Home | About | RSS Feed | Contact and Publicity Guidelines | Comment Policy the Law, the Universe, and Everything 

advertise-here4


Slip Opinions


Groundhog Day. (fp)

Banned in Tucson. (kw)

The Best and Worst of 2011 in Race and Law (kw)

Tortured to death for trespassing. (fp)

Drones of contention. (fp)

DOJ still coddling banks. (fp)

Creative destruction? Thank banks. (fp)

Blog about a new book, on how to talk to little girls--stressing smarts not cutes.   LAC

Macey on the heroic Rakoff. (fp)

Captured NY Fed. (fp)


solicitors

Our Podcast

Subscribe to Law Talk

law-rev-contents2.jpg


  • Posts by Author

  • Categories

  • Archives


  • Recent Comments


    • Lee on Lifecycles and the Firm

    • Car accident claim lawyers on Symposium Next Week on "A Legal Theory for Autonomous Artificial Agents"

    • Andrew MacKie-Mason on Can't the Supreme Court Just Say No to Cameras?

    • Joe on Employment Division v. Smith is Wrong

    • Shag from Brookline on Employment Division v. Smith is Wrong

    • Joe on Employment Division v. Smith is Wrong

    • Joe on Super En Banc in the Ninth Circuit

    • Shag from Brookline on Employment Division v. Smith is Wrong

    • G. Calamita on Symposium Next Week on "A Legal Theory for Autonomous Artificial Agents"

    • Joe on Super En Banc in the Ninth Circuit

    • Howard Wasserman on Can't the Supreme Court Just Say No to Cameras?

    • Gerard Magliocca on Super En Banc in the Ninth Circuit

    • Mike on Super En Banc in the Ninth Circuit

    • Ben on Lifecycles and the Firm

    • Samir Chopra on Symposium Next Week on "A Legal Theory for Autonomous Artificial Agents"
  •  

    Site Meter

    About the Blog

    Concurring Opinions is a multiple authored, general interest legal blog.

    (Image: Wikicommons)

Disclosure of Executive Health Issues

posted by Dave Hoffman

Check out this terrific article in Fortune about Steve Jobs. As the article points out, far more than most corporate leaders, Jobs is personally identified with Apple’s brand:

Jobs is also among the most controversial figures in business. He oozes smug superiority, lacing his public comments with ridicule of Apple’s rivals, which he casts as mediocre, evil, and – worst of all – lacking taste. No CEO is more willful, or more brazen, at making his own rules, in ways both good and bad. And no CEO is more personally identified with – and controlling of – the day-to-day affairs of his business. Even now, Jobs views himself less as a mogul than as an artist, Apple’s creator-in-chief. He has listed himself as “co-inventor” on 103 separate Apple patents, everything from the user interface for the iPod to the support system for the glass staircase used in Apple’s dazzling retail stores.

That personal identification makes disclosure of an executive health issues a tricky materiality problem. When Jobs was diagnosed with cancer in 2003, the relationship between Jobs’ body and Apple’s SEC filings was front-and-center:

Jobs put the procedure [surgery] off for more than nine months, raising the thorny issue of disclosure. He told the board, and the board decided to say nothing. Palo Alto attorney Larry Sonsini, the company’s longtime outside counsel, advised the directors that the CEO’s right to privacy trumped any disclosure requirement as long as he could continue to perform his duties. A second outside lawyer agreed.

So Apple conducted business as usual, disclosing nothing and letting the tiny circle of insiders who knew about the situation continue to trade Apple shares.

Had Jobs’ health gone sour, could investors have successfully claimed that Apple failed to disclose material facts? I tend to think so, and don’t think much (at all) of the balancing privacy interest. It strikes me that, no less than presidential candidates, CEOs of publicly traded firms have contracted away their right to a private medical life. That said, the authority on these issues is really Joan MacLeod Heminway, whose Personal Facts About Executive Officers: A Proposal for Tailored Disclosures to Encourage Reasonable Investor Behavior really sets up the problem nicely.


 May 6, 2008 at 4:09 pm   Posted in: Securities   Print This Post Print This Post

Responses (7)

  1. Shawn Levasseur - May 7, 2008 at 10:46 am

    “It strikes me that, no less than presidential candidates, CEOs of publicly traded firms have contracted away their right to a private medical life.”

    I’d disagree. The health of any other employee has financial consequences for a company too, and yet personal privacy trumps those concerns. Just because the employee is at the top of the power structure ought not change that. You shouldn’t have different laws for different classes of people.

    Investors should assume that any CEO can drop dead, or be incapacitated, at any time. Unless the CEO has made any claims to immortality, the real question should be about what plans are in place if something happens to the CEO.

  2. paul a'barge - May 7, 2008 at 10:54 am

    You don’t think much (at all) of the balancing privacy interest.

