Assuming you’re not tired of the Steve Jobs watch (and why would you be, given that the only other news this week has been obituaries?), we’d like to direct you to a lawsuit (.pdf) that points out the rather obvious — though largely unmentioned — point that Apple’s options problems seem to have begun right when the allegedly compensation-averse Jobs returned to the company in the mid-1990s.
In an amended complaint filed in their federal shareholder suit, plaintiff lawyers from Cotchett, Pitre, Simon & McCarthy write that “Beginning in 1996 — which also happens to mark the beginning of a period during which Apple now says that it found “irregularities” with the granting of stock options to executives — Apple was in turmoil. The period also coincides with the acquisition of software maker NeXT and the return of Jobs and many of his NeXT cohorts to Apple.”
Those cohorts include the former GC Nancy Heinen and ex-CFO Fred Anderson (who joined Apple around that time, but did not come from NeXT) who, we reported last week, are being blamed by Apple for the options mess. But there was another cohort of cohorts: the Jobs-appointed board.
In 1997, all but two of Apple’s board members were replaced by a group of high-profile tech figures including two close Jobs friends. Over the next five years or so, the Apple board took hits for the lack of independence of some directors (including one who the company admitted was not independent because he was an executive at a major Apple client).
“It’s more than a coincidence that 1997 marked not just the beginning of the reported backdating, but also the Jobs board,” said Mark Molumphy, a partner at the Cotchett firm working on the case. Molumphy doesn’t buy the company’s line that Jobs was an innocent bystander to the options improprieties. “I think he put the pieces in place to let this happen on his watch.”
Another thing that’s been discussed over the past two days by both plaintiff lawyers and many in the financial industry is Pixar, the animation studio and current Disney subsidiary that Jobs bought and helmed when it was a public company. Pixar’s own options problems were perhaps more egregious than Apple’s, and for a time, the two companies shared one major commonality: no compensation committee.
In Pixar, the absence of such a committee brings up the question of whether the entire board — a group that included top Silicon Valley lawyer Larry Sonsini (who’s firm also advised Apple), along with Jobs — had knowledge of the backdating.
And at Apple, as Molumphy points out in his complaint, a 16-month period in 2000 and 2001, when the company had no compensation committee, raises other questions of board independence. Among the seven-member board were “at least two directors that the Company itself didn’t consider to be independent — Jobs and [Jerome] York, two personal friends of Jobs — [Larry] Ellison and [William] Campbell, as well as [Millard] Drexler, who was an employee of the Gap, where Jobs served as a director.”
Of course, the fact that the board was full of Jobs buddies may not matter after all, given a recent Financial Times report stating that the board didn’t even know about a massive lump of options that Jobs received in 2002.
— Justin Scheck & Jessie Seyfer
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