“The markets have finally had their say about the wonderfully overblown backdating scandal. When Apple filed its latest mea culpa on Friday along with a board expression of confidence in Steve Jobs’s leadership, the company’s shares jumped four bucks. Message: The market doesn’t give a hoot about backdating. It gives a hoot whether Mr. Jobs might be run out of his job,” Holman W. Jenkins, Jr. writes for The Wall Street Journal.
Jenkins, Jr. writes, “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.”
Jenkins, Jr. writes, “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.”
Full article “A Typical Miscreant-II” (subscription required) here.
Related articles:
Should Steve Jobs be allowed to survive Apple’s options backdating scandal? – January 02, 2007
Apple options probe shines spotlight on former execs Anderson and Heinen – January 02, 2007
ThinkEquity analyst: Apple sell-off due to ‘inexperienced traders,’ nothing new in options story – December 28, 2006
Analyst: U.S. Gov’t unlikely to ‘nail Apple and Steve Jobs’ – December 28, 2006
Report: Apple ‘falsified’ records on 7.5m stock options granted to CEO Steve Jobs in 2001 – December 28, 2006
What would Apple be worth without Steve Jobs? – December 27, 2006
Piper Jaffray: Steve Jobs not at risk in stock options case – December 27, 2006
Apple shares push into positive territory, top NASDAQ most-active list – December 27, 2006
Shares of Apple Computer fall 5% in pre-market trading – December 27, 2006
Faked documents may be at core of Apple options probe; Jobs seeks outside legal representation – December 26, 2006
Apple delays filing annual report due to ongoing stock options investigation – December 15, 2006
Options scandal: is Apple’s Steve Jobs truly safe? – October 18, 2006
Apple Computer Directors may have had conflicts of interest in options investigation – October 11, 2006
Apple’s options disclosures leave plenty of unanswered questions – October 09, 2006
Apple shareholders await earnings restatements; Steve Jobs still not in the clear – October 06, 2006
Former CFO Anderson helped turn Apple Computer around – October 05, 2006
Wall Street unshaken by results of Apple stock options investigation – October 05, 2006
Is Apple rotten at the core? – October 05, 2006
Analyst: Anderson, Heinen may be former Apple executives responsible for irregular options grants – October 05, 2006
Analyst: Apple restatement due to options irregularities not expected to be significant – October 04, 2006
Apple’s special committee reports findings of stock option investigation – October 04, 2006
Google CEO declines Apple automatic stock option grant; plans to buy 10,000 AAPL shares instead – September 01, 2006
Google CEO Dr. Eric Schmidt joins Apple’s Board of Directors – August 29, 2006
Shareholders allege Apple execs reaped ‘millions’ in unlawful profits – August 23, 2006
How options-backdating irregularities can affect your Apple Computer stock – August 23, 2006
Apple’s options imbroglio: Mac-maker granted options at or near key events in company’s history – August 18, 2006
Apple added to Nasdaq’s list of ‘delinquent companies’ – August 18, 2006
Apple unlikely to be delisted by NASDAQ – August 16, 2006
Apple CEO Steve Jobs drawn into stock options scandal – August 15, 2006
Apple announces update regarding stock option grants – August 11, 2006
As expected, Apple delays quarterly results due to stock-options grants review – August 11, 2006
Some stock options grant decisions were made by Apple board, and potentially, CEO Steve Jobs – August 10, 2006
Disney: no material impact from Pixar options – August 09, 2006
Pixar options draw scrutiny – August 08, 2006
Apple stock options scandal? What scandal? – August 07, 2006
Class action lawsuit over stock options filed against Apple Computer, Inc. – August 04, 2006
Wall Street forgiving of Apple’s stock option irregularities; CEO Jobs unlikely to be terminated – August 04, 2006
Apple’s stock option irregularities escalate into a scandal as world awaits Steve Jobs’ WWDC keynote – August 04, 2006
Apple warns of profit restatement dating back to 2002 – August 04, 2006
Apple loses 3.5% to $67.15 in premarket trading – August 04, 2006
Apple announces update regarding stock option grants – August 03, 2006
Shareholder’s options suit against Apple alleges ‘striking pattern that could not have been chance’ – July 11, 2006
Apple announces update regarding stock option grants – July 05, 2006
UBS: stock options probe unlikely to hurt Apple – June 30, 2006
Apple joins growing list of companies entangled in stock option ‘irregularities’ – June 29, 2006
Apple to investigate stock option grant ‘irregularities’ made between 1997 and 2001 – June 29, 2006
Koolaid… I’m waiting… ;P
The clock is ticking down to a Steve Jobs exit from Cupertino and all things Apple.
