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CEO Health Disclosure at Apple: A Public or Private Matter?

CEO Health Disclosure at Apple: A Public or Private Matter?

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Published by Brian Tayan

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Published by: Brian Tayan on May 10, 2011
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Topic, Ie, ad Cotoeie i Copoate Goeace ad Leadehip
STANFORD CLOSER LOOK SERIES
stanord closer look series 1
CEO Health Dicloe at Apple:A Plic o Piate Matte?
IntroductIon
In recent years, much attention has been paid toCEO succession planning as a risk management is-sue. Te SEC has encouraged companies to discloseinormation on their succession plans so that share-holders can assess whether the company might be“adversely aected due to vacancy in leadership.”
1
  While many applaud this move, the questions now are what inormation to include in this disclosureand how extensive should it be.
2
Tis is particularly true when it comes to com-panies whose CEOs are experiencing health issues.Shareholders will value detailed disclosure on thehealth o the CEO because it helps them to makea reasoned assessment o whether or when a transi-tion might occur. Tis inormation will almost cer-tainly be relevant to the market price o the stock. At the same time, health inormation is a personalmatter. Te CEO may not wish to disclose the de-tails o his or her condition to the public.Te sensitivity o this issue is exemplied at Ap-ple Inc., where CEO Steve Jobs has aced numerousquestions regarding his health and the impact that a sudden departure would have on the company.
Steve JobS (Apple)
In October 2003, Steve Jobs was diagnosed withpancreatic cancer. No public announcement wasmade, although the board o directors was notiedo his condition. Te specic orm o cancer wasrare but considered treatable, with the majority o patients who undergo surgery experiencing a sur-vival rate o more than ten years. On July 31, 2004, Jobs entered Stanord Hospital or treatment.
3
 Te ollowing day, Jobs sent an email to Appleemployees stating that, “Tis weekend I underwent
By dv . l  B tyJuy 24, 2011
a successul surgery to remove a cancerous tumorrom my pancreas….I will be recuperating during the month o August, and expect to return to work in September. While I’m out, I’ve asked im Cook [executive vice president o sales and operations] tobe responsible or Apple’s day to day operations, so we shouldnt miss a beat.”
4
A copy o the message was distributed to the Associated Press (see Exhibit1). It was the rst public disclosure o his condi-tion. Given Jobs’ strategic and visionary role at Ap-ple, it is perhaps not surprising that when trading resumed the next day, Apple stock ell 2.4 percent.
5
Te issue o Jobs’ health resuraced in June2008, when he appeared noticeably thin at a publicappearance. A company spokeswoman respondedto inquires by stating that Jobs had “a commonbug. […] He’s been on antibiotics and getting bet-ter day by day and didn’t want to miss [the event].Tat’s all there is to it.”
6
When analysts asked ormore inormation during an earnings conerencecall, Apple CFO Peter Oppenheimer declined toelaborate: “Steve loves Apple. He serves as the CEOat the pleasure o Apple’s board and has no plans toleave Apple. Steve’s health is a private matter.”
7
In January 2009, Apple released another letterrom Jobs in which he explained that his recent weight loss was due to a “hormone imbalance. According to the letter, “Te remedy or this nu-tritional problem is relatively simple and straight-orward, and I’ve already begun treatment. […] I will continue as Apples CEO during my recovery.”
8
 Concurrently, the board o directors issued a state-ment that, “[Jobs] deserves our complete and un- wavering support during his recuperation. He mostcertainly has that rom Apple and its Board.
9
en days later, however, the company 
 
