Steve Jobs deposition offers peek inside Apple
April 27th, 2009
Prince McLean, AppleInsider
A deposition given by Apple chief executive Steve Jobs to the Securities and Exchange Commission last year offers a window into the luminary’s role at electronics maker and the largely fictitious history erected around his return to the company in 1997.
Steve Jobs deposition offers peek inside Apple
Jobs gave the videotaped testimony to SEC attorneys just over a year ago; AppleInsider obtained the nearly 120 page written transcript, which began by asking Jobs what formal education he had prior to working at Apple, with Jobs answering that he attended Reed College for six months before dropping out and sticking around as a “drop-in” for another year and a half in 1972-1973.
“I was a student that couldn’t afford to pay, so I was sleeping on floors and in friends’ dorm rooms and stuff,” Jobs said. He later began working at Atari before partnering with Steve Wozniak to found Apple Computer. Jobs characterized his first decade at Apple as being “mostly the product side of things, worrying about the products,” although he also served as Chairman of the Board.
After being fired in 1985, he left to begin two ventures, NeXT, which “started with a group of folks” and Pixar, “which was started by buying the computer graphics division of Lucasfilm, and we christened it Pixar,” Jobs stated.
“NeXT had two parts to its business; one was to create some really good hardware and the other was to really pioneer object-oriented programming,” which Jobs explained was “a way of writing software that can be far more flexible and, therefore, more efficient than traditional ways of writing software.”
Jobs served as CEO of NeXT through its sale to Apple in 1997. However, Jobs countered the popular notion that asserts that he purposely took over Apple in a coup that ousted its existing CEO Gil Amelio.
Asked, “now, when Apple acquired NeXT then, did you, in essence, come back to Apple and work for or with Apple?” Jobs replied “no,.”
Instead, Jobs said, “I believe I was a consultant to the then CEO of Apple,” adding “well I didn’t really serve as a consultant. It was just a title…. I don’t even know if it was official.”
“When Apple bought NeXT, Apple was pretty messed up,” Jobs explained. “It was pretty easy to see. And I was trying to help in my arm’s length role. I was trying to help Apple by getting some of the NeXT people into some jobs where they could help Apple, and that’s pretty much all I was doing.”
Jobs said he “got a call one day from one of Apple’s board members” asking him what he thought of Amelio in the time he had spent around the then acting CEO. Jobs’ response in the transcript is redacted, but Jobs subsequently said he did not hear from the board again for another three months, “and then [a board member] called me again … and said they were going to fire [Amelio] … and would I come back and run Apple.”
Asked if he then took on the role of CEO at Apple, Jobs answered, “no I did not. I was very concerned that Pixar was a newly public company with shareholders, employees, and I felt that — to my knowledge there have never been a CEO of two public companies before. So I felt if I took the job, the Pixar shareholders and employees would think I was abandoning them.”
“I decided I couldn’t do that,” Jobs added, “so I took the title of interim CEO and agreed to come back for 90 days to help recruit a full-time CEO.” Asked how that recruitment effort went, Jobs replied, “I failed.”
“Apple was not in good shape an everybody knew it and the kind of candidates that we were being offered by the headhunters were not very talented,” he said.
“In other words,” Jobs was asked, “not the sort of people who could turn apple around?” “Yes,” Jobs replied.
After the 90 days were up, Jobs said “it just kind of slid into the fact that I stayed. I kept the interim CEO title for quite sometime, a number of years.” Eventually, Jobs said he “felt I had demonstrated to both companies that I could be the CEO of both companies and successfully manage that.”
Outlining his responsibilities as CEO, Jobs said “I give a report to the board at every meeting on the status of upcoming products and developments and the status of our research and development, strategic issues, things we’re screwing up, personnel — key personnel issues. Those kinds of things. That’s my primary role.”
Jobs testified that he hadn’t served on any finance-related board committees such as the Audit, Compensation, or Governance Committees, and that his efforts to push for options grants was related to retaining executive talent.
After an initial partial recovery between 1997 and the 2000 bursting of the dot com bubble, “Apple was in a precarious situation … and I thought that Apple’s executive team and the stability of Apple’s executive team was one of its core strengths.” Jobs said.
“I was very concerned because Michael Dell, one of our chief competitors, had flown Fred Anderson, our CFO, down to austin, I guess, him and his wife, I think, to try to recruit him. And I was also concerned that … two very strong technical leaders were also very vulnerable.” Jobs stated.
“I was very concerned that Apple could really suffer some big losses on its executive team with the business environment we ere in and the competitors coming after our people.”
Jobs himself had witnessed a mass exodus of talent from Apple many years earlier, first accompanying him when he left for NeXT in the mid 80s, and then filtering out into other companies in the early to mid 90s, with Microsoft recruiting many Apple employees and buying up independent companies started by former Apple employees.
Apple has worked to preserve its key talent since, following a general industry trend away from option grants toward restricted stock grants. With restricted stock, employees are awarded fewer shares that have real value regardless of the stock price, so if restricted shares are granted at $100 and the value drops to $80, they’re still worth $80.
Options however, represent the ability to buy stock at a given strike price. If options are granted at $100 and the market value drops to $80, they become worthless to employees because they only represent the option to buy shares at a lower price than the market. If the market price drops, those worthless options are referred to as “underwater.”
Around the dot com bubble, tech industry employees were frequently awarded tens of thousands of options that would vest and become exercisable at regular intervals, acting as a strong inducement to stay and perform, at least until the options vested. That resulted in options being a high stakes gamble that could do relatively little to retain employees once the company’s stock price began to flatten.
At Apple, Jobs proposed issuing “mega grants” of options to executive members, granting them all at once to take advantage of the low point in Apple’s stock relative to the company’s long term prospects, rather than issuing regular new option grants on an annual basis over the next four years.
“It cost the shareholders no greater dilution, and yet have the employees more upside, which meant we could actually give them less shares and cause less dilution,” Jobs explained. As Apple grants options or restricted stock to employees, the overall value of the every share is diluted. So granting fewer shares early and leveraging a low stock price to provide a larger return benefitted everyone involved and encouraged performance and retention.
Ironically, shareholders have since complained that Apple’s option grants were improper because the options’ grant dates were completed without an official meeting and adequate paperwork filings. Jobs had pushed for approval of the option grants for months as Apple’s stock rapidly rose, eating up the value of those options before the paperwork could be completed.
The SEC eventually settled the matter by charging Apple’s general counsel Nancy Heinen and its former CFO Fred Anderson steep fees for their part in failing to properly document the option grants. In 2007, Apple recorded $84 million in charges to update its accounting for the backdated options.
The SEC announced that year that Apple wouldn’t be sanctioned over the accounting issue, and an independent investigation by a special committee of Apple’s board, led by former Vice President Al Gore, exonerated Jobs of any misconduct in the matter. Jobs own “mega grant” was later traded in for a restricted stock grant of lesser value.