Steve Jobs Couldn't Care Less About You

The Motley Fool ^ | 11/11/2009 | Rich Greifner

[Blue Highway]

I've got some sour news for you, Apple (Nasdaq: AAPL) shareholders. It doesn't matter how many iPods you buy, iPhone apps you download, or black mock turtlenecks you wear: Steve Jobs couldn't care less about you.

And that's why -- despite great products, a killer brand, and mouth-watering growth potential -- I would advise against owning shares of his company.

Hey Steve, the Jerk Store called There's plenty of anecdotal evidence to suggest that Jobs is a jerk. Stories of Apple's CEO throwing temper tantrums, berating his employees, taking credit for others' ideas, and even parking his Mercedes in handicapped spaces are nothing new. But Jobs' personality flaws are not legitimate reasons to avoid Apple shares. In fact, I don't even mind that Jobs is a jerk. After all, there is a long list of corporate leaders who managed to create significant shareholder value despite seriously deficient personalities -- from John Rockefeller to Henry Ford to Microsoft's (Nasdaq: MSFT) Steve Ballmer.

Rather, I mind that the Apple CEO has demonstrated a pattern of decidedly un-shareholder friendly behavior over the years, and with his company's stock trading for $200 per share, that's a risk that I'd rather not incur. Here are three prime examples of why I think Jobs' decisions have been detrimental to his shareholders:

1. All about Steve In early 2000, along with a fancy private jet intended for his personal use (total cost to shareholders: $88 million), the Apple board gave Jobs an options grant allowing him to purchase 40 million (split-adjusted) shares at $21.80 a piece. According to Bloomberg, "the strike price of that grant was equal to the lowest closing price of Apple stock in the 56- and 30-calendar day periods preceding the grant and in the 30- 56- and 90-day periods following the grant."

In case you're tempted to chalk that convenient strike price up to chance, remember that during Jobs' stint as CEO of Pixar (now a part of Walt Disney (NYSE: DIS)), key executives received options grants priced at the stock's yearly low in 1997, 1998, 2000, and 2003. A Merrill Lynch analyst placed the odds of that happening purely by coincidence at one in 112 million.

I don't begrudge Jobs receiving high compensation. He has created a lot of value for Apple shareholders over the years, and deserves to be compensated accordingly. But I would prefer that compensation to be commensurate with the value that Jobs creates, preferably in the form of restricted stock units awarded if Apple achieves predetermined performance-based criteria. Backdating stock options enriches executives independently of their performance -- since the bar is set so low, and at the expense of shareholders -- since the company ultimately foots the difference.

Of course, alignment with his shareholders' interests has historically not been much of a concern for Jobs. After Apple's stock plummeted during the dot-com crash, Jobs went back to the board and demanded another options grant, giving him the right to purchase 15 million (split-adjusted) shares at the new low price of $9.15 a piece. Apple shareholders did not enjoy such a luxury when the value of their holdings declined.

According to the SEC, Apple went to extraordinary lengths efforts to disguise the details of these options grants (including allegedly creating bogus paperwork and minutes of a nonexistent board meeting). Although Jobs has pleaded ignorance to the accounting implications, former Apple CFO Fred Anderson -- who the SEC forced to repay $3.5 million of "ill-gotten gains" due to his involvement in the options scandal -- insists that Jobs was deeply involved in the decision-making process and had been alerted to the accounting ramifications of his actions.

2. Too much of a good thing Apple has a rock-solid balance sheet, with a $23.5 billion cash hoard at its disposal and no debt. In and of itself, this is a very good thing. However, Jobs has been content to park that cash in short-term investments earning a paltry 1.7% return. That's peanuts.

Smart managers will keep a small amount of excess cash on hand to cushion against the impact of a possible business downturn or fund an opportunistic acquisition. But Apple can easily cover its R&D expenses and off-balance sheet purchase commitments with its free cash flow, and $23.5 billion is enough money to buy a competitor or two, the Washington Redskins, and a medium-sized Central American country.

As partial owners of the company, Apple's shareholders have a proportional claim on that cash hoard. If Jobs does not have a legitimate operational need to maintain such a significant cash balance, he should follow the lead of tech titans like Intel (Nasdaq: INTC) or IBM (NYSE: IBM) and pay his shareholders a dividend, or mirror Cisco (Nasdaq: CSCO) and use some of Apple's copious free cash flow to repurchase shares.

3. Unhealthy disclosure policy Unfortunately, no discussion of Jobs is complete without a reference to his health issues. According to a Fortune article, although Jobs was diagnosed with pancreatic cancer in October 2003, he put off surgery for nine months while he explored a number of alternative approaches. During that time span, he did not disclose his condition to Apple or Pixar shareholders -- in fact, he reportedly didn't even tell the Pixar board.

Rumors of Jobs' health issues resurfaced in 2008, but Jobs dismissed these concerns first as "a common bug," and later as "a hormone imbalance." In April 2009, Apple shareholders were surprised to learn that Jobs had received a liver transplant -- a condition far more serious than the company had led them to believe.