stanord closer look series 2
CEO HEaltH DisClOsurE at applE: a publiC Or privatE MattEr?
announced that Jobs would take another leave o absence. According to Jobs, “during the past week Ihave learned that my health-related issues are morecomplex than I originally thought. In order to takemysel out o the limelight and ocus on my health[…] I have decided to take a medical leave o ab-sence until the end o June.”
10
No elaboration wasoered. im Cook, then chie operating ofcer, re-sumed leadership o the company. In the two-week period surrounding these announcements, Applestock ell 17 percent.Jobs returned to work as scheduled six monthslater. wo weeks prior to his return, however, newsleaked that Jobs had received a liver transplant at a ennessee hospital the previous April. A company spokeswoman declined to comment other than tosay, “Steve continues to look orward to returning at the end o June, and there’s nothing urther tosay.”
11
Doctors unafliated with the case explainedthat tumors associated with the pancreatic cancerthat Jobs was originally diagnosed with oten me-tastasize in another organ, commonly the liver. Tehospital where Jobs received the transplant statedthat his prognosis was “excellent.”
12
In January 2011, Jobs took a third leave o ab-sence. In an email to employees, he explained thathe would “continue as CEO and be involved in ma- jor strategic decisions” but that im Cook would beresponsible or “day to day operations.” Jobs wouldbe back with the company “as soon as I can. In themeantime, my amily and I would deeply appreci-ate respect or our privacy.”
13
When asked or ad-ditional comment, an Apple spokeswoman replied,“We’ve said all we’re going to say.”
14
publIc reActIon
Experts disagree on the appropriateness o Apple’sdisclosure o Steve Jobs’ health. Warren Buett,CEO o Berkshire Hathaway who himsel under- went colon surgery in 2000, believed that Steve Jobs’ health was a disclosable item: “I I have any serious illness, or something coming up o an im-portant nature such as an operation or anything like that, I think the thing to do is just tell Berk-shire shareholders about it. I work or them. Somepeople might think I’m important to the company.Certainly Steve Jobs is important to Apple. So it’sa material act. […] Shareholders are going to ndout about it anyway so I don’t see a big privacy is-sue.”
15
  Jerome York, ormer director o Apple, told the
Wall Street Journal 
that the company’s concealmento Jobs’ health “disgusted” him and that he wishedhe had resigned over the matter.
16
 Charles Elson, director o the Center or Cor-porate Governance at the University o Delaware,believed that the company’s use o public capitalrequired ull disclosure: “Te public should know basically what the board knows. ransparency inthis situation is very important. When you go pub-lic and take public capital, one thing you agree to isyou have less o an expectation o privacy than you would otherwise have.”
17
Others, however, disagreed. Robert Crandall,ormer CEO o American Airlines, believed thatthe company had no obligation to disclose morethan it already had: “I think the act o the matteris that the precise nature o Steve Jobs’ illness is a matter or Steve and his amily.”
18
Arthur Levitt, ormer SEC commissioner,thought it was “insensitive” to seek additional in-ormation beyond what the company had provid-ed: “Jobs going on medical leave sends a messageto the market. An intelligent investor should know the risks o Jobs having a relapse. For the board toopine on what the extent o the illness is right now I don’t think is really necessary.”
19
Te law was also on the side o the company.External counsel advised Apple’s board that person-al privacy trumped disclosure obligations so long as Jobs was able to continue to perorm his duties.
20
 Te SEC opened inquiries into the matter in 2006and 2009, both o which were closed without ac-tion.
21
Why thIS MAtterS
1. Te issue o what inormation a company shoulddisclose regarding the CEO’s heath continues tobe a controversial subject. Companies have han-dled this issue dierently (see Exhibit 2). How extensive should this disclosure be? How shouldthe board o directors weigh its obligations toshareholders against the protection o personalprivacy?
 
