REPRINT: From the August 2008 issue of Flawless Compliance(tm). I felt it appropriate, based on the news Steve Jobs is making today. Hope you enjoy (again)!
One Bad Apple
Do Apple Shareholders Deserve to See Steve Jobs' Medical Records?
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Steve Jobs doesn't feel well, as he has a "common bug." Picture Source |
Is the health of a company tied to the health of its leaders?
I believe so.
The New York Times ran an article in late July on Steve Jobs exploring this issue. You have to admit, he didn’t look all that well when they unveiled the new 3g iPhone. Interestingly enough, at a conference call after Apple released earnings, somebody asked about his health. The response from a company executive was, “it’s a private matter.”
Of course the obfuscation surrounding the “none of your business “ response never puts a lot of faith in the mind of the questioner, or anybody else listening. This consequently caused some speculation on the correlation between Jobs’ health and the sudden drop in Apple’s share price following the conference call. Unable to dispute the evidence that Jobs didn’t look too well, Apple further clarified that it was a “common bug.”
I think, as usual, they’re playing spin games.
Apple has a bad track record of disclosure around this issue. About four years ago Jobs had a rare form of pancreatic cancer, and it took nine months for Apple to disclose this to the public. Now they’re saying, “Oh yeah, the cancer thing. No, don’t worry about that, he just has a little cold or something.” How do we know that for sure? And if something serious does happen to Jobs, how will that affect the shareholders?
This brings up both an ethical and compliance issue. The compliance issue is somewhat objective, so we’ll start there. Does Apple have a duty to disclose Jobs’ health condition? According to TheCorporateCounsel.net,
“Under the SEC's rules, companies typically don't have an affirmative duty to disclose unless a Form 8-K is triggered or a periodic report (eg. 10-Q or 10-K) is due (I say "typically" because there are other 'disclose or abstain' circumstances to consider).
On the other hand, the company may have a duty to update if they have an outstanding statement that the CEO's health is sound. Given that an Apple spokesperson said Jobs' gaunt appearance at a recent event was due to a "common bug," there is an argument that the company had a duty to update (or was misleading to begin with).
Okay, but ethically what should be the call here? In my opinion, it fails the “smell test.” It just smells like something is sour in this situation. I have a real problem with the lack of transparency, with answers like “it’s a private matter.”
Under normal circumstances, I would say the health of a company executive ( or anybody for that matter ) is nobody’s business. However, the litmus test I apply is this. If he were to magically disappear tomorrow, never to return, would Apple be able to maintain its current valuation?
Well, aside from what all the spin doctors at Apple say, I just don’t think so. Steve Jobs is the genius behind Apple. His ideas, brought to life, is what originally made Apple, and what has recently saved Apple’s bacon ( alright, now I’m starting to get hungry ). My feeling is this. If the removal of Jobs ( in any way shape or form ) causes the company to lose any amount of value, then the shareholders have a right to know about any indicators that could cause this event to happen.
But that’s a pretty dramatic assertion, right? It’s pretty invasive to be required to disclose the condition of your health, so we wouldn’t want to put these demands on Jobs in such capricious manner. What’s the appropriate way to approach this?
This is what I would advise the board to do.
The most prudent first step is to establish causation. You have to know within a high degree of certainty that if Jobs leaves, Apple will not be able to operate as well. You can do this with what’s called a Design of Experiments. This is a statistical study that can affirm the causation between inputs ( Steve Jobs ) and outputs ( company performance ).
Once causation is established, the ethical responsibility is clear, and you should fully disclose any health issues. At the same time, I would strongly advise an immediate effort to control this risk. Having one person responsible for the health of a company the size of Apple is irresponsible. The preventive control would be to do anything possible to keep Jobs alive, and the contingent control would be to organize an effective executive team that can operate even in Jobs’ absence.I would do both. The operative word here is effective. Apple has already made statements to the effect that there’s a succession plan in place, but I wonder how effective that will actually be in the event of Jobs’ untimely exit from the company. To establish effectiveness, you can leverage the control plan that was created during the Design of Experiments project.
I really don’t think Apple will go down this road, unless they give me a call. Nonetheless, let’s hope Apple’s board does the right thing. In the meantime, if you’re an Apple shareholder, I’d be careful the next time Jobs gets a “bug.”
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