Steve Jobs: The Man in the Machine Page #10

I first met Steve Jobs shortly after

I became editor of Fortune magazine.

And I said, "Listen, we'd love to have

a good relationship with Apple

and do stories about you."

And he said, "Look,

this is how it's going to work."

"You know,

you want to do a story about us,

you call us up, propose it,

you know, we'll think about it."

"We'll basically

come up with the ideas with you,

or come up with the ideas,

we'll call you,

we'll figure out who the writer is going

to be on your staff to do the story."

And I said, "Well, you know, Steve,

that's not really how we do things."

And he goes, "That's how

you do things with Apple."

So I say to myself,

"Why don't we do a story

about the stock options?"

"Because no one's

really figured it out."

So, I decided to put one of our top

investigative reporters on the story,

Peter Elkind.

Steve Jobs had a very talented group

of key lieutenants around him.

And he wanted give his people stock

option grants that were so big,

that they wouldn't even think about

going somewhere else

because the upside was so enormous.

The key thing is if the stock goes up,

which we always hope it does,

then the golden handcuffs are

dramatically increased,

which is what I was hoping

would happen.

To make those option deals

even sweeter,

companies would allow executives

to buy stock on dates in the past

when the price was low

so executives could make

millions in the blink of an eye.

This was called "backdating."

And it seemed like

the perfect solution,

except for one thing.

If not properly reported,

backdating is illegal.

200 US public companies

are under investigation

over charges of backdated stock options

for their senior executives.

Backdating was a dicey game,

and it landed several executives

in jail for fraud,

but it became a frequent practice

at Apple under Jobs.

Apple eventually conducted

an internal investigation

and found thousands of cases

where stock options had been

handled inappropriately.

None of that had taken place

according to the company's own report

before Steve Jobs had returned there.

A key advisor on many of

the troubled backdating schemes

was a powerful Silicon Valley attorney,

Larry Sonsini.

Larry Sonsini had kind of

spread this dark art

in the world of Silicon Valley.

He's the guy who whispered to the CEOs

of all the top tech companies,

"Here's how you can do this."

He was certainly very close

to Steve Jobs.

Sonsini had known Jobs

since Apple went public in 1980

and had been a board member at Pixar

when it created a vast program

of brazenly backdated options

for top executives.

Yet despite Jobs's long history

with backdating,

Apple's own investigation,

led by Al Gore,

absolved Jobs of any wrongdoing.

Their conclusion was that

Steve Jobs didn't appreciate

the accounting implications

of the issue.

I know you're not an accountant,

but do you have an understanding

as to what generally accepted

accounting principles are?

Not really.

Jobs's accounting naivet

would be challenged by

his own CFO, Fred Anderson.

A hero during Apple's comeback,

Anderson was one exec who

took the fall for backdating.

As Apple's chief financial officer,

Mr Anderson,

you had overall responsibility

to ensure that the company

complied with all financial

reporting requirements, true?

On advice of council,

I decline to answer based

on my Fifth Amendment rights.

When the SEC investigated,

Apple effectively

threw Anderson under the bus.

He was forced to resign

from Apple's board

and to pay $3.6 million in penalties.

But in a very unusual statement,

Anderson's lawyer made it clear

that Fred had relied on statements

by Jobs that turned out to be false

and that Anderson had explained

the dangers of backdating to Jobs.

Now, this contradicted exactly what

Jobs and the company had maintained

which was that Steve Jobs didn't

appreciate why this was a problem.

I think the notion

that Steve Jobs knew nothing

and Fred Anderson and Nancy Heinen

were entirely responsible

is ridiculous.

The company has confirmed

that Jobs himself

was awarded backdated options

that carried a false date

in October 2001.

According to Apple's own report

to the SEC,

The award was "improperly recorded

as occurring at a special board meeting

when in fact such a board meeting

did not occur."

A fictitious board meeting

that awarded Jobs 7.5 million options.

Just what was going on?

At first, all fingers pointed

to another member

of the Apple comeback team,

General Counsel Nancy Heinen,

who had certified the minutes

of the phony board meeting.

Like Anderson,

Heinen would settle with the SEC

without admitting or denying guilt.

But her silence raised questions.

Would she have just decided on her own

to fake a board meeting

in order to enrich Steve Jobs?

Who wanted this done?

As we've seen in the discussions

of the past hour,

I spent a lot of time trying

to take care of people at Apple

and to, you know,

surprise and delight them

with what a career at Apple

could mean to them and their families.

And I felt that the board wasn't

really doing the same with me.

- Right.

- So I was...

...hurt, I suppose would be

the most accurate word.

I'd been working, you know,

I don't know,

four years, five years of my life,

and not seeing my family

very much and stuff.

And I just felt like

there's nobody looking out

for me here, you know?

Right. OK.

So, I wanted them to do something,

and so we talked about it.

There's no question that

the directives came from him.

Yet, when the SEC investigated,

it was as if he was immune.

I'd wished they'd have come to me

and said,

"Steve, we've got this new grant

for you,"

without me having to suggest anything

or be involved in anything

or negotiate anything.

That would have been much better

from the company's point of view

because it would have made me

feel better at that time.

According to one analyst,

if Jobs had gone to jail

for backdating,

the company's value would have

dropped by $22 billion.

But Jobs was Apple's indispensable man,

and Apple, Silicon Valley's

indispensable company.

A cornerstone

of the entire American economy.

But just how American was Apple?

Do you swear that the testimony

you're about to give will be...

When the US Senate

questioned Jobs's successor,

Tim Cook,

about the company's tax practices,

many of the subcommittee members

took a moment to state,

for the record, just how tough

they were willing to be.

I love Apple, and I'm very proud

of Apple as an American company.

Apple is an American success story.

Its products are justifiably well-known

and used throughout the world.

Just like millions around the world,

I carry an iPhone in my pocket.

What may not be so well-known

is that Apple also has a highly

developed tax-avoidance system,

a system through which it has

amassed more than $100 billion

in off-shore cash in a tax haven.

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