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Benjamin W. Heineman, Jr.
Legal Scholar

Benjamin W. Heineman, Jr.

Business ethics expert; senior fellow at Harvard’s schools of law and government; former General Counsel for General Electric; former assistant secretary for policy at the U.S. Department of Health, Education and Welfare (now Health and Human Services.)

A Stick in the Eye

A public company CEO's most precious asset is trust: trust from employees, customers, suppliers, shareholders, creditors, analysts, the regulators and the media. When credibility is shredded, then the CEOs customarily cannot do their job.

Steve Job's handling of his personal health issues is a stick in the eye of trust and makes him look like he is the head of a private Valley start-up, not a major public corporation.

If a CEO's personal health issues will -- or are likely to -- significantly affect her capacity to lead the corporation, then those issues should be disclosed. Such an impact can be the result of a sustained inability to function or a life-threatening illness or some combination of the two.

For example, a serious accident might not be life threatening but might involve pain, heavy medication, difficulty in concentrating--in sum an inability to be CEO for weeks or months. That should be disclosed. A broken leg from skiing requiring a few days in bed should not.

Similarly, the diagnosis of a life-threatening disease---like lung cancer---should be disclosed along with the prognosis, even though the prognosis may be a statement of probabilities and not a certain conclusion. By contrast, an intestinal disruption from a foreign trip which lasts a few days and will be cured promptly is not a disclosable event.

The reason for disclosing these two circumstances is straightforward. A CEO's sustained absence or life-threatening illness are events to which the reasonable investor would attach importance in making an investment decision or the disclosure of which are likely to move the stock. These are, of course, the general materiality standards under U.S.and EU securities laws. But securities regulators have not sought to define when CEO health events need to be disclosed. No matter. Such disclosure should occur either because of a careful interpretation of the law or because good governance and a sustained corporate reputation for credibility require it.

CEOs are public figures. They should waive any privacy limitations imposed by law or personal preference to achieve such disclosure. Jobs'---and Apple's---handling of his illness is textbook---of what not to do.

Apple is sustained by public trust in the products---for which Jobs gets his share of credit---but not by trust in his integrity or his word. That is very unusual.

IN RESPONSE: In their breezy defense of Apple's behavior, Messrs. Gupta and Linsky seem unaware that the first question about Jobs' and Apple's handling of his illness is whether it complies with SEC disclosure rules. Both underscore how critical Jobs is to Apple, but then somehow ignore that serious health issues of a person of such importance might well be material and might need to be disclosed under the law. Indeed, it has been reported that the SEC is, in fact, reviewing Apple's disclosures for compliance with disclosure requirements.

By Benjamin W. Heineman, Jr.

 |  June 23, 2009; 9:33 AM ET
Category:  CEOs Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
Previous: Nothing to Learn Here, Move Along | Next: Jobs Acted Properly

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