Steve_Jobs_The_Exclusive_Biography

operating system.

Jobs did not cede any real power to his board, but he did use its meetings to kick around ideas and think through strategies in confidence, while he stood at a whiteboard and led freewheeling discussions. For eighteen months the directors discussed whether to move to an Intel architecture. “We debated it, we asked a lot of questions, and finally we all decided it needed to be done,” board member Art Levinson recalled.

Paul Otellini, who was then president and later became CEO of Intel, began huddling with Jobs. They had gotten to know each other when Jobs was struggling to keep NeXT alive and, as Otellini later put it, “his arrogance had been temporarily tempered.” Otellini has a calm and wry take on people, and he was amused rather than put off when he discovered, upon dealing with Jobs at Apple in the early 2000s, “that his juices were going again, and he wasn’t nearly as humble anymore.” Intel had deals with other computer makers, and Jobs wanted a better price than they had. “We had to find creative ways to bridge the numbers,” said Otellini. Most of the negotiating was done, as Jobs preferred, on long walks, sometimes on the trails up to the radio telescope known as the Dish above the Stanford campus. Jobs would start the walk by telling a story and explaining how he saw the history of computers evolving. By the end he would be haggling over price.

“Intel had a reputation for being a tough partner, coming out of the days when it was run by Andy Grove and Craig Barrett,” Otellini said. “I wanted to show that Intel was a company you could work with.” So a crack team from Intel worked with Apple, and they were able to beat the conversion deadline by six months. Jobs invited Otellini to Apple’s Top 100 management retreat, where he donned one of the famous Intel lab coats that

looked like a bunny suit and gave Jobs a big hug. At the public announcement in 2005, the usually reserved Otellini repeated the act. “Apple and Intel, together at last,” flashed on the big screen.

Bill Gates was amazed. Designing crazy-colored cases did not impress him, but a secret program to switch the CPU in a computer, completed seamlessly and on time, was a feat he truly admired. “If you’d said, ‘Okay, we’re going to change our microprocessor chip, and we’re not going to lose a beat,’ that sounds impossible,” he told me years later, when I asked him about Jobs’s accomplishments. “They basically did that.”

Options

Among Jobs’s quirks was his attitude toward money. When he returned to Apple in 1997, he portrayed himself as a person working for $1 a year, doing it for the benefit of the company rather than himself. Nevertheless he embraced the idea of option megagrants—granting huge bundles of options to buy Apple stock at a preset price—that were not subject to the usual good compensation practices of board committee reviews and performance criteria.

When he dropped the “interim” in his title and officially became CEO, he was offered (in addition to the airplane) a megagrant by Ed Woolard and the board at the beginning of 2000; defying the image he cultivated of not being interested in money, he had stunned Woolard by asking for even more options than the board had proposed. But soon after he got them, it turned out that it was for naught. Apple stock cratered in September 2000—due to disappointing sales of the Cube plus the bursting of the Internet bubble—which made the options worthless.

Making matters worse was a June 2001 cover story in Fortune about overcompensated CEOs, “The

Great CEO Pay Heist.” A mug of Jobs, smiling smugly, filled the cover. Even though his options were underwater at the time, the technical method of valuing them when granted (known as a Black-Scholes valuation) set their worth at $872 million. Fortune proclaimed it “by far” the largest compensation package ever granted a CEO. It was the worst of all worlds: Jobs had almost no money that he could put in his pocket for his four years of hard and successful turnaround work at Apple, yet he had become the poster child of greedy CEOs, making him look hypocritical and undermining his self-image. He wrote a scathing letter to the editor, declaring that his options actually “are worth zero” and offering to sell them to Fortune for half of the supposed $872 million the magazine had reported.

In the meantime Jobs wanted the board to give him another big grant of options, since his old ones seemed worthless. He insisted, both to the board and probably to himself, that it was more about getting proper recognition than getting rich. “It wasn’t so much about the money,” he later said in a deposition in an SEC lawsuit over the options. “Everybody likes to be recognized by his peers. . . . I felt that the board wasn’t really doing the same with me.” He felt that the board should have come to him offering a new grant, without his having to suggest it. “I thought I was doing a pretty good job. It would have made me feel better at the time.”

