Steve Jobs, Apple and Fair Disclosure

How much inform­a­tion should com­pan­ies be expec­ted to make pub­lic on issues like — say — their CEO’s health? Indi­vidual exchanges have their own rules about disclosure.

For example, the NASDAQ says its com­pan­ies: “shall make prompt dis­clos­ure to the pub­lic through any Reg­u­la­tion FD com­pli­ant method (or com­bin­a­tion of meth­ods) of dis­clos­ure of any mater­ial inform­a­tion that would reas­on­ably be expec­ted to affect the value of its secur­it­ies or influ­ence investors’ decisions.”

Reg­u­la­tion FD is Reg­u­la­tion Fair Dis­clos­ure, a meas­ure the US Secur­it­ies and Exchange Com­mis­sion (SEC) intro­duced at the turn of the century.

Of course, the ques­tion is hardly aca­demic. The NASDAQ is where Apple is lis­ted, and today the com­pany is under invest­ig­a­tion by the SEC for its con­duct regard­ing dis­clos­ure over the health of Steve Jobs.

Reg FD wasn’t intro­duced to keep us updated on the well­being of busi­ness lead­ers. It came onto the books because of con­erns over insider trad­ing and the increase in online trad­ing by small investors. At its heart is release of “mater­ial non­pub­lic inform­a­tion.” Check out the definition:

Inform­a­tion is mater­ial if “there is a sub­stan­tial like­li­hood that a reas­on­able share­holder would con­sider it import­ant” in mak­ing an invest­ment decision. To ful­fill the mater­i­al­ity require­ment, there must be a sub­stan­tial like­li­hood that a fact “would have been viewed by the reas­on­able investor as hav­ing sig­ni­fic­antly altered the ‘total mix’ of inform­a­tion made avail­able.” Inform­a­tion is non­pub­lic if it has not been dis­sem­in­ated in a man­ner mak­ing it avail­able to investors generally.

In recent years both McDon­alds and Clear Chan­nel made pub­lic announce­ments about the health of senior execs. Back in 2004 (San Jose Mer­cury News, June 1, 2004) a former head of the SEC’s cor­por­a­tion fin­ance divi­sion, was quoted on the type of CEO whose health might have a mater­ial effect on their company:

Brian Lane, who ran the SEC’s divi­sion of cor­por­a­tion fin­ance, thinks only a hand­ful of exec­ut­ives — people like Microsoft’s Bill Gates and Apple Computer’s Steve Jobs — would merit a full-blown pub­lic rela­tions effort in the event of a severe illness.

Now let Jeff Mat­thews take up the story:

In Octo­ber 2003, Apple Founder and CEO Steve Jobs is dia­gnosed with pan­cre­atic cancer—normally a swift death sen­tence. For­tu­nately, how­ever, Jobs has a less-bad form … which Jobs attempts to treat without surgery.

…Apple’s Board of Dir­ect­ors keeps mum on the fact that Steve Jobs has any­thing at all.

In July 2004, Jobs under­goes a very intense sur­gical pro­ced­ure on his pan­creas. In a sub­sequent email to the Apple com­munity he says he is “cured.”

Now, the five-year sur­vival rate for the type of pan­cre­atic can­cer Jobs appar­ently had is just 42%, which seems great com­pared to 4% for the bad kind—but is still less than 50–50. The 10 year sur­vival rate is 22%, accord­ing to the National Can­cer Insti­tute. Hardly a “cure.”

And while any­body could look that stuff up, few appar­ently do: Wall Street doesn’t blink, and neither does most of the press. Steve had a “good” kind of pan­cre­atic can­cer, the story goes, and he’s cured. End of story.

So is the prob­lem that Apple was delib­er­ately silent or that Wall Street was incap­able of facing up to real­ity? Mat­thews’ argu­ment makes me think it’s the latter.

Tagged as: Apple Computer, Apple Inc., Bill Gates, Brian Lane, Clear Channel, Clear Channel Communications, corporation finance, corporation finance division, Inc., Jeff Matthews, Microsoft, Microsoft Corporation, National Cancer Institute, online trading, pancreatic cancer, public relations effort, San Jose Mercury News, Steve Jobs, surgery, US Securities and Exchange Commission, Wall Street