August 29, 2001: During a meeting, Apple’s board of directors awards Steve Jobs new stock options that will become part of a stock-backdating scandal several years later.
When the matter eventually ends up in court, Apple’s former general counsel pays $2.2 million to settle charges that she backdated stock options for Jobs, herself and others — and created fake paperwork to hide this fact.
The trouble with Apple stock backdating
Backdating stock options refers to making it look like they were awarded earlier than they were.
Stock options frequently tie into executives’ compensation. Typically, execs get the option to purchase a certain amount of stock at a set price. The lower this “strike price,” the less the executive pays for the stock. When these options then “vest” after a period of time, the executive can sell them at the current share price. That can mean a nice bonus if the company increases in value.
Backdating is legal so long as the company discloses the practice correctly. Improper handling of backdating — which means missing information for investors — breaks the law.
According to Forbes, which broke the Apple stock-backdating story, Jobs’ award of 7.5 million shares got approved at a board meeting on August 29, 2001. At that point, Apple’s share price was $17.83. However, Jobs continued to argue over the point at which the options would vest. That resulted in Apple missing the deadlines for filing the proper information with the Securities and Exchange Commission and its auditors.
It took until December for the parties to agree upon terms. At that point, Apple’s stock price stood at $21.01. Backdating gave Jobs a lower share price that, on paper, made him $20 million richer.
Got that? Ultimately, it seems Jobs swapped these options for restricted stock of lesser value. Today is a significant date in Apple history, though, because it was one of the big scandals that rocked Apple during its climb back to the top in the mid-2000s.
Steve Jobs cleared of charges
Ultimately, the Apple stock-backdating scandal did not get pinned on Jobs. In the aftermath, Apple spokesman Steve Dowling said: “Following an exhaustive independent investigation, the special committee found no misconduct by Steve Jobs or any other current management. The board has expressed complete confidence in Steve and senior management.”
But the incident did affect how the public viewed Jobs. Such a situation would rank as a public scandal for any large company. And Apple is far from the only business to take advantage of this type of arrangement.
However, for Apple, it felt a bit different.
Unlike an entrepreneur like Microsoft’s Bill Gates, Jobs didn’t seem cash-hungry. He was, after all, advertised as being a $1-per-year CEO. The public perceived Apple as the “good” underdog in tech, as opposed to other presumably “bad” companies.
During his March 18, 2008, deposition, taken at Apple’s Cupertino HQ, Jobs said, “It wasn’t so much about the money.” Instead, he said it was more about being “recognized by his peers.” He said he “felt like there is nobody looking out for me, you know.” But it didn’t necessarily appear that way to onlookers.
Today, we’re used to the fact that Apple can be both a shrewd business titan and a “force for good” in the world. The Apple stock-backdating scandal was one of the first times these two seemingly opposite poles — Apple’s countercultural ethos and the realities of big business — collided.