January 20, 2009, 4:37 PM — The U.S. Securities and Exchange Commission (SEC) should require public companies to fully disclose information about executives' health in light of Apple CEO Steve Jobs' health-related leave of absence and ongoing questions about his condition, said a university professor who specializes in executive management.
In a paper entitled "When the CEO is Ill: Keeping Quiet or Going Public," Alexa A. Perryman, assistant professor of management in the Neeley School of Business at Texas Christian University in Fort Worth, Texas, wrote that the SEC "should directly classify the health of a firm's CEO as a material fact requiring disclosure."
In her paper, Perryman uses the definition of "material" as from a U.S. Supreme Court case TSC Industries v. Northway. In that case, material information is defined as any information that could potentially impact the firm's future or value in the market.
Currently, the SEC lacks specific guidelines regarding executive health disclosures, Perryman said in an interview Tuesday. This has led to confusion and a difference of opinion among shareholders and industry watchers about how a CEO's health problems should be handled, particularly in the case of a high-profile CEO like Jobs.
Some believe Jobs' health -- cited last week as the reason he was taking a six-month leave of absence from Apple -- is a private matter, while others feel it has a direct effect on the company's stock price and so should be disclosed to shareholders.
Perryman is in the latter camp. She believes the SEC should require CEOs to disclose to the board of directors and to shareholders any information about a potentially life-threatening condition that could affect their ability to run the company, particularly if it would render them unable to work for a certain period of time or could shorten their life span.
"I think the SEC should take a more proactive stance," she said.
Jobs told Apple employees last Wednesday he was taking a leave but did not go into specifics about why, saying only that health-related issues and significant weight loss he only a few days before attributed to a "hormonal imbalance" are "more complex" than he originally thought.
The weight loss and Jobs' decision not to give his annual keynote address at the annual Macworld Expo in San Francisco earlier this month had raised speculation about his health. In 2004 Jobs disclosed he had been treated for pancreatic cancer.
Perryman said that though she can understand that such a situation raises privacy concerns, in the case of a "celebrity CEO" like Jobs, "you have to give up some of your privacy."
"To some degree they are like government officials and sports players -- they don't lead private lives like you and I do," she said. "When you're that public and you get paid that much you don't get to be the average Joe Citizen."
In Jobs' case, his health or lack thereof has a direct effect on the company's stock price because his identity is so tied to the company's brand, and he has a day-to-day effect on driving product strategy and vision. Because of this, he has an obligation to inform the company's board of directors and they in turn should inform shareholders of his health condition so they can make an educated decision about what they want to do about their investments, Perryman said.
She added that Apple has hurt its own public image by being cagey about Jobs' condition and fueling speculation among shareholders.
"When you let rumors get to that extent, you can hurt your public image more," Perryman said. In her opinion, it would have served Apple better for management to tell people up front "here's the problem, here's how we're going to handle it."
Perryman's article, which was co-written by Frank C. Butler and Gerald Ferris of Florida State University and John A. Martin of the U.S. Air Force Academy, has been accepted for publication by Business Horizons, an academic journal for business practitioners and researchers, and should appear in it later this year.
