Software Nerd

Wednesday, April 25, 2007

Steve Jobs is well-liked and well-connected

Many people disliked Martha Stewart, so sending her to jail was an easy political choice. On the other hand, Steve Jobs has great press. He symbolizes the head-strong innovator; yet, he is viewed very differently from (say) Bill Gates. In the minds of many, Jobs wants to make good stuff, while Gates just wants to make money. So, the government decided to let Jobs go scot free in the Apple "options backdating" scheme.

No, the government should not be prosecuting Jobs, but nor should it be prosecuting other less well-connected CEOs. ( I blogged about this earlier ). The Financial Times (Apr 24th, 2007) reports that "Steve Jobs, chief executive of Apple, was warned in 2001 about the accounting implications of backdating stock options for top executives at the company, Appleā€™s former chief financial officer said on Tuesday."

It helps that ex-VP, Al Gore, is a member of Apple's board of directors.

Politicians love it to be this way; they love the discretion they have over the lives of businessmen. Behave, they say, or else. Is it any wonder one sees so many businesspeople pandering to politicians?


  • A fascist state makes everyone guilty all the time through its welter of arbitrary and often contradictory laws, rules and regulations.

    Backdating options is one of those areas. The roots of this whole mess are in an earlier envy-driven change in the tax code that disallowed a completely ordinary expense deduction for the portion of executives' salaries that exceeds $1 million.

    To minimize taxes, corporations then turned to backdated options, taking advantage of a quirk in the tax law that made paying executives in the form of options more tax efficient than paying a traditional salary.

    So, government put executives in this bind. To avoid one irrational tax law (the cap on deducting salaries greater than $1 million), they turned to another bizarre practice, backdating options.

    If everyone must break laws just to engage in ordinary commerce or daily living, then the power of government to terrorize is unlimited. Then we become a nation of men, not laws. Then it becomes important to know the right people, or be "popular".

    Undoubtedly, Martha Stewart was not as sufficiently well-connected or "popular" as Steve Jobs is. (Of course, I am leaving aside the millions who watched Martha Stewart on television and read her magazines. Martha just wasn't sufficiently popular with the "right" people.)

    I hope Steve Jobs does not get prosecuted. I admire his business success. I would also like to see the government issue a statement of apology to Martha Stewart for interrogating her over actions that should not have been crimes.

    When will businessmen learn that to stop this, they should oppose the government's power over them on principle? Instead, they seek to "know" the right government officials, and grease the right bunch of outstretched hands that ask for -- no, extort -- campaign "contributions" and other money from them.

    By Blogger Galileo Blogs, at 6:27 AM  

  • Hi SN!

    My take on the Jobs situation is that he is well like because he was the underdog (and eventual loser) in the PC wars. that is, in a way, support for him is really support against *big* successful business.

    Also I think that many people believe that innovation is *only* about product design, which Apple is very good at. Thus, Microsoft is seen as never coming up with innovative products, a free rider if you like. But this ignores the basic innovation that microsoft got right, and that is their business model.

    Kendall J -

    By Blogger Kendall J, at 7:15 AM  

  • Hi, Kendall.

    Good points on Jobs. He is a darling of the media on both counts. In an odd way, he is not successful enough to get the "royal treatment" from the regulators, attorneys general, trustbusters, and envious editorialists. That treatment is reserved for whomever reaches the pinnacle of their fields, whether it is Gates in computers, Martha Stewart with home improvement, Michael Milken with high-yield debt, etc.

    If the envy-gang (enumerated above) wanted to, they could certainly view the Ipod as a "monopoly" product, especially with regard to Apple's leading position in music downloading. As far as I know, only the government of France (am I surprised?) has tried to hamstring Apple because of their leadership with Ipod. The French withdrew their effort when Apple threatened to pull out of France.

    A related question for you (or Software Nerd, since this is your forum!): Why hasn't Warren Buffett gotten the same treatment of other leading executives? In principle, he should be getting hammered by the envy-gang because he is the leading investor in the country, and the second richest man. In particular, his investments are similar in style to private equity investments today since he takes companies private. Private equity is similar to that other well-hated private investment vehicle, hedge funds.

    What gives Mr. Buffett his Teflon coating? (Of course, I am tremendously glad he has it. But why does he have it?)


    By Blogger Galileo Blogs, at 6:16 PM  

  • IIRC, Buffett is protected by having done the right kind of altruistic moral grovelling from time to time -- to wit, the donation of $13 million to Bill Gate's foundation, and his recent "complaint" that the tax system lets him pay less taxes than "working people" like his assistant.

    By Anonymous Jim May, at 4:15 PM  

  • Yes, Jim, and I think it goes beyond the grovelling -- he genuinely holds egalitarian philosophy (in an "intelligent layman" type of fashion). So many times, he's talked about an "ovarian lottery" favoring him and so on. [A bright young man pointed out to me that this comes from Rawls.]

    I think Buffett is also helped by his business style. He avoids businesses that are pioneers, where the field is changing every year and competitive edge comes from being nimble & aggressive (from fighting off competitors trying to cross you tiny moat).Instead, he likes to invest in businesses in industries that have gone past their initial decades and where the nimblest have survived and grown... where competitive edge is not being threatened every day in terms of actuality, only in terms of potentiality... businesses where people still fight to "retain the moat".

    I admire Buffett as a businessman/investor. It kind of reminds me of what Rand said about Frank Lloyd Wright: something to the effect that she admires him as an architect but his philosophy is almost the opposite of hers. [FHF74, Q&A]

    By Blogger softwareNerd, at 4:52 AM  

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