McCain's Meltdown Continues

The on-going highway accident that is the McCain 2008 campaign continued yesterday, with departure of two more senior aides, on the heels of a not-so-flattering WSJ story earlier in the week about the campaign contracts held by Rick Davis' private company. Mr. Davis is also acting campaign manager.

Unlike previous presidential campaigns (Gore 2000 and Kerry 2004), where staff changes signaled a new direction (and better performance from the respective campaigns), these changes appear to be the sign of despair and disorganization (like Dean post-Iowa in 2004), rather than a candidate making tough choices. At this point, it's hard to see McCain -- who was considered to be the front-runner less than 6 months ago -- righting the ship.

07.07.07

The Live Earth concert -- which begins tomorrow (July 7th) in Sydney, Australia -- will undoubtedly attract young viewers and concert-goers with a lineup that includes Dave Matthews, Corrine Bailey Rae, and KT Tunstall, and for those of viewers of a certain age, The Police, Madonna, and Smashing Pumpkins.

The concert(s) (and there are 8 different venues) appear to be a logistical nightmare, but the promise of the world's youth (and those that think they are young) congregating around a 'smart' idea has proved to be like honey to corporations that need to be young and green themselves (e.g., Philips, GM, Pepsi). And of course, the biggest brand is 'Al Gore' who has turned climate change into his own cottage industry.

For a man who has supposedly "fallen out of love with politics", he still acts like someone who loves policy.

Gore's Popularity

The "Draft Al Gore" theme has been making more recent appearances in the press recently. And many observers on the "coasts" expect him to get a bounce on Academy Awards night, when "An Inconvenient Truth" is up for an Oscar.

However, recent Quinnipiac University polls in both Florida and Ohio - crucial swing states - indicate that Gore's popularity among voters in those states, at least, is not high. Key numbers from a write up of the poll:

Gore is in a little better shape with the November electorate, but not enough to consider him electable. In Quinnipiac's surveys he was 41-percent favorable, 50 percent unfavorable in Ohio; 46 percent favorable, 47 percent unfavorable in Florida.

Not good for a man whose argument (esp. vis-a-vis Hillary) would be about "electability."

Mr. Jobs and Stock Options, continued

Reuters is reporting that Apple's Steve Jobs has been 'questioned' by the SEC and the Justice Department in connection with the backdating of Apple's options during the 1998-2006 period. (See previous posts.)

Even if Apple's story holds up (which is that a few individuals, former CFO Fred Anderson and former General Counsel Nancy Heinen, and perhaps Wendy Howell, a lawyer who reported to Heinan) were responsible for all of the bad actions, it is still not surprising that the "Feds" want to talk to everyone who was involved.

Today's story also noted that:

Chris Steskal, the lead attorney in the Justice Department's investigation, left in January to join law firm Fenwick & West LLP as a partner, according to the firm's Web site.

The Fenwick & West site states that

Prior to joining Fenwick & West, Chris [Steskal] was an Assistant U.S. Attorney, working as part of the Securities Fraud Section and Stock Option Task Force of the U.S. Attorney’s Office in San Francisco.

In a coincidence, TPM's Muckraker site also reports that San Francisco U.S. Attorney Keven Ryan also recently left his post; there are rumors about a recent series of U.S. Attorneys who have left their posts in the past few months under cloudy circumstances. The renewal last fall of the USA Patriot Act apparently gave the Bush Administration wide(r) latitude to replace U.S. Attorneys.

Backdating, Steve Jobs, and the Presidential Race

So what does Corporate America's option backdating scandal have to do with the 2008 Presidential race? Well, more that you think, potentially.

The backdating scandal has been gathering momentum in business and legal circles since the middle of 2005, when academic research was published that showed that hundreds, if not thousands, of companies have almost surely manipulated option grants over the past few years. (This week BusinessWeek has a profile on one of the professors, Erik Lie.)

The Wall Street Journal has led coverage of the option scandal, beginning with a front page story entitled "The Perfect Payday," on March 18, 2006:

On a summer day in 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich.

His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they'd have been far less rewarding. It was the same through much of Mr. Rich's tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.

Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.

Companies involved with backdating have forced many executives and/or directors to resign, including (according to the WSJ, sub. req.) Monster Worldwide, United Health, and Comverse Technologies.

Another company implicated in the scandal: Apple Computer. And after an investigation, the company announced just before the end of the year (in connection with a filing at the SEC), that although CEO Steve Jobs was "aware of or recommended" the dates used for backdating (which included, 6,428 grants of options at Apple on 42 different occasions, and in one instance, a grant made on October 19, 2001 directly to Jobs at "special board meeting" that did not actually take place), no company sanctions would be taken against Jobs.

In the press release on December 29, 2006 (in connection with the filings), a special committee said:

The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple's stock option granting practices...The board of directors is confident that the Company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team.