His handpicked board in fact doted on him. So they decided to give him another huge grant in August 2001, when the stock price was just under $18. The problem was that he worried about his image, especially after the Fortune article. He did not want to accept the new grant unless the board canceled his old options at the same time. But to do so would have adverse accounting implications, because it would be

effectively repricing the old options. That would require taking a charge against current earnings. The only way to avoid this “variable accounting” problem was to cancel his old options at least six months after his new options were granted. In addition, Jobs started haggling with the board over how quickly the new options would vest.

It was not until mid-December 2001 that Jobs finally agreed to take the new options and, braving the optics, wait six months before his old ones were canceled. But by then the stock price (adjusting for a split) had gone up $3, to about $21. If the strike price of the new options was set at that new level, each would have thus been $3 less valuable. So Apple’s legal counsel, Nancy Heinen, looked over the recent stock prices and helped to choose an October date, when the stock was $18.30. She also approved a set of minutes that purported to show that the board had approved the grant on that date. The backdating was potentially worth $20 million to Jobs.

Once again Jobs would end up suffering bad publicity without making a penny. Apple’s stock price kept dropping, and by March 2003 even the new options were so low that Jobs traded in all of them for an outright grant of $75 million worth of shares, which amounted to about $8.3 million for each year he had worked since coming back in 1997 through the end of the vesting in 2006.

None of this would have mattered much if the Wall Street Journal had not run a powerful series in 2006 about backdated stock options. Apple wasn’t mentioned, but its board appointed a committee of three members—Al Gore, Eric Schmidt of Google, and Jerry York, formerly of IBM and Chrysler—to investigate its own practices. “We decided at the outset that if Steve was at fault we would let the chips fall where they may,”

Gore recalled. The committee uncovered some irregularities with Jobs’s grants and those of other top officers, and it immediately turned the findings over to the SEC. Jobs was aware of the backdating, the report said, but he ended up not benefiting financially. (A board committee at Disney also found that similar backdating had occurred at Pixar when Jobs was in charge.)

The laws governing such backdating practices were murky, especially since no one at Apple ended up benefiting from the dubiously dated grants. The SEC took eight months to do its own investigation, and in April 2007 it announced that it would not bring action against Apple “based in part on its swift, extensive, and extraordinary cooperation in the Commission’s investigation [and its] prompt self-reporting.” Although the SEC found that Jobs had been aware of the backdating, it cleared him of any misconduct because he “was unaware of the accounting implications.”

The SEC did file complaints against Apple’s former chief financial officer Fred Anderson, who was on the board, and general counsel Nancy Heinen. Anderson, a retired Air Force captain with a square jaw and deep integrity, had been a wise and calming influence at Apple, where he was known for his ability to control Jobs’s tantrums. He was cited by the SEC only for “negligence” regarding the paperwork for one set of the grants (not the ones that went to Jobs), and the SEC allowed him to continue to serve on corporate boards. Nevertheless he ended up resigning from the Apple board.

Anderson thought he had been made a scapegoat. When he settled with the SEC, his lawyer issued a statement that cast some of the blame on Jobs. It said that Anderson had “cautioned Mr. Jobs that the executive team grant would have to be priced on the

date of the actual board agreement or there could be an accounting charge,” and that Jobs replied “that the board had given its prior approval.”

Heinen, who initially fought the charges against her, ended up settling and paying a $2.2 million fine, without admitting or denying any wrongdoing. Likewise the company itself settled a shareholders’ lawsuit by agreeing to pay $14 million in damages.

“Rarely have so many avoidable problems been created by one man’s obsession with his own image,” Joe Nocera wrote in the New York Times. “Then again, this is Steve Jobs we’re talking about.” Contemptuous of rules and regulations, he created a climate that made it hard for someone like Heinen to buck his wishes. At times, great creativity occurred. But people around him could pay a price. On compensation issues in particular, the difficulty of defying his whims drove some good people to make some bad mistakes.

The compensation issue in some ways echoed Jobs’s parking quirk. He refused such trappings as having a “Reserved for CEO” spot, but he assumed for himself the right to park in the handicapped spaces. He wanted to be seen (both by himself and by others) as someone willing to work for $1 a year, but he also wanted to have huge stock grants bestowed upon him. Jangling inside him were the contradictions of a counterculture rebel turned business entrepreneur, someone who wanted to believe that he had turned on and tuned in without having sold out and cashed in.

