Experts: Apple Disclosure 'Falls Short'

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.

No Legal Complaints on Jobs' Health

Shares of Apple slumped about 1.5%, to 137.37, on June 22, the first business day after the Journal's story—and the same day Apple reported early sales figures for the iPhone 3G S.

Legal obligations aside, Apple nevertheless has a responsibility to be more forthcoming with shareholders, says Steve Davis, senior fellow at Yale University's Millstein Center for Corporate Governance & Performance. "As long as Steve Jobs remains the CEO of Apple, he cannot necessarily claim the same degree of privacy as an ordinary citizen," Davis says. "Too much of Apple hinges on his leadership and too much shareholder value is at stake." Davis says investors are entitled to more information. "What we've received so far falls short of what's needed," he says. "These leaks don't constitute a reassuring and comprehensive briefing by the board of directors to the marketplace."

There's little evidence as yet that investors are up in arms over Apple's lack of disclosure about Jobs' health. Of the roughly 28 outstanding legal complaints disclosed by Apple in its most recent quarterly filing with the SEC, dated Mar. 28, none pertained to the health of the CEO, which has been an ongoing concern for shareholders since the first disclosure of his treatment for cancer in 2004.

Apple stock has risen by more than 75% since hitting a 52-week low on Jan. 20, days after Jobs disclosed he would take a six-month medical leave. Investors have had plenty of time to digest the circumstances of his health, even if the amount of information they have is less than complete. "There's a lot more to this company than Steve Jobs," says David Klaskin, chairman and chief investment officer at Oak Ridge Investments, a Chicago-based investment firm that owns about 282,000 Apple shares. "People should keep in mind that his health is certainly going to be an issue—more so than other 54-year-old CEOs—but [Apple has] held up well relative to the market and it's still very attractive over the long term."

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