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How well is Apple managing the backdating scandal?


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April 26, 2007

How well is Apple managing the backdating scandal?

Peter Burrows

Given the dramatic events of the past week, many people are asking tough questions about the role Steve Jobs played in what the government says is illegal backdating at the company. And yet Jobs is not facing charges. So what does that say about Apple's handling of this scandal?

I asked Richard Levick, head of Levick Strategic Communications, a crisis management consultant in Washington. He says it means Apple is doing a great job. His proof: the glowing testimonial from the SEC in the press release issued on April 24, to announce the charges against former executives Nancy Heinen and Fred Anderson. “The critical lesson for other executives is that Apple ran to the light, and they cooperated, cooperated, cooperated.”

More after the break:

He says Apple has been smart not to try to refute claims made by the lawyer for former CFO Fred Anderson, as to Jobs’ role in the improper backdating. “Anderson has his own credibility concerns, and his own battles that he wants to win. But Apple was smart not to take the bait. They’ve won (by avoiding SEC charges), so its time for them to stop playing.”

This kind of rope-a-dope (eg. absorb blows from the media and/or former execs, so long as you avoid any knock-out punches from the heavyweight that really matters – the government) wouldn’t work so well for all companies. That’s because not all companies have a CEO like Jobs, says Levick. “He’s been spending the last 30 years building up the trust bank [with investors, customers and others]. Compare that to Don Imus. He spent 30 years doing nothing but obliterating the trust bank, so when something goes wrong there’s nowhere to turn.”

That doesn’t mean Jobs or Apple are out of the woods. Asked if he sees any way Jobs could still end up as target of government charges, Levick sees four potential risks. First, damning documents could turn up that implicate Jobs. Second, a credible, neutral witness could come out of the shadows—someone with no obvious ax to grind, such as Anderson. Third, the board could decide the pressure is too great and bounce Jobs, a la Klaus Kleinfeld at Siemens (although I’d bet the pot against this ever happening, given the Apple board’s stalwart support to date—not to mention those soaring AAPL shares). Finally, there’s the risk that the government could find that similar infractions occurred at Pixar Animation before Jobs sold it to Disney last year. Disney completed its internal investigation on March 16 without finding any "intentional or deliberate acts of misconduct," and evidently the SEC agrees, given months with no more news from that front.

All in all, most sources agree that the odds of any of this occurring are extremely long. But as for Apple's handling of the situation, I don't agree with Levick's glowing appraisal. Maybe they "ran to the light" in how they cooperated with the government, and that's pragmatic. But they were hardly transparent with the rest of the world. I'm not one that thinks backdating is the scandal of the century; in fact, I think we in the press have blown it up out of proportion compared to the actual damage. Still, Apple should have come clean about Jobs involvement earlier, rather than let it leak out in dribs and drabs--and SEC complaints.

09:28 PM

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Just remember Apple has been very good on the PR front in regards to scandals, lately, as they handled the iPod sweatshop story in a similar manner to the option story by doing an independent investigation in a timely and thorough manner.

Posted by: KenC at April 27, 2007 11:22 AM


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