The trouble with Steve Jobs

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    During the ensuing 12 "wilderness years," as they have come to be known, Jobs started Next Computing and bought what became Pixar from George Lucas. Next was a business failure, burning through hundreds of millions in investors' money. But by the time Apple bought Next in 1997, setting in motion Jobs' return, he obviously had developed the capacity to become a CEO for the ages.

    Apple was on the ropes. Right away, Jobs dug into the mucky details of the business, creating a sense of urgency, radically reducing Apple's product line, and accelerating a wholesale cost cutting that would shrink the company back to profitability. Jobs had become a far better leader, less of a go-to-hell aesthete who cared only about making beautiful objects. Now he was a go-to-hell aesthete who cared about making beautiful objects that made money. No engineering spec, no design flourish was too small for his scrutiny. "It wasn't like he was some mythical creative genius and leaving the rest of the company to itself," says retired DuPont chairman Ed Woolard, a former director who was instrumental in bringing Jobs back. "It may have been true in the past. It was not true when he came back. He clearly was deeply involved in all the practical operations of Apple."

    That's not to suggest that he ever became easy to work for. Jobs is even known to yell at company directors. Asked how she dealt with her boss, former Apple PR chief Laurence Clavere once told a colleague that before heading into a meeting with Jobs, she embraced the mindset of a bullfighter entering the ring: "I pretend I'm already dead." (Clavere says today that she doesn't recall making the comparison but notes that "working with Steve is incredibly challenging, incredibly interesting. It was also sometimes incredibly difficult.") Jobs' break-the-rules attitude extends to refusing to put a license plate on his Mercedes. "It's a little game I play," he explained to Fortune in 2001.

    Often Jobs would suddenly "flip," taking an idea that he'd mocked (maybe your idea) and embracing it passionately - and as his own - without ever acknowledging that his view had changed. "He has this ability to change his mind and completely forget his old opinion about something," says a former close colleague who asked not to be named. "It's weird. He can say, 'I love white; white is the best.' And then three months later say, 'Black is the best; white is not the best.' He doesn't live with his mistake. It evaporates." Jobs would rationalize it all by simply explaining, "We're doing what's right today."

    Despite all that, Jobs was able to put together a world-class team when he got back to Apple. He assembled an inner circle dominated by his brain trust from Next, which included his two top product guys: Avie Tevanian, who ran software, and Jon Rubinstein, who presided over the hardware team. Phil Schiller, already at Apple, was promoted to head of product marketing, while operations chief Tim Cook (now Apple's COO) was recruited from Compaq. Jobs hired Ron Johnson from Target to launch Apple's retail stores.

    The group also included two executives who would later bear the brunt of Apple's backdating scandal. The first was general counsel Nancy Heinen, who had also come over from Next. Dominique Trempont, Next's former CFO, recalls that when Jobs was first considering whether to hire Heinen there, he asked to see some of the contracts she had written so that he could evaluate the "aesthetics" of her work. The second executive was the lone holdover from the previous regime - Fred Anderson, chief financial officer and the company's de facto No. 2. Anderson was widely credited with keeping Apple alive long enough to give Jobs time to work his magic. A calm, square-faced, retired Air Force officer, Anderson dealt with liquidity crises, restructurings, Wall Street - and the always volatile CEO. One former board member described Anderson's role as "tantrum controller."

    To keep all this talent, Jobs took a typical Silicon Valley step: He eliminated most cash bonuses from executive compensation and started handing out lots more stock options instead. And here, as elsewhere, Jobs played by his own rules.

    Among the first things Jobs did in 1997 was to reprice underwater stock options for all Apple employees, twice in six months. Apple also made a big grant in a way that looked like "springloading," issuing options one day before the announcement of a big deal with Microsoft sent Apple shares soaring 33%.

    Repricing and springloading are controversial (they give insiders an edge that shareholders don't enjoy), but they are not illegal. Neither is it illegal to grant "in-the-money" options with a below-market price as long as the action is disclosed and accounted for. What is illegal, though, is backdating - the picking of a date in the past, when a stock's value was lower, to assign the exercise price of options - without those adjustments. Backdating invariably involves lying to investors, creating false documentation, and avoiding the earnings hit required for giving employees in-the-money grants.