With shares dropping again today, one wonders what fools are selling AAPL. No, I suppose one doesn’t wonder. Are there analysts recommending Sell? Seems like the buying opportunity continues. This backdating issue just doesn’t bother most people who know Apple. Whether SJ stays or goes does.
@Hg Wells:
There have been some big gains lately, and no matter how much higher a stock will go, someone always wants the cash NOW. For the rest of us it’s a chance to build our positions.
“The clock is ticking down to a Steve Jobs exit from Cupertino and all things Apple.”
In case you hadn’t noticed, For What It’s Worth, your ass is also grass.
Cheers!
Why does the WSJ have such a hard on for Steve Jobs ??
Look at the news today….a really bad CEO (Home Depot’s Nardelli)is forced out for poor performance with a $200+ million severence payment and they don’t say boo.
Isn’t obscene CEO comp the real issue here ?
And isn’t it the absurd employment contracts the topic that should be openly analyzed ?
The options backdating is becoming a witchhunt now.
Violating SEC regulations, now that’s “Thinking Different”.
It seems that people are commenting without reading the original article (which was actually an editorial).
The Journal doe not “have a hard on for Steve Jobs”, and the editorial did not say anything bad about Steve or Apple. It was pointing out how irrelevant the backdating issue is, and more importantly, how it is being driven by a media that gets attention by writing stories that cater to the general population’s resentment of highly paid corporate execs.
They writiers go out of their way to point out how absurd it is that Steve Jobs would do something illegal to enrich himself by a small percentage of his actual net worth. They also mention how the shareholders value him (and other execs) by the impact these matters have on stock price.
WSJ gets it.
I take that back. They don’t get it.
That Nardelli was booted out shows that General Electric was right when he was denied the number one spot. That he can walk away with such a golden parachute says Home Depot was derelict not only in selecting him, but in giving him such a sweetheart deal.
As to the options backdating, Jenkins is wrong when he says it has “no probitive value”. Since it is “free money”, it should be expensed in the year it is offered. It also says the Directors are failing in their fiduciary duty to stockholders and should be held liable.
Finally, it’s now clear options backdating had become common practice in recent years, that perhaps a third of Fortune 500 companies may have engaged in one or more variants of backdating. (It’s now harder to pull off due to the reporting requirements of Sarbanes/Oxley.) That Apple is a common reference point reflects a cultural desire among the chattering class to bring down someone more successful than they.
Don’t pass the koolaid gets it.
OH WAIT… I read the whole thing first. ;P
Great article. Jenkins is spot on.
Jenkins apparently doesn’t understand much about expenses.
Companies provide stock options for two reasons: so that employees can share in company growth, and (this is the key one for us here) to allow them to offer lower salaries than they otherwise would. In other words, deflate their employment expense which in turn increases their profit and allows them to create a falsely inflated profit picture.
To anybody who says options are worthless and don’t need to be expensed: since they’re worthless, you obviously wouldn’t have any trouble giving them to me.
“The clock is ticking down to a Steve Jobs exit from Cupertino and all things Apple.”
This clock is also ticking down on the Sun.
This sort of universally applicable statement is meaningless.
The Sun is good for a couple more billion years.
Thermo-nuclear sure beats lithium-ion, doesn’t it?
I buy Apple products, not Microsoft.
