Jobs' Privacy vs. Investors' Right to Know

Jan. 16, 2009 — -- In an effort to calm Wall Street jitters, Apple CEO Steve Jobs last week announced his recent gaunt appearance was simply the result of a "hormone imbalance" that had caused his dramatic weight loss -- but a week later, his letter to Apple employees disclosed he had "a more complex" medical condition and would take a leave of absence until the end of June.

With Jobs so closely associated with Apple's creative vision and few other details forthcoming, the news clearly has unnerved investors. Apple stock fell seven points on the announcement of Jobs' medical leave of absence.

"The fear of the unknown has been escalated," said Gene Munster, an investment analyst with Piper Jaffray & Co. "The bottom line is that people thought that he was on a faster track to recovery and now it seems uncertain."

Because of it's impact, the mystery surrounding Jobs' condition may raise a broader question: How much does the public have a right to know about leaders of publicly traded companies -- especially one as closely associated in the public mind as Jobs is with Apple?

After all, besides being CEO of Apple, Jobs is widely seen a primary creative force behind the company. His product presentations are legendary and have helped make hits out of such consumer electronics as the iMac desktop computer, the iPod digital music player and the iPhone.

Financial lawyers say the information investors are entitled to versus the information they may want to hear are two different things.

The Securities and Exchange Commission doesn't have an established rule regarding a company's disclosure about a CEO's illness.

However, according to Gary Stern, a writer for Investors Business Daily, "There are several securities laws that stipulate a company must make material information available to the public that influences an investor's knowledge of a company."

Stern said that includes "any major changes to its highest officers or board of directors that could affect the company's revenue."

Until this week, Apple has been reluctant to discuss Jobs' health, saying it's his personal business.

Ethicist: 'He Gives Up Some of His Rights to Privacy'

Tim Bajarin, the chief analyst of Creative Strategies, acknowledged Jobs is a very private person. But the computer industry consultant added that Jobs is such an important person to the company "that you can't separate the private life from the public life."

Kirk Hanson, an ethicist at Santa Clara University, said Jobs is a unique CEO.

"His health affects the interest of so many other people," Hanson said, "that he gives up some of his right to privacy."

Munster believes Apple could have handled the whole situation differently and prevented some of the anxiety on Wall Street.

"If they would have said something earlier ... I think that people would have been more comfortable," Munster said. "The fact [that] they changed the story a little bit, or there's new information that came out, or call it what you want, has created this feeling of just uncertainty on what information investors are getting."

Hanson said because Wall Street will be keeping a close eye on Apple, he would recommend the company's board "over-communicates" about Jobs' condition.

"Given the suspicion that now looms over Apple and its board," Hanson said, "they need to communicate any and every relevant development in Steve Jobs' health over the next six months."

Just how forthcoming Apple will be regarding Jobs' health remains a question mark.

In a written statement, Apple's board assured shareholders: "If there ever comes a day when Steve wants to retire or for other reasons cannot continue to fulfill his duties as Apple's CEO, you will know it."

Other Companies' Executives

A look at the way other companies have handled CEOs and their serious illnesses shows there is no one set formula. Each situation is decided on a case-by-case basis with the board of directors striving to strike a balance between the executive's right to privacy and the shareholders' right to know so they can make sound investment decisions.

The board of Frontier Communications chose not to tell the public when its CEO, Ron Bittner, was diagnosed with fatal brain cancer. Instead, it hired another strong executive that company officials began to groom for the number one position.

Jobs, Bartz Had Past Cases

Another case involves a second Silicon Valley CEO making big news this week. In 1992, soon after this week's newly-named Yahoo! CEO Carol Bartz stepped into an executive role at another company, Autodesk, she was diagnosed with breast cancer. The news was made public, and she continued to work through numerous months of chemotherapy treatment.

Jobs also made his health problems public in an earlier case -- when he was diagnosed with pancreatic cancer in 2004 and temporarily stepped down to deal with the illness.

In contrast, this time the details of Jobs' illness are sketchy. Rumors that Jobs was sick had been circulating ever since a public appearance last year in which the Apple CEO appeared gaunt. Those concerns reignited after he skipped the Macworld trade show earlier this month.

Insider: 'The Company's Going to Be Fine'

Apple has turned to Chief Operating Officer Tim Cook to fill in for Jobs while he is on medical leave. Cook served in the same role when Jobs was diagnosed with cancer in 2004 and temporarily stepped down.

Industry analysts believe, in the short term, Apple will continue to thrive.

Bajarin said Cook is someone who "understands the way Steve thinks."

A former Apple insider agreed the company is built to withstand Jobs' brief absence.

"The company will miss a very, very cool guy," said William Harding Bull, who retired from Apple after 21 years. "The culture [Jobs] ingrained is there -- it's solid and it's not going to disappear. I guarantee you: The company's going to be fine."