Whether you believe that Steve Jobs should provide detail about the illness causing his indefinite leave as Apple CEO or not, one thing is clear: the Securities and Exchange Commission must weigh in. Its silence will only serve to anger investors more, and further muddle firms' varying policies regarding such situations. The SEC needs to clarify its stance and explain the logic behind it. Obviously, the easiest solution from the regulator's standpoint would be to just force CEOs to provide details. But if the SEC wants to continue to allow privacy, what are some steps it could take to address various issues that might arise through investors having incomplete information?
In what follows, let's use a fictional scenario that can be used to think about some anticipated problems resulting from an executive that fails to disclose the details of an illness. For these purposes, imagine that someone named Stephanie Werks is the CEO of a major tech company called Pear. She has some form of cancer. Most doctors agree that, at its current stage, she has a 40% likelihood of survival.
Let's say you are Werks' oncologist. You happen to know her prognosis, but she has otherwise only told her close family. You have a very valuable piece of insider information. And as Werks' condition gets better or worse, you can benefit financially by buying or selling Pear stock. Of course, the same can be said of anyone else with nonpublic knowledge about a Werks' illness, whether a friend, relative, or other health care worker. Such insider trading should obviously be prohibited and monitored, if it isn't already.
The Illness' Affect on Work
Some conditions will affect an executive's ability to contribute more than others. For example, let's say Werks is also the creative mind behind Pear's success. If she has a form of brain cancer that can eventually affect thinking if it worsens, then that could significantly harm the company. If she had breast cancer, however, then this could still be serious ultimately, but she might be able to provide better input on important decision-making while receiving treatment, even if on leave. Although keeping the details of an illness secret, a company can still provide some information on precisely what role a CEO will play, if any, while undergoing treatment. A firm can explain how illness will affect a CEO's job while still respecting his or her privacy.
Timeline for Update
Often with a serious illness that causes a treatment regiment, there are certain timelines when doctors will know whether treatments are working or not. If CEOs know of such time horizons when an update can be provided, then they should disclose when an update will occur. Even if the update is just "no change in prognosis," then that's better than investors hearing no word whatsoever, indefinitely. The SEC could, in fact, mandate updates every quarter if there is a change in the executive's health or duties.
Whenever a CEO takes a leave of absence for more than one week due to illness, if the details are not disclosed then the company should provide a succession plan. That way, the market will have an idea of what the company will look like if the firm's executive doesn't get better. And by ordering all firms to do this as indicated, releasing such a plan won't seem as alarming as firm voluntarily providing a possible revision to its management structure. By knowing the succession plan, investors won't be caught as off guard if a CEO's condition worsens and must step down permanently.
Force Terminal Declaration
Finally, if a CEO has no chance of survival, then that needs to be disclosed. If all medical facts can draw a very definitive conclusion, then failing to disclose such information is simply misleading. While the CEO would not necessarily be forced to step down immediately in such a situation, this news will provide investors with certainty about the CEO's future.
The illness of Steve Jobs has begun to show us just how much a CEO's health can matter to the market. Even if the SEC decides to provide executives with some privacy regarding illness, silence is not an acceptable way for the regulator to handle the situation. It can improve investors' knowledge and general market practices even without ruling for a detailed illness disclosure. This certainly won't satisfy all sides, but it would help.
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