Let’s rewind. It is January 18th 2011 and Apple had recently announced that its CEO (must he be named?) Steve Jobs, was to take another medical leave after having been treated for pancreatic cancer in 2004 and receiving a liver transplant in 2009. The CEO’s third medical leave in the span of ten years did not go quietly. In fact, the bad news spread fear amongst shareholders, causing a small contagion all to familiar to the whirlwinds of today’s stock markets. The Monday of the announcement, NASDAQ opened with a five percent drop in Apple’s shares. It is no secret therefore, that one man at the head of the world’s largest tech-company, can actually tilt investors world wide. His illness affected investor’s decisions to buy or sell securities, especially since his decade long absence in the 1990s led to Apple’s near demise. With these general facts in mind, one can proceed to open the can of worms: exploring the SEC’s role in enacting disclosure regulation. The subject is not unfamiliar, in fact, its significance is currently at zenith when considering the legal installments after 2008. For example, Frank Dodd Act’s Title IX « Investor Protections and Improvements to the Regulation of Securities » depicts the need for performing fiduciary duty by the broker-dealers and investment advisers to their customers. Was Apple not acting in its duty of good faith and fiduciary duty when failing to disclose the full details of Job’s leave? The SEC has been reluctant in pursuing regulatory acts dealing with CEO illness because it could unclench a strong legal debate concerning right to private life versus the fiduciary duty of companies to disclose all information of value to investors. At a time when corporate governance’s pendulum has shifted from favoring managers to favoring investors, this question is not negligible. How should the board of directors weigh its obligations to shareholders against the protection of personal privacy? Where should the board of directors “draw the line?”
Personally, I do not agree with Heineman’s normative statement that the information concerning Steve Jobs health should be disclosed because “it is a matter of basic principle regarding sound and fair investor relations”. First off. What is this basic principle founded upon? To what extent and proportionality should one trespass the right to privacy of information for the right of investors to knowledge? This is not a matter which can be summed up neatly into a general principle. The SEC rules concerning CEO illness disclosure should be quite limited to circumstances in which the health issues per say significantly impair a CEO’s ability to perform his functions for more than a short period of time. The health issues must be qualified as ‘material’ before being considered disclosable. Material changes should be disclosed to the degree that it relates to a firm’s current operations rather than mere speculation.
In the eyes of the world, Steve Jobs was linked to the status of an innovatory pipeline: people who have purchased stock in Apple were really buying into the vision, talents, and unquestioned leadership of Steve Jobs. Thus, in addition to the question of whether or not Apple is breaching its fiduciary duty, one can now fast-forward and wonder what are the company’s innovative capabilities today. How far will Apple’s technological holy grails persist without its master?
Audrey Lhemann (Member of the Sciences Po Law Review Editorial Board)