Academic

Steve Jobs released a letter about his weight loss yesterday, and Apple's stock rose over 4%, but the legal story here is unfinished. Apple has not been very forthcoming about Jobs' health and even today's letter did not satisfy. "Hormone imbalance"? As WaPo noted, that is "a revelation that didn't reveal anything." Here is some informed speculation:

What strains credibility ? and sounds too good to be the whole story ? is that the issue was first raised and the cause discovered only a few weeks ago. If it is something as simple and straightforward as a nutritional problem caused by a hormone imbalance, says UCSF?s Dr. Ko, ?I doubt his doctors would have missed it all this time.?

What seems more likely is that Jobs, a man who knows something about controlling the message, is telling us a story as carefully crafted as any Apple product. He has said as little as possible about his medical condition ? just enough to calm the waters stirred by his decision to skip this week?s Macworld. And he said it before the markets opened on the eve of Apple?s last Expo ? just in time to allow the thousands of reporters, analysts, developers and fans descending on San Francisco to ?relax,? as he writes, ?and enjoy the show.?

Few CEOs are as closely tied to their company's fortunes and Jobs is to Apple's, and while some think it's time for Jobs to go, others believe he is too central to Apple's identity. Should Apple's board of directors disclose more about Jobs' health?

Investors may want more information -- investors always want more information -- but that doesn't mean the company is required to provide it. The Jobs situation reminds me of the situation with Stephen Ross at Time-Warner, which was described by Jayne Barnard in here article, Sovereign Prerogatives, 21 J. Corp. L. 307 (1996):

Sometime in the mid-1980s, Ross was diagnosed with prostate cancer-- "something that (was never) publicly disclosed, and was known only by a handful of people apart from (his) family and closest associates." Apparently he then underwent surgery and  received radiation. After that his doctors regularly monitored his blood chemistry. Then, in November 1991, Ross's prostate cancer recurred and he began chemotherapy. Although the prognosis under these circumstances was poor and his doctors at New York's Memorial Sloan-Kettering Hospital told his family that the treatment at best might give him an extra year to live, Time Warner put out a very positive public statement on the matter: ?My physicians are optimistic, and I am maintaining my nor mal work schedule,? Ross said in a prepared press release. In fact, from that day forward, Ross never returned to his office.

Throughout the spring of 1992, Ross continued the pose of being in full command of the company, and in fact, he was quite instrumental in the ouster of his co-CEO, N.J. Nicholas, in favor of Ross's preferred successor, Gerald Levin. One reason the Time Warner board members went along with this maneuver was because they thought that the issue of succession in the short run was largely academic. Participating by phone in the February 1992 board meeting, where the ouster of Nicholas took place, Ross told his directors that he expected to be back in the office before summer. In early June, Ross indicated his intention to be back at work in time to attend the annual shareholders' meeting in July.

It was not until mid-June 1992 that Ross finally conceded publicly the gravity of his illness. Announcing that he was taking a "temporary leave of absence," Ross nevertheless insisted that his relationship with Time Warner would not change. This spin-doctoring apparently worked. "Analysts said the departure of Ross, who began working at home late last year when he began chemotherapy treatments, would probably not have a significant short-term effect because the 64-year-old Ross had been focusing on planning rather than day-to-day management."

Time Warner's official company line throughout this period was optimistic. In April 1992, Time Warner's newly-appointed co-CEO, Gerald Levin, told investment analysts that Ross's cancer was in remission and that he no longer had a tumor. At the annual shareholders' meeting in July, Levin informed those present that "Ross is continuing his treatment. . . . He is responding to his treatment and is eager to get back as soon as his doctors permit." Ross's wife, Courtney Sales, also appeared at the meeting and confirmed Ross's eagerness to return to work. In fact, by July, Ross was gravely ill, drugged for pain, unable to receive visitors outside of his immediate family, and constantly in and out of the hospital where he received transfusions.

In November 1992, Ross entered the University of Southern California Cancer Center in Los Angeles for an operation his New York doctors had characterized as futile. After a ten-hour operation, his new surgeon declared that Ross's tumor was gone at last. The doctor said that what cancer remained "could be treated with chemotherapy once Ross regained his strength." Time Warner issued an enthusiastic press release. The UPI reported that "Time Warner Inc. said Tuesday that chairman Steven J. Ross has undergone successful surgery for prostate cancer . . . . (The company is) pleased to confirm that Steven Ross has made satisfactory progress in the chemotherapy treatments, so much so that he has been able to receive successful surgical treatment."

Ross died on December 20, 1992, after additional surgery, never having left the hospital. Shortly before his death, but more than a year after Ross had stopped coming to work, Time Warner's board had finally requested an accounting of his condition from his surgeon. The doctor told them in writing that Ross would eventually be able to resume some level of participation in the company, but never his full-time duties. Nevertheless, "in mid-December, (Time Warner) executive vice-president Geoffrey Holmes told a group of analysts that Ross would (soon) be returning (to work)."

At what point during all of this did Time-Warner have a duty to disclose Ross' condition? Noting that the disclosure rules are unclear, Jayne opines, "one might reasonably posit that when a CEO has a serious illness, particularly one involving pain, the illness should be treated as presumptively material and the company should disclose the illness as soon as reasonably possible following diagnosis."

Of course, there is no general duty to disclose all material information. The question is whether the company has a duty to disclose the information in question.

More recently, Joan Heminway has addressed the tension between disclosure obligations and privacy rights in Personal Facts about Executive Officers: A Proposal for Tailored Disclosures to Encourage Reasonable Investor Behavior, 42 Wake Forest L. Rev. 749 (2007):

It is clear from the mandatory and antifraud disclosure rules ... that the SEC, under the power delegated to it by Congress, intends that public company executives surrender some of their privacy rights in favor of the compulsory public disclosure of facts about them--at least to the extent that disclosure promotes the policies underlying the federal securities laws.... An insider of a corporation that is asking the public for funds must, in return, relinquish various areas of privacy with respect to his financial affairs which impinge significantly upon the affairs of the company.... However, Congress did not expressly strip executive officers of their information privacy rights (or delegate authority to the SEC to do so). Moreover, no court has found that individuals check all of their information privacy rights at the door when they become public company executives.... Unfortunately, current federal securities disclosure rules do not apparently recognize the tension they create with privacy rights or provide a concrete basis or process for performing the requisite balancing of governmental (or public) and individual interests. Where a duty to disclose exists, what is material must be disclosed.

Again, the key issue is whether the company has a duty to disclose. Both Jayne and Joan lament the fact that federal securities law permits companies like Apple to withhold information about Steve Jobs' health, even though the information seems patently material. But given the present state of the law, unless Jobs' letter were misleading, I don't see a compelling argument for more disclosure in this case. And in the absence of a duty to disclose, the board can reasonably elect to respect Jobs' stated desire for privacy. ("So now I've said more than I wanted to say, and all that I am going to say, about this.")