stanord closer look series 3
CEO HEaltH DisClOsurE at applE: a publiC Or privatE MattEr?
2. Te nature o Steve Jobs’ condition is extremein its nature. Should the board disclose other,less sensitive inormation regarding CEO be-havior that might be material to the stock price?For example, what i the CEO is involved in a contentious divorce that distracts rom day-to-day management o the company? What i heor she exhibits unusually high stress levels thatmay precipitate an early resignation?
22
What i the CEO engages in hobbies (such as skydiving or private aviation) that carry above-average risk?Do shareholders have the right to know this in-ormation? Where should the board o directors“draw the line?”
1
SEC Sta Legal Bulletin 14E (CF), “Shareholder Proposals.” Oct.27, 2009. Available at:http://www.sec.gov/interps/legal/c-slb14e.htm.
2
For more on succession planning, see: David F. Larcker and Brianayan, “CEO Succession Planning: Who’s Behind Door NumberOne?” Closer Look Series, CGRP-05, Jun. 24, 2010; and Heidrick & Struggles and the Rock Center or Corporate Governance at Stan-ord University, “2010 Survey on CEO Succession Planning, Jun.2010. Available at:http://www.gsb.stanord.edu/cldr/.
3
According to
Fortune 
, Jobs was reluctant to have surgery and at rstchose to pursue alternative treatments. When this approach provedunsuccessul, Jobs elected to have surgery. Source: Doris Burke, “Terouble with Steve,”
Fortune 
, Mar. 17, 2008.
4
“ext o Message rom Steve Jobs,”
Te Associated Press 
, Aug. 2,2004.
5
Stock price inormation rom: Center or Research in SecuritiesPrices (University o Chicago).
6
Steven Russolillo, “Apple Says Bug Caused CEO’s Frail Appearance;Concerns Remain,” Dow Jones Newswire, Jun. 10, 2008.
7
 Apple Inc., “Q3 2008 Apple Inc. Earnings Conerence Call,” VoxantFD Wire, Jul. 21, 2008.
8
 Apple, Press Release, “Letter rom Apple CEO Steve Jobs, Jan. 5, 2009, Available at:http://www.apple.com/pr/library/2009/01/05sjletter.html.
9
 Apple, Press Release, “Statement by Apple’s Board o Direc-tors,” Jan. 5, 2009. Available at:http://www.apple.com/pr/library/2009/01/05bod.html.
10
 Apple, Press Release, Apple Media Advisory,” Jan. 14, 2009. Availableat:http://www.apple.com/pr/library/2009/01/14advisory.html.
11
 Yukari Iwatani Kane and Joann S. Lublin, “Jobs Had Liver rans-plant,”
Te Wall Street Journal 
, Jun. 20, 2009.
12
 Yukari Iwatani Kane, “Memphis Site O ransplant For Jobs Liver,
Te Wall Street Journal 
, Jun. 24, 2009
13
 Apple, Press Release, Apple Media Advisory,” Jan. 17, 2011. Availableat:http://www.apple.com/pr/library/2011/01/17advisory.html.
14
 Yukari Iwatani Kane and Joann S. Lublin, Apple Chie to akeLeave,”
Te Wall Street Journal 
, Jan. 18, 2011.
15
 Alex Crippen, “Warren Buett: Apple Withheld ‘Material Fact’ onSteve Jobs Health,”
CNBC 
, Jun. 24, 2009. Edited slightly or clarity.
16
 Yukari Iwatani Kane and Joann S. Lublin, “On Apple’s Board, FewerIndependent Voices,”
Te Wall Street Journal 
, March 25, 2010.
17
Interview with Charles Elson, “Cavuto,”
Fox News 
, Jan. 17, 2011.Edited slightly or clarity.
18
Interview with Robert Crandall, “Cavuto,”
Fox News 
, Jan. 17, 2011.
19
 Adam Satariano, Apple is Right on Jobs Disclosure, Former SECChair Levitt Says,”
Bloomberg 
, Jan. 20, 2011.
20
Doris Burke, “Te rouble with Steve,” loc. cit.
21
 Yukari Iwatani Kane and Joann S. Lublin, Apple Chie to akeLeave,” loc. cit.
22
Tis occurred at Pzer. See: Joann S. Lublin and Jonathan D. Rock-o, “CEO’s Stress Worried Pzer—Board Sought Lieutenant toShare Load, but Kindler Abruptly Decided to Retire,”
Te Wall Street  Journal 
, Dec. 7, 2010.
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