Steve Jobs testifies to feeling underappreciated by Apple boardRoughly four years after returning to Apple, Steve Jobs had set the company on course for one of the most remarkable comebacks in Silicon Valley history but says he felt underappreciated by his board of directors and as a result asked for a sizable stock grant that would later play a major role in the company's widely publicized option-backdating scandal.
Leveraging the Freedom of Information Act, Forbes magazine was able to obtain a transcript of the 119-page deposition Jobs gave to the Securities and Exchange Commission last year regarding the role of his former general counsel Nancy Heinen in matter. He was also probed in regard to his knowledge of the situation and whether he fully understood the implications of backdating stock options.
Apple was one of dozens of companies to come under investigation by the SEC after it disclosed late in December of 2006 that an internal audit had turned up irregularities in 6,428 option grants. Although Jobs was never charged with any wrongdoing, Heinen and former chief financial officer Fred Anderson were separately indicted for their roles in the backdating of two large grants given to Jobs and other members of Apple's top brass.
Both Anderson and Heinen —who was also accused of fabricating minutes of a phantom board meeting that never took place —resigned (1, 2) from Apple ahead of the formal charges and ultimately went on to strike deals with the SEC by which they agreed, without admitting any wrongdoing, to hefty fines and the disgorgement of proceeds received from exercising their own backdated options.
In March of 2008, representatives for the SEC interviewed Jobs for three hours at Apple's Cupertino-based campus as part of their case against Heinen. Throughout the meeting, Jobs maintained that he lacked a general understanding of Generally Accepted Accounting Principles (GAAP) and options backdating, and in many cases stated that he didn't know or could not recall the answers to the investigator's questions.
More interesting, however, was Jobs' disclosure that he alone in 2001 requested the 7.5 million share options grant, later revealed to have been backdated, because he wasn't feeling appreciated by his directors for his efforts, especially with all of his prior stock options haven fallen underwater when the dot-com bubble burst. Jobs later traded the grant for restricted stock units with less value.
"It wasn't so much about the money," he testified. "Everybody likes to be recognized by his peers. ... I felt that the board wasn't really doing the same with me. [...] I just felt like there is nobody looking out for me here, you know. ... So I wanted them to do something, and so we talked about it. ... I thought I was doing a pretty good job."
Jobs, who added that it would "have made him feel better" had the board proposed the grant on its own, said the options were approved during an August 2001 meeting when Apple shares were at $17.83 but that he continued to debate the vesting terms of the options with the board, which caused the company to miss a filing deadline. Option backdating isn't illegal as long as a company properly accounts for the move in its financial disclosures.
Both sides finally hammered out the fine points of the grant on December 18th, but by then Apple's shares had risen to $21.01. The decision was ultimately made to backdate the grant to October 19th when the share price was at $18.30, which led to the minutes of the original August board meeting being doctor and those for a non-existant October meeting crafted out of thin air.
In the deposition obtained by Forbes, Jobs denied any knowledge of the falsified meeting minutes until the scandal became public and said another grant of 4.8 million backdated options to top Apple executives —including Anderson and Heinen —was critical to keeping his executive branch intact.
"I was very concerned because Michael Dell, one of our chief competitors, had flown Fred Anderson, our CFO, down to Austin ... to try and recruit him," Jobs said, adding that Dell had several other Apple managers in its sights as well.
In late December of 2006, Apple announced that it would incur a total additional non-cash stock-based compensation expense of $84 million after tax, including $4 million and $7 million in fiscal years 2006 and 2005, respectively, to square itself with the federal government as a result of the backdating mess.
For his part, Anderson has maintained that Jobs played a role in the backdating of the executive team grant and that he had a better understanding of the general accounting principles than Apple led the public to believe.