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AAPL CEO Should Step Down
The market researchers and longtime bullish Apple supporters at IRA are recommending Steve Jobs resign from Apple.
'We've been big fans of Apple Computer and CEO Steve Jobs for quite some time', say the researchers at Institutional Risk Analytics. 'Barron's lionised us for our bullish stance and caused a bit of a ruckus in bubble land by repeating our long held view that a tie-up between Apple and Walt Disney would be all so sweet, in large part because of the value creating catalyst of Steve Jobs.'
'Needless to say, when reports of stock options backdating at Apple first hit the news last year, we felt like chucking our cookies', the editorial continues.
'Some comfort remained because Apple kept telling the media and the company's investors that the Jobster was not aware of the stock options backdating and other bad acts. A special committee of the Apple board of directors gradually revealed that Mr Jobs was not only aware of the back dating of the stocks options, but that he actually was involved in recommending some of the exercise dates.'
According to the Apple 10-K NT, the committee's investigation found that although Jobs was aware or recommended the selection of some favourable grant dates, he didn't receive or benefit from the grants or appreciate the implications.
The committee also found that the investigation raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants. Those two officers are believed to be Fred Anderson and Nancy Heinen.
Because of these revelations there are currently nine shareholder lawsuits filed against Apple with many shareholder voices demanding Jobs' resignation.
IRA too believe Jobs and the Apple board of directors should step down.
'First, by failing to disclose the options grants accurately and in a timely fashion, Jobs and the Apple directors involved apparently violated federal securities laws. Moreover, the actions and/or omissions by Jobs and other directors and officers of the corporation which are alleged in various civil lawsuits seemly violated the company's stock options plans, plans which were approved by shareholder vote, including the provision that the exercise price of the grants would be no less than 100% of the fair market value of the price of the stock on the day of the grant.'
'Second, several of the civil suits allege that starting in 1997 Jobs and the Apple board engaged in a series of options grants for various officers of the corporation at below market price. This included a grant to Jobs himself in January 2000, apparently contradicting the company's statement that Jobs himself did not benefit. Many of these grants, the lawsuits allege, were spring loaded to coincide with a public announcement by Apple that had the effect of greatly increasing the value of the options. And all of these options grants were designed to benefit insiders with personal and professional ties to Jobs and members of the board of directors of Apple.'
'Third and perhaps most seriously, the failure by Jobs and other officers and directors of Apple to perform their fiduciary duty to the corporation and to properly conduct and disclose the grant of options to company insiders has exposed Apple to considerable legal and financial risks and has created financial expenses and liabilities for the corporation which did not previously exist. That's why at the top of this comment we include the definition of Operational Risk taken from the Office of the Comptroller of the Currency, a definition that is derived from the COSO framework for enterprise risk management.'
'No officer of a US corporation, public or private, can credibly claim to be ignorant of the fiduciary requirements set forth in the COSO framework.'
'Fourth, because Jobs and several current and former officers and directors of Apple are now defendants in almost a dozen civil lawsuits and are reported to be targets in a federal criminal investigation, the ability of these individuals to serve as independent fiduciaries of the corporation is compromised. Steve Jobs, former Vice President Al Gore, former Apple CFO Fred Anderson, and a number of other current and former officers and directors - many with long standing personal ties to Apple and Jobs - are facing prolonged litigation and possible criminal sanctions. Indeed, the direct involvement of Al Gore in this legal morass may effectively end the former Vice President's hopes to again seek the US presidency in 2008.'
Lynn Turner, former chief accountant at the SEC, says Apple's board deserve an 'F' for how they handled their investigation.
'The question is not merely one of whether Jobs benefited or not, but also one of whether Jobs was involved in the backdating of documents or providing investors with misleading or incomplete disclosures.'
'As much as we continue to admire Apple as an innovative technology company, we cannot help but notice how little attention is given to investor information on the Apple web site' say IRA. 'If you take the time to visit www.apple.com you will notice that there is no obvious link directing investors and others to the company's SEC filings and press releases. Everything on the Apple site seems focused on product and news announcements regarding same.'
'Buried at the bottom of the Apple home page, under a small barely noticeable tab labeled 'media info' you'll find another link that takes you to Apple's news release library and SEC filings.'
'What is really sad about the Apple options scandal is that it did not need to happen', say IRA. 'Jobs and the rest of the Apple board are wealthy, well educated people with access to the best legal advice and possessing the time and resources to get this right.'
'When we see members of the US business elite behaving in such an ill considered fashion, it confirms in our mind why we do, in fact, need prescriptive laws like Sarbanes-Oxley.'
'Even in the wake of scandals like Enron and WorldCom, there still seems to be something lacking in the DNA of corporate America when it comes to basic issues like public disclosure and corporate governance.'
[Read Apple's 10-K SEC filing for the fiscal year ended 30 September 2006 (4 MB).]