Steve Jobs' tough options

The Baltimore Sun

This week's ouster of William W. McGuire as chairman and chief executive of UnitedHealth Group Inc. provided an inescapable sign that no executive is too big to be toppled by the stock option scandal - despite having many fans in the boardroom and on Wall Street.

That news also could rekindle a question: Is Apple Computer's iconic CEO Steven P. Jobs truly safe?

"I don't think there is anybody who is too big, too important or too rich to go to jail. That applies to Steve Jobs as well," said Paul Hodgson Sr., a senior researcher for the Corporate Library. "If he has done something wrong, he has got to go, regardless of the situation."

But, Hodgson added, "I haven't seen enough evidence either way that Jobs is involved or completely uninvolved in this situation."

Trading on Wall Street suggests investors believe Jobs will weather this crisis. After tumbling as low as $50.67 in mid-July, Apple's stock is up nearly 50 percent. It got a boost this week when the company reported quarterly earnings that easily topped forecasts.

So far, the widening national scandal into whether companies rigged stock options to give executives and employees a head start to profits has entangled at least 140 companies, including dozens in Silicon Valley.

This week, the top two executives of Harford County encryption company SafeNet Inc., CEO Anthony A. Caputo and President Carol D. Argo, resigned as a result of a probe into options. So did the chairman and founder of computer chip supplier KLA-Tencor Corp.

Consulting firm Sapient Corp.'s co-founder quit as chief executive and co-chairman in a broad management shake-up. And last week saw the abrupt departures of two well-known Silicon Valley CEOs: George Samenuk of McAfee Inc. and Shelby Bonnie of CNet Networks Inc. McAfee, a leading maker of computer antivirus software, fired its president, Kevin Weiss.

But UnitedHealth's McGuire is the biggest head to roll in the corporate scandal so far. Under McGuire's guidance, the Minnesota company's stock climbed more than 50-fold, performance that some investors hoped would insulate him from the scandal.

Like McGuire, Jobs is seen as an integral part of Apple - the visionary and image-maker who rebuilt Apple into Silicon Valley's fourth-biggest company. Barely two weeks ago, Wall Street analysts sighed with relief when Apple disclosed that an ongoing internal review had concluded that Jobs was "aware of" stock options abuses but didn't do anything that would force him out.

The company said Oct. 4 that it found "no misconduct" by current managers, but it did point the finger at two unidentified former executives. Jobs also apologized for the abuses that "happened on my watch" but were "completely out of character for Apple."

Apple's terse and vague disclosure left many unanswered questions about Jobs' role and the tainted options he received. Some experts have challenged the company's spin that "he did not benefit" from tainted options he received, triggering one critic to call for Jobs to cough up $85 million in income. Shareholders could ferret out evidence they could use against Apple in court.

And still looming is the worry that federal investigators could reach darker conclusions about Jobs' role than the company did, experts say.

Jonathan Moreland, director of research for, said Apple failed to relieve his anxiety.

"How many people feel relieved when they find out they have a tumor?" he asked. "You only feel relieved when you find out that the tumor is benign or at least treatable."

Anxiety about whether Jobs' fate has been simmering for months. In late June, Apple disclosed that its internal review had uncovered "irregularities" in the prices of options granted to Jobs and others.

Apple has yet to detail which of Jobs' two options grants were tainted.

Most of the suspicion has centered on one of the largest grants in U.S. corporate history: 40 million options, adjusting for splits in the stock price, in January 2000.

If Jobs' grant had been pegged to the price on the day he was appointed permanent CEO - rather than a week later when Apple's stock hit a monthly low - his immediate paper profit on the options would have been $168 million less.

A month after Apple's initial warning, the company said it probably would have to restate profits since the fall of 2002, news that sent its stock tumbling 8.6 percent in the next few days.

Days later, media reports also spotlighted suspicious options grants made under Jobs' watch to top executives at the Pixar animation studio, which was sold to Disney in May.

Apple's former general counsel Nancy R. Heinen also reportedly has retained criminal defense lawyers since she stepped down in May.

Former Securities and Exchange Commission Chairman Harvey L. Pitt complimented Apple's disclosure Oct. 4 from a "big-picture point of view," saying it quelled much of the uncertainty for investors grappling with how to price the stock.

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