The Special Committee of Apple's board is comprised of two individuals: former Vice President Al Gore and financier Jerry York. (Gore joined the Apple Board in March of 2003.)

The WSJ's story the next day (Dec 30, 2006) said:

David Yermack, a finance professor at New York University who has studied options issues, said he was perplexed about directors' expressions of confidence in Mr. Jobs. "They have pretty much admitted that he was directly involved in a fraud," Mr. Yermack said, pointing to Apple's statement that Mr. Jobs "recommended" the selection of favorable grant dates. "If he had directly participated in altering depreciation schedules, or booking revenue that wasn't yet earned, would they have full confidence in him?"

Investigations are on-going, and nothing definitive has been determined. Apple amended earlier filings relating to the option grants, and took a charge of $84M for the period from 1998 to 2006.

Jobs, meanwhile, is one of the most recognized CEOs in America today. Widely credited as being both a technical and marketing genius, since returning to Apple, has he has helped make Apple both a stock market star among Fortune Magazine's "most admired" companies. On the day of the Special Committee's report, the company's stock moved up about 5%.


However, as one commentator noted in the Boston Globe this morning: "'If Steve Jobs were anything other than what he is, he'd already be gone,' said Rob Enderle, principal analyst at Enderle Group, a high-tech research firm. 'There was a crime committed . . . it looks like Steve Jobs was kind of the ringleader.'"

Gore is not currently a candidate for President, although rumors continue to circulate and he continues to have some support in polls (see earlier post.) In addition Gore apparently sent holiday cards to a number of political activists in New Hampshire, inspiring comment on the Blue Hampshire blog. There is certainly a plausible theory that Gore might "make himself available" next fall as a top-tier candidate who is well-known to the Democratic electorate, as an "alternative" to another well-known, potential -- but so-far undeclared -- candidate.

But SEC (and perhaps Justice Department) investigations -- which would likely be in full swing next fall -- may uncover more damaging information about who knew what, and when. And Apple's own filing stated that Jobs "was aware of or recommended" the backdating. Not unlike Martha Stewart, Jobs could be a trophy for an ambitious prosecutor.

Before all is said and done, we may be hearing a lot more about Al Gore's service on Apple's board. Politicians and SEC investigations are not a good combination for the politicians involved (Just ask former Senator and putative-Presidential candidate Bill Frist.) And political writers may be spending more time than they ever imagined poring over Apple's SEC documents, and the meaning of "backdating of stock options."




(One other "small world" note: Affiliated Computer Systems (mentioned in the original WSJ article) apparently hired an outside law firm last year to conduct a separate investigation into its option-granting practices. The firm was Bracewell & Giuliani LLP. And the "Giuliani" in the firm's name? Right, Rudy Guiliani.)

(Photo of iChat between Steve Jobs and Al Gore. Source: www.w-uh.com/posts/030623_Apple_WWDC.html)

New Iowa Poll

Iowa's KCCI release a new poll of "likely Iowa voters" (not likely-caucus-goers).

Here are the Democratic results:

Democrats
John Edwards 22%
Barack Obama 22%
Tom Vilsack 12%
Hillary Clinton 10%
Al Gore 7%
John Kerry 5%
Wesley Clark 4%
Dennis Kucinich 4%
Joe Biden 1%
Evan Bayh 1%
Bill Richardson 1%
Undecided 11%

Big mover: Obama. Edwards' supporters are hanging in there.

Iowa for Edwards?

All of the media excitement in recent weeks has been focused on two names: Hillary and Obama. Yet in a poll released yesterday and reported in the Des Moines Register, it was John Edwards - 2004 VP nominee and second place finisher in the 2004 Iowa caucus - who led.

Here's the field, as identified by the Register:
Edwards 36% of "likely caucus goers"
Clinton 16%
Obama 13%
Vilsack 9%
Kerry 6%
Biden 5%
Clark 3%
Richardson 2%
Bayh <1%
Dodd <1%
Undecided 8%


A few points:
* The Harstad Strategic Research poll indicated it questioned "likely caucus-goers." Not clear from the Register article if in fact many of those people have caucused before (i.e., 2004), which in my experience is the best way to tell if they are truly likely to caucus in 2008.

* The Register also reported that "32 percent of the caucusgoers say global warming is an extremely serious problem," which may reflect the poll's sponsor, Environmental Defense (sic). May also reflect hidden Gore support.

* The poll was done Oct 12 to 19, but not released until yesterday. Obviously, that means that the data is stale, and the poll does not reflect the recent Obama-boomlet, Vilsack's announcement, and Hillary's pre-announcement.

* Kerry won Iowa in 2004; he is (as of October) mired in single digits. Morover, the poll was done before Kerry's "botched joke" in the late stages of the 2006 campaign.

* Vilsack, if he is running a serious campaign, must move his numbers by organizing his state. The question is: where will his support come from?