But Jobs' body is Apple's business. Apple's annual report sums it up best: "Much of the Company's future success depends on the continued availability and service of key personnel, including its CEO." This is surely a sensitive issue, but if Jobs is a material factor in Apple's future success then shareholders deserve to know his health status. By withholding this vital information, Jobs subjected his shareholders to significant risk.

Close, but no cigar Over the years, Steve Jobs has repeatedly demonstrated indifference for his shareholders' wellbeing. While his poor stewardship hasn't hurt shareholders too badly yet, I believe it's only a matter of time.

That's why -- despite a strong brand and obvious growth potential -- we passed on purchasing Apple shares at Motley Fool Million Dollar Portfolio, where we run a diversified real-money portfolio populated with the best recommendations from The Motley Fool universe. In addition to business models, competitive advantages, financial statements, and cash flow projections, we spend a lot of time evaluating a company's leadership, and thanks to Jobs, Apple didn't make the grade.

[Swordmaker]

Eisner held a press conference insulting Apple for their “Rip, mix, burn” ads, claiming they were advocating copyright infringement. That guy was a real piece of work.

I'd forgotten that. Good memory...

[gogeo]

Yes, he does sound kinda p!$$y, doesn’t he?

[Richard Kimball]

I read a chapter in a book about Jobs about him shopping for a washer. Apparently he drove everyone crazy because he hated all the designs, and kept talking about what a washer should be and how design changes could make them more efficient and easier to operate. IIRC, he wouldn’t buy any of them, and someone else finally bought one because they had to have one at the house. Been a while since I read it, but that was the gist. The book wasn’t particularly negative towards Jobs, but explored tendencies that I’ve noticed about his attention to detail.
I love the products, but I strongly suspect that in the world of ulcers, Jobs is a carrier. I couldn’t imagine living around someone that’s that much of a perfectionist.
I’ve had a theory for a while that most people who achieve great things would probably be diagnosed as having personality disorders. There’s something going on, like obsessive-compulsiveness or something that makes them want to shake things up in ways that most people wouldn’t do because it’s too much trouble.
You’ve studied him a lot more than me, your thoughts?

[Swordmaker]

You’ve studied him a lot more than me, your thoughts?

I think that anyone who can accomplish what Jobs has, has to be compelled beyond normal, obsessed with achieving his vision to the exclusion of all others, and I would never want to work with him... but would probably love the challenge if I did.

[stylin19a]

you are too kind.
next time I’ll just eat the foot that’s already in my mouth rather than trying to stick the other one in it too.

thanks again

[saradippity]

You all have made reading this thread a pleasure;it's been informative,fascinating and funny.

I have often suspected that Steve Jobs and Apple have been unfairly vilified (at times together and at other times separately) but never knew enough to even comment.

While I still won't be able to respond to specifics, I will be able to push a little more for facts and/or say that there is probably more to the story than we on the "back streets" hear and suggest we take another look.

[Jim from C-Town]

But they haven't and all indications are that they will not. In the meantime the investors are happy with the growth and direction of the stock, the stock doesn't pay a dividend. The stock itself has had a low of under $80 for the year and has been in the low thirties within the last five years. There is nothing that guarantees a continued increase in stock value. But the fact that the company does have a high book value and over 20% of the book value in hard cash screams out for a dividend to be declared and paid. To hold onto that money is not only a disservice to the stock holders it borders on theft.

This is a company that has no debt and a market cap of close to $200 Billion. They can finance any deal they want to make without an excess cash on hand. The fact is that the management is hording the money and receiving way bellow market value on it's investment of that money. Either use the money for the benefit of the company or give it to the owners of the company, the stock holders.

[Jim from C-Town]

We are not talking about buying a six month 5K CD. This company has over thirty billion in cash, some reports peg that money closer to forty billion in cash. They should be receiving a higher yield on that money in UBER safe investments.

[steve-b]

Suffice it to say that “Motley” seems to be tacked on to the name as an afterthought.

[zeugma]

next time I’ll just eat the foot that’s already in my mouth rather than trying to stick the other one in it too.

Mmmmmm. Foot sandwitch. I think we've all had one of those.

[Mind-numbed Robot]

... and unlike most CEO's of fortune 500 companies, he's earned his pay.

Like John Scully who came from Pepsi/Frito Lay to replace Jobs. He bought the common, but faulty, wisdom that Apple should go generic and let others build computers to run their operating system, ala MS. That worked about as well as Obama's Hope and Change.

[antiRepublicrat]

The Newton, which was in many ways ahead of its time, but never really came together.

And the main reason was -- you guessed it -- a lack of vision by Sculley, the man who pushed the project. They didn't really know what they wanted in the Newton when they started the project back in the 80s. It flip-flopped around for years, changing scope, purpose and form factor.

Probably the smartest thing Apple did during Jobs' absence was to hire Jonathan Ive. He did some good design work before Jobs, such as the Newton. But it's Jobs who recognized his talent and gave him the resources and freedom to really shine.

[antiRepublicrat]

or give it to the owners of the company, the stock holders.

Then people would complain Jobs is trying to make himself richer off the company through his millions of shares. I can see the headlines now, "Apple puts out dividend, Jobs nets $20 million." He just can't win in the eyes of many.

[Jim from C-Town]

I agree, he is in a no win pr position, but the share holders deserve a cut of the profits. It is their money.