Even better: customers seemed willing to put up with the often dubious reliability of both Apple’s computers and its music players, both of which suffered battery problems (another example, said critics, of the RDF). To keep the company’s relentless momentum going, Jobs even put Intel chips inside his computers, thus allowing them not just to “think different” (Apple’s advertising slogan), but “think the unthinkable”, and run Windows XP. To promote the new compatibility, Apple launched a TV ad campaign in which a funky young Asian man with jeans, trainers, and a record bag conversed with a fat, balding and neurotic middle-aged salesman in a cardigan. The message was clear: Macs are for rock stars; PCs are for nerds.
The message was completed with iPod endorsements from two rock stars who don’t even do commercial endorsements: Bono and Bob Dylan.
Jobs’s reputation as a 21st-century miracle man was completed by his refusal to take anything other than $1 in salary from Apple — enough to buy a single track on iTunes every year, leaving one cent change. Once again, however, the reality was very different: Jobs had in fact been given a $90 million Gulfstream V jet by Apple, and was getting extraordinarily rich (on paper, at least) from share options — the same options that would cause today’s looming crisis.
Put simply, share options work like this: on a specific date, a company issues a certain number of shares to an employee. The employee can buy these shares at a fixed “strike price” —usually their value on the day they were issued — at a future date. The more the company’s stock goes up between the issue date and the “exercise” date, the more profit the employee stands to make. Investors foot the bill for this, because the value of their shares is diluted when a company issues more shares as options. And yet, because the interests of option-holding employees and investors are supposedly aligned — they both want the shares to rise in value — Wall Street generally prefers stock option incentives to cash bonuses and big salaries.
But stock options can be manipulated by so-called “backdating”. This happens when a company artificially sets the strike price of an option low, essentially rigging it so that a profit is guaranteed. There is growing concern on Wall Street that this practice has been going on for years — with the strike price of many options suspiciously matching the annual low-points of companies’ share prices. This is the subject of Apple’s internal investigation, as well as investigations at 100 or so other US companies. It is thought that in January 2000 Jobs was issued ten million share options by Apple, with a strike price that corresponded to the company’s lowest share price for that month. The resulting profit could have been as high as half-a-billion dollars — but Jobs never collected it. Apple mysteriously cancelled the grant in 2003 and replaced it with another.
Jobs’s case is made stronger by the fact that he never sat on Apple’s remuneration committee after becoming CEO in 1997. But it has also been undermined by reports claiming that executives at Pixar, the animation studio owned by Jobs until he sold it to Walt Disney this year, also received stock option grants at suspiciously low prices (the strike prices corresponded almost exactly to Pixar’s annual share price lows, as demonstrated by a series of widely-circulated graphs). Jobs might not have been one of the Pixar executives awarded any options, but the very fact that not one but two of his companies are now caught up in the widening scandal raises more questions.
The bottom line, of course, is this: will the man who turned computers into gallery exhibits, and who revolutionised the way music is sold and consumed, end up being fired from the company he co-founded for a second time? Will he be ruined by something as idiotic as a rigged stock option, when his fortune is already valued at about $4.4 billion? Until Apple’s investigation is over, it’s impossible to say. Yet Jesse Eisinger, columnist for The Wall Street Journal, made this prediction: “It’s clear that some companies and executives behaved egregiously while others may merely have had lapses in their internal controls . . . the likely outcome is that a relatively small number of the most egregious actors will be punished. Most of the rest will skate free.”
In the worst case scenario, Jobs, now married with four children (one of whom was born to an ex-girlfriend), could get caught up in a fraud case. Indeed, Apple is already the subject of a lawsuit claiming that the company filed “false and misleading statements” to the SEC and backdated options to reap “millions of dollars in unlawful profits”. The best case scenario is that some corrected financial reports are prepared, some extra taxes are paid, some lawsuits are settled out of court, everyone is cleared and another 60 million iPods are sold.
Jobs certainly appears undeterred — and the American press, so far, seems to be on his side. After all, why take down a man who has obviously contributed so much to the American economy, making huge wealth for shareholders along the way?
Apple’s shares, meanwhile, have completely recovered from the initial shock of the options investigation. One of the reasons was the presentation made by Jobs on the day of his CNBC interview a fortnight ago. He unveiled a new movie downloading service for iTunes, fielded questions about the much-rumoured iPhone and widescreen iPod, and unveiled a gadget called iTV that can beam video across a wireless network — allowing people to send movies wirelessly from their iMacs to their TV sets in different rooms, in the same way that iTunes users can already send music wirelessly to their hi-fi systems in different rooms.
While Jobs’s movie downloading service was seen as half-hearted compared with the rival service from Amazon.com, iTV was immediately applauded as a huge breakthrough. “iTV stole the show”, declared the online edition of Business Week.
Back on stage, Jobs was beaming. “Pretty cool, huh?” he said, as reality twisted and turned.
