One of the clearest explanations yet of the Apple options backdating inquiry comes from the San Jose Mercury News. In a story that concludes that Apple CEO Steve Jobs is unlikely to face charges, writers Howard Mintz and Troy Wolverton explain the involvement of Apple’s legal department.
Apparently negotiations over a revised options grant to Mr. Jobs had gone on for a number of months in 2001. Although technically approved in August, other aspects of the deal were reviewed by the compensation committee in October. The legal department was notified in December that the grant was approved with an October effective date. By December the price of Apple stock had increased:
The board sent out an e-mail to the company’s legal department saying the deal was done and that Jobs’ options should carry the October grant date. At the time, Apple backdated options as a matter of course, the company revealed last December in SEC filings. Backdating Jobs’ grant wouldn’t have been seen as extraordinary, the lawyers say.
That’s where the fictitious meeting minutes come in. There is no evidence the board, or Jobs, knew that the grant would be documented through false minutes of a board meeting that didn’t occur. But that is what happened.
Wendy Howell, an in-house lawyer at Apple who typically wrote up meeting minutes related to options grants, drafted the minutes for Jobs’ grant. General Counsel Nancy Heinen signed them. Whether Howell was acting on her own or at the behest of Heinen when she falsified the minutes is a point in dispute between the former Apple employees.
But nothing points to Jobs ordering the October date, or knowing about the false meeting minutes, lawyers familiar with the matter say. A CEO would not typically review board minutes.
It is an unfortunate situation; there are ways of accurately documenting board action (such as by consent) that should not be construed later to involve a “fictitious meeting.”
We are in an era where observing corporate formality is more than just good housekeeping. It is about how things look, often many years after the fact.