Experts: Apple Disclosure 'Falls Short'

Apple's silence on reports that Steve Jobs had a liver transplant reflects a continuing failure to address the CEO's health issues, say governance specialists

By Arik Hesseldahl

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Apple's handling of reports that CEO Steve Jobs had a liver transplant has rekindled concern among corporate governance experts that the company and its board are disclosing too little, too late on the health of its highest-ranking executive.

Without disclosing the source of its information, The Wall Street Journal reported on June 20 that Jobs underwent the transplant in April. Apple (AAPL) representatives have issued no statement on the report and declined to discuss the matter with BusinessWeek.

The company's silence is indicative of the board's ongoing unwillingness to share adequate information with investors about Jobs' health, says Nell Minow, editor at the Corporate Library, a research firm specializing in corporate governance. "The board has proven again and again that it is being treated like an operating division of the company rather than the supervisor of the CEO," Minow says. "At times like this you want to be hearing a significant statement from the board of directors concerning the CEO—when he'll be returning to work, whether it will be full-time or part-time, and whether or not his duties will be truncated."

Since January, when Jobs said he would take a six-month leave of absence for health reasons, Apple has said its chief executive would return to the job by the end of June. His name appeared on a June 22 statement that Apple had sold more than 1 million units of the iPhone 3G S on its first weekend, an indication that Jobs is well on his way back to the helm—if he's not there already.

No Clear Guidance from SEC

Apple has argued that it is saying as much as it needs to reveal about Jobs' health. When the matter came up during a Feb. 25 shareholder meeting, Apple director and then-Genentech (DNA) CEO (now chairman) Arthur Levinson said that Apple was in compliance with the law.

Indeed, guidance from regulators—including the Securities & Exchange Commission—isn't clear on how much and how quickly companies need to discuss the health of an executive, says John Coffee, a Columbia University law professor who specializes in corporate governance and securities law. "The SEC has assiduously avoided giving clear guidance on when the CEO's health is material," Coffee says. "Apple is probably an extreme example where the CEO's health is very material. Walt Disney in 1950 would have been an equivalent."

The timing of the transplant news, so close to the release of data on sales for the latest iPhone, suggests to Coffee that Apple—or people very close to it—were behind the information leak. Apple may have paired potentially negative news with positive developments to blunt the stock-market impact of the transplant information, Coffee speculates. "This is a common tactic of corporate issuers because there has to be a drop after the announcement has been made in order to claim a material nondisclosure," he says. "If you link positive and negative news together, you may get only a modest downturn, which greatly eclipses the possible damages."

Regardless of how the transplant information was disclosed, the fact that it's now out may give Apple the cover it needs against any legal action by shareholders, Coffee says. "Now that they have done it, from a liability-prevention point of view, they have taken care of 80% of the problem," he says.

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