I shop at Lowe’s, not The Home Depot.
i’m sure Johnathan Ive can design a battery casing that can hold all the thermo-nuclear power of the sun.
I don’t know, but isn’t this worse than what Martha Stewart did?
Or at least as bad?
I didn’t think she should have gone to jail nor do I think that Steve should, but isn’t back dating shares just as wrong is an insider tip?
“I didn’t think she should have gone to jail nor do I think that Steve should, but isn’t back dating shares just as wrong is an insider tip?”
Martha went to jail for lying to investigators. Steve will go to jail for having his employees fake documents to cover option grants.
“To anybody who says options are worthless and don’t need to be expensed: since they’re worthless, you obviously wouldn’t have any trouble giving them to me.”
Correct, options when exercised dilute the shareholders stake in the company (Which to put it in simple terms, the gain Steve makes comes out of the shareholder’s pockets), and therefore shareholders need to know what a company does with options. Likewise even when an option is granted “at the money” it has a time value, which should be recorded as an expense.
I get SO tired of FUD and ignorant parroting of it.
Backdating options issued to employees is not unethical or illegal. Misreporting the dates and expenses is. Accurate reporting is the immediate responsibility of the CFO.
What is much more unethical and illegal is when a hedge fund manager tries to prevent having to cover margin calls on short sales positions by leaning on friendly “journalists” to manufacture and publish negative news articles, and by gaming the market with low-ball transactions, to drive share prices down or keep them from rising. Low-ball transactions can trigger automatic selling when investors have stop orders in place to protect unrealized trading profits.
Forbes, The Register, Financial Times, CNN, and others are guilty of collusion in such efforts directed at Apple and are no longer credible sources of financial information in my estimation.
Zeke gets it.
“Backdating options issued to employees is not unethical or illegal. “
But is almost always never done legally, or for legal purposes, because there are ways to achieve the same effect as the combination of backdating plus accounting properly without backdating anything. Hence the problem, the mere act of backdating raises a presumption of wrongdoing. The act of backdating plus failing to account properly almost completely confirms it. The act of in producing a fake paper trail which says meetings took place which didn’t, well, you figure out what that means yourself.
So now the only questions with Apple are who did wrong, and who knew about it.
“Accurate reporting is the immediate responsibility of the CFO.”
And the ultimate responsibility of the CEO.
“Misreporting the dates and expenses is.”
Which is what happened here.
“Forbes, The Register, Financial Times, CNN, and others are guilty of collusion in such efforts directed at Apple and are no longer credible sources of financial information in my estimation.”
And the Hedge find managers use Black Helicopters to fly the press releases out to these news organizations.
Zeke, I have it on good authority that Aliens are trying to plant perceptions about Apple directly into investors brains. The only way to avoid it is to make cap out of tinfoil and make sure you wear it all the time. This won’t work unless you can convince all your friends to wear tinfoil helmets too, as they’ll be selling while you ride the stock down.
if you want a real conspiracy theory, assume the board is supporting Steve long enough to dispose of their not inconsiderable holdings without looking like they’re running for the exits.
Finally look at one of MDN’s favorites like Piper Jaffrey. In laymans terms, they buy Apple stock with the intent to sell it at a profit. They’d try to put a positive spin on Steve Jobs announcing immediate shipment of iBaby as the other white meat, boiling a baby on stage at Macworld and eating it.
And after that Jobs performance, MDN’s take would be,
“so innovative an delicious at the same time, why have other companies not thought of selling baby meat before? Microsoft will only wish that they could follow Apple into the baby meat business, they will try and fail to replicate Apple’s brilliant iBaby strategy. Competitors comments that this is unethical and disgusting show that they are either jealous or fail to appreciate Apple’s brilliance. The fact that the stock is tanking just represents a buying opportunity”
And what would follow would be a stream of posts from MDN readers praising Steve Jobs for his brilliance in marketing iBaby, and how iBaby was clearly superior to any other meat on the market, and that every other food type is but a McDonald’s happy meal in comparison.
They… taste of chicken.