does that make sense? Only in Apple-land. Comment Tags: Apple, Steve Jobs Add to Del.icio.us | Digg | Reddit | FurlView All Articles by Mathew Ingram About the Author: Mathew Ingram [note only one "t" in Mathew] is a technology writer and blogger for the Globe and Mail, a national newspaper based in Toronto, and also writes about the Web and media at http://www.mathewingram.com/work and http://www.mathewingram.com/media. [...]

Okay so, backdating is illegal? No.

Apple stock? Shooting like a rocket.

Steve Jobs? Worth it.

I’m an Apple stockholder, and I seriously don’t care.