The SEC Is Too Lax on CEO Health Disclosure

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The legal basis stems from a 1976 decision by the U.S. Supreme Court, which ruled in TSC Industries v. Northway that "an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." The case had nothing to do with the health matters of executives, but rather information withheld from view about which shareholders would reasonably wish to know.

Too often, CEOs resist disclosure until the illness has reached a critical stage. Perryman and her co-authors suggest that the SEC lay down guidelines that would require disclosure any time there's an illness or medical condition that endangers the CEO's life, or would require a lengthy absence, or would impact the CEO's ability to do his or her job.

Apple & Steve Jobs: Tardy and Evasive

Apple's case certainly meets the criteria. It's hard to argue that Apple shareholders have had all the information about the health of the CEO to which they are arguably entitled. In fact investors had precious little information, and when disclosure has been made it has rarely if ever been in a timely manner.

Consider the first time Jobs was ill. The world first learned of his pancreatic cancer on Aug. 1, 2004, and then only after he had undergone significant surgery to treat it. It wasn't until many years later, when Fortune magazine reported it in 2008, that the world learned that the cancer diagnosis had been made in October 2003, without so much as a single word to shareholders.

After Jobs' return from the surgery in late 2004, Apple went about its usual way: introducing new iPods, moving the Mac platform to using Intel (INTC) chips, unveiling the iPhone—spurring the company to incredible growth and profitability.

After this disclosure of the surgery, rare was the time Jobs would appear in public without his appearance being remarked upon. Forbes columnist Rich Karlgaard started sounding alarm bells about Jobs' apparent weight loss in 2006. And practically every time Jobs sat for a live interview with CNBC anchor Maria Bartiromo, she would make a point of asking him plainly and directly about the state of his health. His answers were always evasive and inconclusive.

The visible weight loss indicated a medical problem, the precise nature of which remains unknown. But it may have been a recurrence of cancer that ultimately necessitated a liver transplant. Thankfully, Jobs' prognosis is "excellent," physicians in Memphis say.

Severity of Jobs' Illness Still Unknown

But as details of his procedure emerge, it's becoming alarmingly clear how unwell Jobs had become. On June 23, the United Network for Organ Sharing issued a statement intended to assure the world that Jobs received no special treatment due to his wealth or status. The organization, which under a federal contract operates the national Organ Procurement & Transplantation Network, says that like any other liver transplant patient, Jobs was screened under a system known as MELD, short for Model for End-Stage Liver Disease. A MELD score—ranging from 6 for less-severe cases and 40 for the most severe—uses a formula based on tests of liver and kidney function meant to evaluate the risk of the patient dying within three months without a transplant. Patients who score 15 or higher are "at considerable risk of dying in the short term without a transplant," the organization says.

We don't know what Jobs' score under the MELD system was or when he received it. But judging from the timing of various statements in December and January from Apple, the mid-January Bloomberg report, and the Journal report that his transplant happened in April, it's apparent that his condition was severe enough early in the year to warrant a transplant within roughly four months—i.e. that his MELD score may have been at least 15, and that the risk of death was high.

Apple declined to discuss this matter. The fact is, it doesn't have to, just like it didn't have to at various stages over the past five years—because in the eyes of regulators, an executive facing a life-threatening illness doesn't qualify as an event that has to be reported to shareholders. It should.

Hesseldahl is a reporter for BusinessWeek.com.

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