Apple Meeting Tackles Stock Options Scandal
Apple Inc. CEO Steve Jobs defended the company's handling of its stock
Thursday and suggested a former
employee's accusations about his role
in the matter were wrong.
Even as the iPod and Macintosh maker's stock climbed to an all-time high, attendees
at Apple's shareholder's meeting in Cupertino, Calif., were not yet ready to
relegate the company's options backdating practices to the past.
Jobs was asked to clarify what happened and investors were asked to endorse
a shareholder proposal meant to prevent a similar scandal in the future.
The options-related measure, which Apple opposed, failed, according to the
company's preliminary tally. Other shareholder proposals on the agenda that
involved compensation reforms also did not pass.
Meanwhile, Jobs, with his typical flair for showmanship, elicited laughs and
applause during the meeting despite rankling questions.
Cupertino-based Apple was one of the most prominent of more than 200 companies
that came under scrutiny last year for backdating options -- the practice of
pegging a grant to an earlier date to achieve a better stock price and potentially
higher profits for the recipient. If not disclosed properly, taxes could be
underpaid and income overstated.
Apple took an $84 million charge after it acknowledged in December it had backdated
some options between 1997 and 2002. The company said Jobs knew of the backdating
but was unaware of the accounting implications.
But the issue flared again last month when one of the two former Apple employees
charged by the Securities and Exchange Commission in the case alleged that he
had warned Jobs of the accounting issues. Fred Anderson, former chief financial
officer, said he was misled into believing that the grants were approved by
The scandal has hung over Apple for the past year and on Thursday, it remained
a hot issue.
"Options backdating is a cancer that has been eating at this company,"
attorney Con Hitchcock said as he presented the anti-backdating shareholder
proposal on behalf of an investor group.
"There's a real paradox here -- that a company that is so smart and so
pioneering with its products can be so clueless in these compensation policies,"
When Jobs was asked by another shareholder -- Brandon Rees, a representative
of the AFL-CIO -- about what he knew, Apple's iconic co-founder calmly laid
out a rough timeline of events that had already been reported in public filings
and company statements. He then read the SEC's remarks about Apple's "swift"
and "extraordinary" cooperation.
"Unless you think there's a conspiracy involving the SEC, too, I don't
know what to say," Jobs said.
As for Anderson's allegations, made on the same day the former CFO settled
the case with the SEC and agreed to pay about $3.5 million in fines, Jobs had
little to say.
"I've worked with Fred for a long time," Jobs said. "But I thought
his comments were a little wrong."
The entire board, which includes former Vice President Al Gore, was re-elected
Thursday despite a recommendation from the influential proxy advisory firm,
Institutional Shareholder Services, that investors withhold their support based
on the directors' "secretiveness" and "lack of candor" in
the options imbroglio.
Two shareholder proposals calling for improved environmental programs at Apple
were withdrawn, following Jobs' announcement last week detailing how
the company plans to be "A Greener Apple" by removing some toxic
chemicals from its products by the end of 2008.
But advocates from Greenpeace and the Computer Takeback Campaign say more can
be done. They challenged Apple to lead the industry.
Jobs said he would answer some of those questions after further research, but
he also criticized the advocacy groups for basing their environmental scorecards
more on statements of principle rather than quantifiable fact. He suggested
they rework their measurement criteria and hire scientists to figure out how
to eliminate harmful materials.
Shares of Apple reached another record high Thursday and closed at $107.34,
up 46 cents.