Millions, So Little Body Armor
By Ben Stein
New York Times
Sunday, January 7, 2007
The current state of corporate ethics, and the governmental
and public policy response to that state, are so
bewildering, so upsetting, so impossible to understand
except in terms of the famous phrase, ďFollow the money,Ē
that it makes my poor old head spin.
Start with Steven P. Jobs. This worthy gentleman is one of
the most successful entrepreneurs in history. Avatar of
Apple, potentate of Pixar, recalled to be the savior of
Apple, he is a genius at technology and finance. Heís been
well rewarded for it, with a fortune in the hundreds of
millions, if not billions.
Apparently that was not quite enough. Recent reporting
tells that in the period from about 1998 to about 2002, Mr.
Jobs helped to choose the dates for some stock option grants
in the form of backdating.
Thatís where you ó if youíre a big wheel at a corporation ó
get to choose the date and price of the options after you
have seen when the yearly low was and seen how much
recipients could make starting the options from times
earlier on the calendar than the dates when the awards were
actually awarded. Itís sort of like getting to pick lottery
numbers after the winning numbers are drawn ó and your
stockholders supply the prize money.
Not only did Mr. Jobs benefit after his company did that
with millions of stock options for his own self, but company
records showed that the board (of which he is a member, of
course) ratified that grant at a special meeting in October
2001. The problem is, an internal investigation has now
concluded that there was no such meeting on that date. It
simply never happened. It was totally made up.
That is, the options were awarded in a highly unethical way
and then condoned ó if I may use that term ó in a way that
would make John Dillinger blush.
Wait. It gets much better. After all of this happened, a
special subcommittee of the Apple directors was convened,
led by that pillar of rectitude who is trying to save us
from the evil oil companies and coal miners, none other than
the founder of the Internet himself, Al Gore, and by a
colleague who is another bedrock of rectitude, Jerome B.
York, late of trying to save General Motors for the benefit
of Kirk Kerkorian.
The special committee found that despite the fact that the
date of Mr. Jobsís stock options was chosen ex post facto,
that it was ratified by that made-up meeting, and that he
later traded in those options, and some others, for five
million shares of restricted stock (then worth more than $70
million), he was innocent of any wrongdoing and the board
still had full confidence in him. Yes. I am not making
Now there is an investigation into backdating of options at
Pixar, the animation studio, when Mr. Jobs was running it,
although the evidence so far is that the backdating did not
help him directly. Weíll see. It pays to have some
skepticism in these matters.
So now add Apple and Pixar to about 130 other large
companies where backdating ó which is wildly unethical
self-dealing, with powerful tax and accounting issues and
possible criminal implications ó has been found. And note
that in all the main cases, backdating was not found until
much later by some very smart academic sleuths and gifted
And now letís look at the Committee on Capital Markets
Regulation, aka the Paulson committee. Itís the group of
academic and finance worthies that was sponsored informally
by Treasury Secretary Henry M. Paulson Jr. and studied the
harsh burdens under which the corporate pooh-bahs and Wall
Street chieftains labored.
Recently, that group, along with many others of the hired
intelligentsia of the management class, came out with their
report that said that the Sarbanes-Oxley law was too strict
on corporate America, and was hurting Wall Street by making
companies register and do their initial public stock
offerings in Europe. (Quelle horreur!)
In particular, Sarbanes-Oxley was supposedly too strict in
requiring audits of internal controls. This was supposedly
a painful, unnecessary burden in a world where a corporate
bossís word is his bond and the word of any corporate boss
is worth more than all the bonds in Christendom. And the
Sarbanes-Oxley section on internal controls was supposedly
cruelly tormenting Wall Street to the detriment of the whole
world of decent people.
But hold on. Isnít backdating precisely an example of a
failure of internal controls? Havenít we just found out
that internal controls are far too lax, not too strict? For
the Paulson committee to say that we need less stringency in
corporate audits is a bit like the War Department saying we
needed less watchfulness at our naval bases after Dec. 7,
1941. Itís also a bit like Willie Sutton saying it would be
good as a matter of national financial policy to have fewer
guards at banks.
The amazing thing is that intelligent people are taking it
seriously, this matter of rolling back corporate controls to
make life even easier for misbehaving corporate
wheeler-dealer types. Whatís more amazing is that anyone is
even thinking of rolling back corporate controls to make
life richer for Wall Street.
The Street just finished paying out tens of billions in
bonuses ó even as the Army and Marines are so starved for
money that untrained soldiers are sent to Iraq because there
is not enough equipment to properly train them first.
There is an acute shortage of Ferraris because of those
bonuses, and there is a long waiting list for LŁrssen
yachts. But somehow, we are supposed to feel bad for Wall
Street and for the class that has wrought so much mischief
at the corporate helm, most recently with backdating.
But no committees of powerful corporate leaders and
academicians are at work computing the moral and mortal
costs of starving the Army and Marines of the equipment and
training they need to do their jobs with minimal loss of
life. What a world ó where smart people worry about helping
those suffering from a shortage of Ferraris, but hardly
anyone outside the Pentagon notices the shortage of
lifesaving equipment for the soldiers fighting our wars.
Where is the outcry? Where is the rage? Itís not a
partisan thing. The Democrats are just as complaisant about
this as the Republicans. Have the leaders of both parties
and the boys at the research groups been so thoroughly
blinded ó or corrupted ó by the plutocrats that no one will
say ďbooĒ about it?
I guess so. My letters tell me that there are a lot of
angry people out there, and some of them have children in
Iraq and wonder why all this looting is allowed while their
sons and daughters are at war for a law-abiding and just
Iím no longer sure what to tell them, except that itís all
about money, and if you donít get it, you donít get it. And
itís deeply sad.
Ben Stein is a lawyer,
writer, actor and economist. E-mail: email@example.com.