There’s a lot riding on Steve Jobs’ pancreas. After Apple’s CEO announced on Monday that he would be taking a medical leave of absence—his third—skittish investors sent the company’s stock tumbling.
Those investors had every reason to be nervous. Apple’s public face has always been a very private soul. And the company built around him has always been willing to help him cover up his ongoing, and very serious, health problems. Living with pancreatic cancer, as Jobs has, is something like living on death row: A lucky few can stay the executioner’s hand for a while, but they’re only delaying their date with the inevitable.
Now, once again, Jobs has left investors with little real insight into his affliction. This despite the fact that public companies are required by federal securities law to disclose material information—that is, facts a “reasonable shareholder” would consider important when deciding to buy or sell. If the fall in Apple’s share price after Jobs’ announcement is any indication, there are a whole lot of reasonable shareholders out there who consider the CEO’s health important.
“The simplest way to know whether or not a fact is material is whether or not it moves the market,” says Columbia University law professor John C. Coffee Jr.
Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, agrees. “The fact that the stock reacted to the news—or lack thereof—should be one sign that this information was material,” he said. “If someone buys or sells on the basis of this information, then obviously it influenced their decision to act.”
Unfortunately for shareholders, companies are not required to disclose their executives’ health status, and Apple is asking the public to respect Jobs’ privacy. Elson believes that Apple’s board should be making the public as aware as possible of Jobs’ condition. “When you take public capital, and you’re the CEO of a publicly traded company, your expectations for privacy need to change a bit,” he says.
Until the Securities and Exchange Commission steps in to provide more guidance, the current definition of materiality entitles shareholders to very little.
“Investors want to know more, the media wants to know more, everybody wants to know more,” Jacob S. Frenkel, a partner at Shulman Rogers, says. “But the point is, nobody is in an obligation to speak.”
Regardless of whether Apple is obligated to speak or not, one thing it can’t do is outright lie about Jobs’ health, something it’s arguably done in the past. The CEO didn’t announce his diagnosis until after he’d gone through treatment for it in 2004. At the time, he said he’d been “cured.” The tech god’s health problems have continued, though, and the level of transparency about them hasn’t gotten any better. What was labeled a “common bug” in June 2008, a “hormone imbalance” in January 2009 and a “more complex” ailment the following week led to a quixotic trip to Switzerland in search of treatment. This ultimately led to a liver transplant in April 2009 that was only made public two months later—by The Wall Street Journal, not Apple.
“If a company or its executives make a statement such as, ‘the CEO is healthy as a horse,’ the company and the executive undertake the responsibility to speak truthfully, and if that statement omits information that renders it untruthful… then you can proceed to the next step of asking, Is that information material?” says Darren Robbins, a founding partner at Robbins Geller Rudman & Dowd.
If, this time around, Apple were to provide some details about Jobs’ medical condition, it could end up trapping itself in an obligation to continue disclosing information. “When a company starts holding press conferences, going into detail about the medical condition, that’s when they begin to open themselves up, arguably, to a potential duty to update the information,” Frenkel explains.
“If the executive only tells the company he needs to leave the company, and is doing so, all the company needs to disclose is the fact that he is stepping down.…From the company’s perspective, the less they disclose the better.”
That certainly seems to be the way Apple executives have looked at it. But now the extent of their dissembling has become even clearer, and if this leave ends up being Jobs’ last—if he’s never able to return—they’ll really be caught. For the moment, though, the company isn’t inclined to apologize for its history of covering up its CEO’s true health status.
Adweek attempted to reach company spokeswoman Katie Cotton, who’s served to some extent as Jobs’ personal flack, especially regarding his health issues, to ask her how she feels about having defended him on the issue over the years. That request was met with a flat denial from a spokesman who told Adweek, “We wouldn’t have anything to say beyond the announcement.”