    Nice. Wait until your privacy is up for grabs.

    Look, if you don’t like living in a country where the individual and his-or-her rights are really, really important, by all means move to Sweden or some other Socialist fantasy land. Really. Get out now.

    It’s just that simple, isn’t it?

  3. molon labe - May 7, 2008 at 10:59 am

    Not quite. Markets work because of information availability. CEOs – especially founding CEOs in technology firms, but others as well – are NOT like other employees in their impact on publicly traded firms. Indeed, part of the rationale for very large incentive-based CEO compensation is precisely that the leadership and decisions of a given CEO can and are expected to influence the firm in significant ways.

  4. Shannon Love - May 7, 2008 at 11:31 am

    It strikes me that, no less than presidential candidates, CEOs of publicly traded firms have contracted away their right to a private medical life.

    That might be a good thing to establish by legislation or contract but I think that as a matter of standing law, I think the right of privacy trumps everything else.

    If not, how far down the totem pole does the loss of medical privacy go? In many high technology companies, the most critical employees are a small number of technical types. Should their medical histories be public knowledge as well? With medical cost being a major outlay, perhaps investors could claim the right to examine the medical histories of all employees in order to determine medical insurance cost.

    We need to be careful about jumping to implied law. We should assume that everyone has a right to privacy and then explicitly legislate breaches in that privacy as needed.

  5. PatHMV - May 7, 2008 at 11:41 am

    I lean more towards the side of disclosure here, particularly where the executive plays such a crucial role in the company. Does anybody doubt that if Steve Jobs were to leave Apple, for health reasons or any other, that Apple’s stock price would tank, at least for a while?

    Jobs felt his health was important enough to let the directors and others at the company know. That, I think, forfeits whatever privacy right he may have had. After he told them, they had insider information that there was a higher than random chance of his having to step down for health reasons. As the post notes, they could continue trading in possession of that knowledge, not shared by the rest of the market. That’s not proper.

    Real privacy, fine. If Jobs wants to keep his illness from the Board and others at the business, that’s fine, he shouldn’t have to disclose it to anybody. But if he thinks it is necessary to tell the Board, it should also be necessary to tell the owners of the company, the stockholders.

  6. khirareq - May 7, 2008 at 12:52 pm

    Interesting. This could put an auditor into a situation where they had to qualify their opinion because of accounting law, but could not disclose why because of privacy law.

    I love this country!

    In order for this to reach a standard where it would have to be disclosed, Job’s cancer would have to have a material impact on Apple’s financial position (note: NOT the same thing as its stock price). Which means there would have to 1.)be a financial cost 2.)that you could reasonably estimate 3.)that was material to the overall financial position of Apple. Seems unlikely for a manufacturer, no matter how important that person is. Well, I say that – I can actually envision such a thing being material to, say, the Miley Cyrus empire or Mary Kate & Ashley’s clothing line, where someone’s face is actually required to sell the merchandise being produced.

  7. Colin Kingsbury - May 7, 2008 at 2:25 pm

    The central argument here seems to be that the directors have insider information on which they could make advantageous trades.

    Directors already deal in tons of this type of information on a much more mundane level, e.g., quarterly earnings projections before the public announcement. Missing an estimate these days can take a 15% haircut off your stock price and that happens a hundred times more often than a CxO gets a serious illness. In that case, directors are obligated not to disclose that information, but to not trade on it to their private advantage. I don’t see how Jobs’ medical condition is crucially different.

Leave a Reply

Spam protection by WP Captcha-Free


  • « Previous post
  • Next post »

Authors

Daniel J. Solove
Kaimipono Wenger
Dave Hoffman
Frank Pasquale
Deven Desai
Danielle Citron
Lawrence Cunningham
Sarah Waldeck
Jaya Ramji-Nogales
Solangel Maldonado
Gerard Magliocca

Guests

Derek Bambauer
Gabriella Coleman
andré douglas pond cummings
David Gray
Brishen Rogers
Joseph Turow
Elizabeth A. Wilson













