Was Apple 'Adequate but Late' on Jobs?
Apple (AAPL) investors got answers to some of their nagging questions about the health of the company's chief executive, Steve Jobs, on Jan. 5 when Jobs disclosed in a letter that he is suffering from a hormone imbalance that has caused rapid weight loss over the past year.
In the letter, published on Apple's Web site, Jobs said doctors had determined the cause of his weight loss to be "a hormone imbalance that has been 'robbing' me of the proteins my body needs to be healthy." The remedy is "simple and straightforward," he said, adding that he's begun treatment and will remain CEO.
Some shareholders were cheered by the disclosure, and Apple shares rose 4.2%, to 94.58.
Late Spring Recovery Expected
But some corporate governance experts questioned whether Apple said as much—as early—as necessary. On Dec. 6, when Apple said Jobs would not make his customary speech at the annual Macworld Expo in San Francisco, the company didn't cite health as an issue. Instead, Apple said the company will not participate in future Macworld events and that Apple Vice-President Phil Schiller will deliver the Jan. 6 address. Earlier in the year, in a published interview, an Apple spokesperson attributed the executive's apparent weight loss to a "common bug," and the company later called Jobs' health a "private matter."
Joe Grundfest, co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University, says securities lawyers could "get a good debate going" over whether Apple was as forthcoming as necessary. "Some will say this is good enough, and some will argue that we finally have disclosure and that it's adequate but late," Grundfest said.
Another question raised by the disclosure is how much more Apple may be compelled to say on the issue. Will the company need to make regular updates on the executive's health? In his letter, Jobs writes that his doctors "expect it will take me until late this spring to regain" lost weight and body mass. What if it takes longer? Jobs didn't want to say even as much as he did. "I've said more than I wanted to say, and all that I am going to say, about this," he wrote at the conclusion of his letter.
Different Approaches by Grove, Buffett
Securities laws require that publicly traded companies disclose facts that are "material," but arguments rage over what constitutes material, Grundfest said. "Suppose Jobs were losing weight and it didn't interfere with doing his job, but he didn't know why he was losing weight," he says. "What's the board of directors to do? Say that the CEO is losing weight and it doesn't know why?"
Strictly speaking, Jobs isn't required to disclose much. The rules on disclosure of a key executive's illness, while arguably material information as far as investors are concerned, are weighed against privacy laws and standards. Various CEOs have acted differently over the years. When then-Intel (INTC) CEO Andy Grove was diagnosed with prostate cancer in 1995, the company didn't immediately disclose the fact, but Grove did so the following year by writing an article for Fortune magazine about his experience combating the disease. When Warren Buffett, CEO of Berkshire Hathaway (BRKA), underwent surgery to remove benign polyps from his colon in 1997, he chose to disclose the circumstances to his investors and release details of his succession plan.
Stephen Davis, a senior fellow at the Millstein Center for Corporate Governance and Performance at Yale University, told the Associated Press that the Jan. 5 announcement fits Apple's pattern of "releasing information to shareholders in dribs and drabs."
Odds of Full Recovery Are Good
"It's not a technique designed to win loyalty from investors over the long term," Davis added. "This is a public company in which millions of investors have entrusted their savings and in which millions of customers also have a stake."
Apple held off on going public with the news that Jobs in 2003 was diagnosed with islet cell carcinoma, a rare type of treatable pancreatic cancer, until he had undergone surgery to remove it six months later. Published reports have said that during the intervening months, Jobs resisted the repeated urging of doctors to have surgery, preferring instead to treat it with a special diet. Jobs relented and had surgery on July 31, 2004. Company representatives have declined to comment on the reports.
Medical experts familiar with pancreatic cancers and willing to engage in educated conjecture about the condition say the odds are good that Jobs will make a full recovery. While Jobs hasn't disclosed the full extent of his illness, his visible weight loss and description of a diagnosis of a "hormone imbalance" suggest that his cancer probably has not returned.
Three Possible Scenarios
According to published reports, the surgery Jobs had in 2004 is known as the "Whipple Procedure," named for the doctor who developed it. The surgery typically calls for the removal of the head of the pancreas, a part of the small intestine, and sometimes a part of the stomach, after which the patient's digestive tract is rebuilt.
That surgery cures the patient of cancer more than 90% of the time, says Dr. Robert Fine, director of experimental therapeutics and gastrointestinal oncology at New York Presbyterian and Columbia Medical Center, who specializes in treating this type of cancer. Fine says Jobs' weight loss can be explained by three possible scenarios, none of them life-threatening.
In the most likely scenario, Jobs would be suffering from a lack of enzymes produced by the pancreas to break down food. "It may be that he's not absorbing food properly," Fine said. In most cases like this, doctors will prescribe an oral supplement to replace the enzymes. One pill often given in this case is Creon, made by Belgium-based pharmaceutical company Solvay (SOLB.BR). This condition, he said, is often detected with a blood test. "In cases like this you give people the pancreatic enzymes they're missing and they do quite well," said Professor John Flynn, a professor of medicine at Johns Hopkins University in Baltimore.
A Promise to Speak Up
Another, less likely, scenario is that the weight loss is attributable to diabetes, a lack of insulin that produces high blood sugar levels and leads to loss of weight and muscle mass, Fine said. An even less likely explanation is that Jobs has suffered a recurrence of the cancer. But even if the cancer did return, there are new therapies that weren't available as recently as five years ago and have proven successful. "We have an oral chemotherapy regimen that has a 70% chance of shrinking the cancer substantially," Fine said. "It can add a substantial amount of time to the patient's life, even one who is in the late stage of this type of cancer."
Fine stressed that it's unlikely that the cancer is back. "Chances are excellent that he will return to health," he said.
In hopes of reassuring anyone whose doubts may linger, Jobs pledged to speak up quickly in the event he feels unable to do his job. "I will be the first one to step up and tell our board of directors if I can no longer continue to fulfill my duties as Apple's CEO," he wrote.