Apple Faces Issues of Disclosure
Rumors, and Realities, of Jobs's Health Affect Company Financially

By Peter Whoriskey
Washington Post Staff Writer
Friday, January 16, 2009

As Apple chief Steve Jobs's weight loss over the past eight months has provoked questions about his health, the company's meager public disclosures of his illness have wandered from "common bug" to an undefined "hormone imbalance" to this week's something "more complex."

Exactly what is ailing the company's charismatic chief executive has never been rendered clear, however, and nor have his chances for a complete return to health.

But with Wednesday's announcement that Jobs would be taking a medical leave of absence until June, the argument that the company has a duty to discover and disclose his health status has grown more persuasive, business and legal experts say.

Under federal securities law and court decisions, a public company has an obligation to disclose a fact in its filings if "there is a substantial likelihood that a reasonable shareholder would consider it important," as a 1976 Supreme Court decision said.

And now that it is known that Jobs's illness can prevent him from carrying out his role at the company, his ailment is clearly something that a reasonable shareholder would consider important and therefore should be revealed, some experts said.

"Now that he is taking a leave of absence, that argument is over," said Joan MacLeod Heminway, an associate law professor at the University of Tennessee, who practiced securities law and wrote a recent journal article on the subject. "When the CEO is an iconic figure like Jobs, the company is much more likely to be forced to disclose private information."

Jobs is viewed as an almost indispensable element of the company's most successful product designs, analysts said, and his loss would be a significant setback.

The obligation to disclose the information may lie with the company's board and not necessarily with Jobs, however. "That's where the missing link is: Jobs does not have a requirement to disclose the facts of his personal health to the board," Heminway said.

She said the board may now be legally obligated to investigate and, if necessary, publicly report his health status, however.

"Knowing what they now know, it would be a violation of their fiduciary duties to not ask Jobs to report on his health," she said.

Other chief executives who have faced serious or potentially serious ailments have handled the disclosures in different ways.

When Warren E. Buffett, chief executive of Berkshire Hathaway, was diagnosed with polyps in his colon in June 2000, the company quickly announced that he would have surgery to remove them. Buffett is a director of The Washington Post Co.

When Intel chief executive Andrew Grove was diagnosed with prostate cancer in 1995, the company didn't immediately disclose the information. But Grove wrote in Fortune magazine about his ordeal the following year.

Apple, by contrast, has issued only sparse and somewhat contradictory accounts of Jobs's health. At times, the company has deflected questions citing his right to privacy.

In 2004, Jobs received a diagnosis of pancreatic cancer and had surgery, which apparently was successful. He did not disclose the illness until a speech at Stanford University in 2005.

Then, last June, Jobs appeared strikingly thin, and the uncertainty over his health provoked new worries, particularly for investors. A spokeswoman called it a "common bug."

Amid continuing rumors, Jobs last week issued a statement that many took as a promising sign -- he was suffering from a "hormone imbalance," but one for which the remedy was "simple and straightforward."

On Wednesday, however, he reported that the ailment was "more complex" and that he was taking a medical leave from the company he co-founded.

While analysts, crisis managers and other observers have been somewhat wary of criticizing someone who is ill, they have directed their strongest criticism at the Apple board for allowing the uncertainty to persist and damage company credibility.

"There's a growing belief that the board needs to take charge of Apple's future," said Yair Reiner, an Apple analyst with Oppenheimer. "They have not given us any sense that they are on top of the situation -- either in understanding it or trying to control it."

"No one has any reason to believe that the June return date has any credibility," Reiner said.

Likewise, corporate communications consultants have criticized the board's handling of the Jobs health issue.

"We don't tell clients that you have to go out there and tell everyone everything you know," said Larry Smith, president of the Institute for Crisis Management, a specialty crisis communication consultant. "But there are certain things you need to explain to your key audiences, and they have to hear it from you.

"Apple's credibility has been pretty well shot. Now, even if they start to be more straightforward with the public, people will be suspicious," Smith added. "Even if there's good news, and it's real, people won't believe it."

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