On Monday, the world learned that Apple CEO Steve Jobs again needs to take medical leave to focus on his health. Sound familiar? In 2009, we heard about Jobs taking a similar leave of absence before returning a couple months later with a new liver. Certainly, we should all hope and pray for Jobs' speedy recovery, as he is one of the greatest tech visionaries of our time. But in light of the lack of details surrounding his medical leave, some are questioning whether Jobs should have to disclose specifics of his illness to investors. It depends.
Atlantic correspondent Ben W. Heineman Jr. argued yesterday that investors deserve to know more. Here's why:
Under the securities laws, companies are required to disclose material information: usually defined as any information that would influence an investor's decision to buy or sell securities.
In fact, Jobs did disclose information to investors. He wrote a letter telling them he would be taking a leave of absence for medical reasons. Should he have provided further detail? It depends on the illness' materiality.
The basic question is this: would additional information about Jobs' illness provide investors with greater certainty on how to evaluate Apple's stock? If not, then Jobs' disclosure responsibility is met. So really, it depends on how much certainty there is about the consequences of his medical condition. For example, if doctor's say he's sick but may get better, then letting investors know more detail wouldn't provide any more certainty than what they already know.
Let's consider an example here. One piece of information that companies must disclose is the decision to acquire another company. But think about at what point this disclosure becomes material. If a company is mulling acquiring another, disclosure is not necessary. If a company is bidding on another, disclosure is still not necessary. If a company's has been accepted and an acquisition can move forward in an official capacity, then disclosure is necessary.
What's the difference between each of theses stages? Only in the third is there sufficient certainty with which investors can work. In either of the other two stages, they may speculate about how the stock price will change depending on whether an acquisition takes place. But until an acquisition looks reasonably probable, there isn't enough certainty to make the information material to investors.
Now apply this to the medical condition of a superstar CEO like Jobs. Does he need to disclose that he's going to the doctor? Does he need to disclose that he has an illness that may be cured and won't cause him to miss work? Does he need to disclose when he has an illness that will affect his work? Using the M&A analogy above, an illness is only material to investors in the third situation -- when it will affect a CEO's work.
Of course, Jobs has already provided some information on this. But moving a step further, greater detail is only necessary to the extent it provides more certainty around how the illness will affect the CEO's tenure. For example, if doctors announce the illness is incurable, then that should be disclosed, as it makes the CEO a terminal patient with some number of days, months or years left for which he can function as CEO.
Jobs' illness might fit into this category, or it might not. We don't know for sure, and for that reason, whether he should be required to disclose more depends on what is known about how the illness will play out. If a CEO has been pronounced terminal, for example, then that information should be disclosed. But if there's some probability that a CEO could recover, then the illness needn't be disclosed.
Ultimately, the Securities and Exchange Commission should provide some rules around CEO illness that clarifies this point. These rules should have nothing to do with privacy, but with practicality. Beyond how it will affect a CEO's job in the immediate future, an investor gains nothing through an announcement containing additional details of an illness that could be cured -- that would just create greater uncertainty and speculation. Instead, the rule should be focused on requiring disclosure of the details of a CEO's illness when it has clear implications to a company's future.
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