IP Democracy: Steve Jobs is More Special Than Anybody

I’m not someone who is easily starstruck or intimated by powerful people of any kind, but I’ve often thought the one person who might make me quake is Steve Jobs. A spate of news articles today only reinforces my fear of turning into a mouse were I ever to be stuck in an elevator with him.

The first, by Business Week’s Peter Burrows, has this great title: Is Steve Jobs Untouchable? It raises the question about whether Jobs, the cherished deity of Apple, is really off the hook in the computer company’s backdated options scandal.

Despite the results of a special internal investigation, conducted by no less than Al Gore and finance veteran Jerome York, which found that Jobs engaged in “no misconduct” regarding the alarmingly growing accounting mess, some folks think Apple is trying to whitewash the all-powerful CEO’s role because, well, Apple would crumble without him.

Says managing director Alan Johnson of Johnson Associates, a compensation consulting firm in New York: “He knew what he was doing. It wasn’t ‘the dog ate it.’ He backdated the options on purpose and the committee said it will give him a free pass.” Even some Valley companies are troubled by the conclusions reached in the Apple report. “It looks like Apple’s board is trying to whitewash the situation because they like him so much,” says Willem P. Roelandts, CEO of chipmaker Xilinx.

If the government doesn’t buy what Gore and York reported — and the wholesale recusal of Jobs from any wrongdoing could actually pique, not dampen, the feds’ curiosity — Jobs might be the subject of a criminal investigation or even be brought up on federal charges. No matter, the article seems to imply. Apple will not only stand by Jobs, they’ll also pay to defend him, a different tack from other companies which booted out their CEOs at the first hint of a backdated option scandal.

(For what it’s worth, backdating stock options doesn’t strike me as a criminal offense as much as a naughty accounting boo-boo. After all, companies have the right to price options for their employees at whatever levels they wish — they just have to expense the options if the price of the options is lower than the price of the stock on the day the options are issued, or something like that. And, correct me if I’m wrong, but a lot of the unreported expenses that flow from backdating are just paper costs. Granted, it’s better to follow the rules, but I just can’t get worked up about backdating.)

Apple’s got a lot to lose if Jobs goes down and they’ll fight to keep the iconic visionary from any trouble. Not only is he powerful and scary, but also no one has been hurt by any backdating that occurred on his watch.

Says Harvard Business School management professor David B. Yoffie: “Obviously, these are inappropriate activities that anyone should be ashamed of. But it wouldn’t be in shareholders’ best interests to have Steve Jobs leave for something that happened four years ago that didn’t have a material impact on their holdings.”

The other article about Jobs that has reinforced my fear of ever speaking to him is this piece by former Apple federal sales manager David Sabbotta. Sabbotta’s unintentionally humorous piece describes what it’s like to be in a meeting with Jobs. Not only does Jobs’ brilliance stifle any disagreement, he actually goes so far as to insult customers.

Yet it’s an amazing experience to take part in a briefing with Steve. Stories about him reprimanding customers are true. Once, when renegotiating a Pixar distribution deal with Disney, he humiliated Disney’s chief information officer in front of his staff. Steve pointed to a couple of recent Disney flops, and told the attendees that they could expect more of the same as long as the CIO was stupid enough to keep Macs out of the creative process.

Update: Holman Jenkins, Jr. had this wonderful piece (behind a firewall) in yesterday’s Wall Street Journal about Apple, backdating and Jobs. He too thinks the whole backdating “scandal” is a bunch of hooey.

Backdating, let’s recall, was simply an artifice to allow companies to issue “in the money” options (the terms of which were accurately reported to shareholders) without taking an accounting expense. That’s all backdating is. Does it matter in the teensiest whether options are expensed? No, expensing has no probative value whatsoever for evaluating a company’s shares or its compensation policies. Expensing creates a junk number, of zero analytical value.

The market worries more about Jobs’ being punished for this stupid controversy than they do about the controversy itself. So, who’s in favor of keeping the backdated options scandal going? The media, prosecutors and, in all likelihood, Justice Department attorneys who are aching to jump to blue-chip law firms.

This ought to cast a light on whether the drop in market prices of companies in the backdating scandal reflects the shock and horror of investors at the details of backdating - or shock and horror at the meal that trial lawyers, prosecutors and the media are making of companies caught up in this episode.

Posted by Cynthia Brumfield on January 4, 2007 4:28 PM to IP Democracy