ROUND ONE

Memento Mori

Cancer

Jobs would later speculate that his cancer was caused by the grueling year that he spent, starting in 1997, running both Apple and Pixar. As he drove back and forth, he had developed kidney stones and other ailments, and he would come home so exhausted that he could barely speak. “That’s probably when this cancer started growing, because my immune system was pretty weak at that time,” he said.

There is no evidence that exhaustion or a weak immune system causes cancer. However, his kidney problems did indirectly lead to the detection of his cancer. In October 2003 he happened to run into the urologist who had treated him, and she asked him to get a CAT scan of his kidneys and ureter. It had been five years since his last scan. The new scan revealed nothing wrong with his kidneys, but it did show a shadow on his pancreas, so she asked him to schedule a pancreatic study. He didn’t. As usual, he was good at willfully ignoring inputs that he did not want to process. But she persisted. “Steve, this is really important,” she said a few days later. “You need to do this.”

Her tone of voice was urgent enough that he complied. He went in early one morning, and after studying the scan, the doctors met with him to deliver the bad news that it was a tumor. One of them even suggested that he should make sure his affairs were in order, a polite way of saying that he might have only months to live. That evening they performed a biopsy by sticking an endoscope down his throat and into his

intestines so they could put a needle into his pancreas and get a few cells from the tumor. Powell remembers her husband’s doctors tearing up with joy. It turned out to be an islet cell or pancreatic neuroendocrine tumor, which is rare but slower growing and thus more likely to be treated successfully. He was lucky that it was detected so early—as the by-product of a routine kidney screening—and thus could be surgically removed before it had definitely spread.

One of his first calls was to Larry Brilliant, whom he first met at the ashram in India. “Do you still believe in God?” Jobs asked him. Brilliant said that he did, and they discussed the many paths to God that had been taught by the Hindu guru Neem Karoli Baba. Then Brilliant asked Jobs what was wrong. “I have cancer,” Jobs replied.

Art Levinson, who was on Apple’s board, was chairing the board meeting of his own company, Genentech, when his cell phone rang and Jobs’s name appeared on the screen. As soon as there was a break, Levinson called him back and heard the news of the tumor. He had a background in cancer biology, and his firm made cancer treatment drugs, so he became an advisor. So did Andy Grove of Intel, who had fought and beaten prostate cancer. Jobs called him that Sunday, and he drove right over to Jobs’s house and stayed for two hours.

To the horror of his friends and wife, Jobs decided not to have surgery to remove the tumor, which was the only accepted medical approach. “I really didn’t want them to open up my body, so I tried to see if a few other things would work,” he told me years later with a hint of regret. Specifically, he kept to a strict vegan diet, with large quantities of fresh carrot and fruit juices. To that regimen he added acupuncture, a variety of herbal remedies, and occasionally a few other treatments he

found on the Internet or by consulting people around the country, including a psychic. For a while he was under the sway of a doctor who operated a natural healing clinic in southern California that stressed the use of organic herbs, juice fasts, frequent bowel cleansings, hydrotherapy, and the expression of all negative feelings.

“The big thing was that he really was not ready to open his body,” Powell recalled. “It’s hard to push someone to do that.” She did try, however. “The body exists to serve the spirit,” she argued. His friends repeatedly urged him to have surgery and chemotherapy. “Steve talked to me when he was trying to cure himself by eating horseshit and horseshit roots, and I told him he was crazy,” Grove recalled. Levinson said that he “pleaded every day” with Jobs and found it “enormously frustrating that I just couldn’t connect with him.” The fights almost ruined their friendship. “That’s not how cancer works,” Levinson insisted when Jobs discussed his diet treatments. “You cannot solve this without surgery and blasting it with toxic chemicals.” Even the diet doctor Dean Ornish, a pioneer in alternative and nutritional methods of treating diseases, took a long walk with Jobs and insisted that sometimes traditional methods were the right option. “You really need surgery,” Ornish told him.

Jobs’s obstinacy lasted for nine months after his October 2003 diagnosis. Part of it was the product of the dark side of his reality distortion field. “I think Steve has such a strong desire for the world to be a certain way that he wills it to be that way,” Levinson speculated. “Sometimes it doesn’t work. Reality is unforgiving.” The flip side of his wondrous ability to focus was his fearsome willingness to filter out things he did not wish to deal with. This led to many of his great breakthroughs, but it could also backfire. “He has that