Harvard’s Lucian Bebchuk, who is doing some of the most interesting research on executive compensation in decades (and was nominated in the Finlay On Governance 2006 Annual Year End Awards as one of the people we would like to hear more from in 2007) had an interesting op-ed piece in last weekend’s Wall Street Journal concerning Apple’s stock options probe. For those without a subscription to the Journal, Professor Bebchuk posted the piece on the university’s corporate governance blog. It very much accords with some of the views expressed here on the subject recently, which are collected together at this site.
As Professor Bebchuk observes:
Steve Jobs’s great accomplishments have well earned him a place in the pantheon of high-tech leaders and visionaries. And Apple’s senior management has undoubtedly done very well for shareholders during the past several years. All of this, however, clearly does not compel the conclusion that Apple’s governance has performed adequately with respect to option grants. And the company’s report falls far short of providing a basis for accepting such a conclusion.
I posted the following comments on the piece:
I, too, am of the view that the company’s independent directors took an overly narrow approach to their mandate. They should have probed further into what was done, why it was done and the implications for the company’s reputation and culture. It is not enough to say that CEO Steve Jobs did not make unlawful or improper gains from options manipulation. Improprieties occurred on his watch. He permitted or encouraged backdating in his capacity as the most senior executive of the organization. He is the one who sets the moral tone for the rest of the company.
I am unaware in either the pre or post Enron era where it was acceptable that there could be the slightest doubt in the word or integrity of the company’s CEO. Concerns must, therefore, also focus on specifically how Jobs assisted in the backdating, what his precise role was and whether he misled investors as to the disclosures that were made at the time and have subsequently been proven false to the tune of $84 million.
The report also asserts that Mr. Jobs was unaware of the “accounting” implications involved. He has been CEO of the company for a considerable period and is widely reputed to be a “hands-on” manager. A Ken Lay type excuse that Mr. Jobs was not aware of what was happening around him or did not understand even the ethical implications of what he was doing, and was not bright enough even to seek counsel about any uncertainty, not only is not plausible, but even if it were would still raise serious questions about the standards of competency in the company’s top management.
Inasmuch as CEOs have been recently fired for making false statements on their resumes and have had their bonuses reduced because of plagiarism, it appears that Apple’s board has not adequately considered the full implications, including far-reaching ethical implications, of what has occurred. What failures in governance oversight, along with the size and functioning of the board, that may have contributed to the fiasco, and what needs to be done to address these shortcomings, also appear to have escaped the board’s gaze.
It’s clear from the actions of all the players involved that there should be more fallout from Apple’s revelations. The failure of the board to probe deeper and give Jobs a pass for this kind of conduct is bad enough. I have already talked with a number of CEOs and directors who are astonished at the board’s obvious and ill-advised attempts to sweep Jobs’ role under the carpet. But the failure of the SEC and the media to prevent that from occurring carries profound implications for the governance and leadership of corporate America and the confidence of the investors who rely upon it.
There is a growing consensus from a number of thoughtful and highly respected sources –many of whom I suspect, like me, are enthusiastic owners of Ipods and Macs, and perhaps even Apple shares– that the board’s investigation fell considerably short of the standards expected in voluntary reviews and that there may well be more fallout from both what was revealed –and what was not.