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MARCH 27, 2003 BYTE OF THE APPLE By Alex Salkever Why Apple Shouldn't Vote for Gore [Page 2 of 2]
Over the past two years, Apple has declined to make clear the process by which Jobs is compensated. The board has put in place no clear triggers for his performance bonuses, something that's considered necessary in board-CEO relationships. Which may explain, in part, why Jobs got a $90 million jet in 2002, while his shareholders watched Apple stock sink from $23.46 to $14.55, a 38% decline. According to Paul Hodgson, a researcher at The Corporate Library, this raises the question of whether Jobs is exerting undue influence over compensation policies. That violates a sacred principle in corporate governance: Executive-pay decisions should be made by directors shielded from meddling by top execs. Says Hodgson: "It sounds like an idea they cooked up among themselves, with Jobs in there telling them what he wanted." "PRIVATE CLUB." Some of Apple's other past practices don't pass muster with the post-Enron reforms in the Sarbanes-Oxley Act approved last year. For example, Apple awarded an apparently interest-free $1.5 million loan in 2001 to incoming retail chief Ronald Johnson to buy a house, according to the 2002 proxy statement. Today, Section 402(a) of the Sarbanes-Oxley Act proscribes such loans to executives. The loan to Johnson was quite legal in 2001. But even then corporate-governance experts say it was considered a bad practice. Overall, Minow says, Apple still doesn't measure up to other corporations in its compliance with Sarbanes-Oxley. "This company," she notes, "is almost like a private club." Now, Apple's board has a new celebrity member. "Mr. Gore has been in politics his whole life. Celebrity directors appear to be more for the entertainment of the other folks on the board," says Charles Elson, a corporate-governance expert and law professor at the University of Delaware. But Elson adds: "You want on a board a good monitor -- someone who's familiar with business practices. You have to ask yourself what this new candidate brings to the table." No wonder two large shareholders, the International Brotherhood of Operating Engineers and the International Brotherhood of Electrical Workers, filed in tandem in March, 2002, a motion that would force Apple to create a more independent board. RISKY SCHEME. I'm not suggesting that Jobs is a bad CEO. He gets high marks for turning around Apple time and time again, and he also is doing well in the light of tech's current and broad malaise. But Apple is a public company, and even corporate legends must be accountable to their shareholders. Should Apple's fortunes fail to turn up with the rest of the market when a recovery comes, corporate governance could become a very major issue as big shareholders agitate for accountability. In a worst-case scenario, institutional shareholders might well abandon Jobs if Apple's shares don't climb with the rest of the market and Jobs & Co. continue to ignore requests that it reform its corporate-governance practices. According to Thomson Financial First Call, 60.4% of Apple's stock is in the hands of institutional shareholders. Apple is now looking for a seventh board member. Minow suggests that Jobs pick a high-profile shareholder-rights candidate such as Ralph Whitworth. Apple would do well to listen to her and others who have long clamored for reform. In the days before Enron's collapse, good corporate governance was important. Post-Enron, it's essential. The price to pay for a board blow-up -- even a perennially weak board -- is far higher. Apple should consider the risks as it reconfigures its board.
 Salkever is Technology editor. Follow the Byte of the Apple column, only on BusinessWeek Online Edited by Doyglas Harbrecht Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | MARCH |
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