Previous Guests

Michael Abramowicz
Michelle Adams
Robert Ahdieh
Marvin Ammori
Michelle Anderson
Laura Appleman
Taunya Lovell Banks
Ann Bartow
Steven Bellovin
Adam Benforado
Gaia Bernstein
Francesca Bignami
Josh Blackman
Joseph Blocher
Jeremy Blumenthal
Kathleen Boozang
Bruce Boyden
Donald Braman
Al Brophy
Neil H. Buchanan
Bill Burke-White
Scott Burris
Paul Butler
Ryan Calo
Naomi Cahn
Anupam Chander
Miriam Cherry
Jack Chin
Glenn Cohen
Jennifer Collins
Caroline Mala Corbin
Thomas Crocker
Allison Danner
Brannon Denning
Deven Desai
Mike Dimino
Mark Edwards
Maxine Eichner
Jessica Erickson
David Fagundes
Lisa Fairfax
Joshua Fairfield
Christine Haight Farley
Kim Ferzan
Dan Filler
Mary Anne Franks
Michael Froomkin
Amanda Frost
Brian Frye
Timothy Glynn
Rachel Godsil
Eric Goldman
Kyle Graham
David Gray
Craig Green
Tristin Green
Jonathan Hafetz
Meredith Harbach
Michelle Harner
Jeffrey Harrison
Hosea Harvey
Erica Hashimoto
Jennifer Hendricks
Carissa Hessick
Laura Heymann
Robert Hillman
Gilbert A. Holmes
Nicole Huberfeld
Christine Hurt
Darian Ibrahim
Sherrilyn Ifill
John Ip
Shavar Jeffries
Kevin Johnson
Kristin Johnson
Jeff Jonas
Courtney Joslin
Dan Kahan
Jeffrey Kahn
Brian Kalt
Sam Kamin
Michael Kang
Chimène Keitner
Alicia Kelly
Orin Kerr
Nancy Kim
Heidi Kitrosser
Adam Kolber
Russell Korobkin
Alex Kreit
Anita S. Krishnakumar
Susan Kuo
Greg Lastowka
Sarah Lawsky
Youngjae Lee
Margaret Lewis
Erik Lillquist
Jeff Lipshaw
Jonathan Lipson
Jacqueline Lipton
Matthew Lister
Joseph Liu
Michael Madison
Kevin Noble Maillard
Solangel Maldonado
Jason Mazzone
Linda McClain
William McGeveran
Salil Mehra
Carrie Menkel-Meadow
Max Minzner
Viva Moffat
Scott Moss
Eric Muller
Jaya Ramji-Nogales
Helen Norton
Elizabeth Nowicki
Paul Ohm
Angela Onwuachi-Willing
Michael O'Shea
David Opderback
Kristen Osenga
Rafael Pardo
Marcy Peek
Eduardo Peñalver
Robert Percival
Michael J. Pitts
Marc Poirier
David Post
Amanda Pustilnik
Shruti Rana
Geoffrey Rapp
Neil Richards
Lori Ringhand
Alice Ristroph
Marc Roark
Sasha Romanosky
Tuan Samahon
Susan Scafidi
David Schraub
Paul Secunda
Jonathan Siegel
Jessica Silbey
Peter Smith
Judd Sneirson
Adam Steinman
Charles Sullivan
Rick Swedloff
Olivier Sylvain
Steph Tai
Andrew Taslitz
Robert Tsai
Jenia Turner
Steve Vladeck
Ari Waldman
Spencer Weber Waller
Howard Wasserman
Melissa Waters
Frank Wu
Alfred Yen
Corey Yung
David Zaring
Timothy Zick
Michael Zimmer
Jonathan Zittrain

Ownership

Concurring Opinions is a
general-interest legal blog
operated by Concurring
Opinions LLC, a Pennsylvania
Limited Liability Corporation.

Blogroll

Above the Law
Access to Justice
ACS Blog
Althouse
Balkinization
Becker-Posner Blog
BlackProf
BoingBoing
Chicago Law Faculty Blog
Conglomerate
CrimLaw
Crime & Federalism
CrimProf Blog
Crooked Timber
Derechoalderecho
Discourse.net
Dorf on Law
Election Law
Emergent Chaos
The Faculty Lounge
Feminist Law Profs
43(B)log
Freakonomics Blog
Freedom to Tinker
Google Blogoscoped
How Appealing
Ideoblog
Info/Law
Instapundit.com
Juris Novus
Jurisdynamics
Just Books
Law and Humanities Blog
Law and Letters
Law Librarian Blog
Legal Profession Blog
Legal Theory Blog
Legal Times Blog
Leiter Reports
Brian Leiter's Law School Reports
Lessig Blog
Madisonian Theory
Media Law Blog
Mirror of Justice
The Moderate Voice
National Security Advisors
Opinio Juris
Point of Law
PrawfsBlawg
ProfessorBainbridge.com
Property Prof Blog
Red Tape Chronicles
The Right Coast
Schneier on Security
SCOTUSBlog
Security Dilemmas
Sentencing Law and Policy
Simple Justice
Sivacracy.net
The Situationist
Susan Crawford
TalkLeft
Talking Points Memo
TaxProf Blog
TeachPrivacy Blog
Tech & Marketing Law
Truth on the Market
Volokh Conspiracy
WorkPlace Prof Blog
WSJ Law Blog
Wonkette
The Yin Blog


© Concurring Opinions

Powered by WordPress