BulletProofBlog the blog on crisis communications

An article in the current issue of Fortune Magazine poses a question that nobody has yet been able to definitively answer: Where should a company draw the line between a corporate leader's personal privacy and the corporation's duty to disclose material information to the shareholder?

In an environment where lawsuits filed by unhappy shareholders are becoming routine, this is hardly a theoretical question. When Apple CEO Steve Jobs was treated for pancreatic cancer five years ago, Apple' s board decided to stay mum about the illness until Jobs had already undergone surgery. In Apple' s view, the CEO' s life threatening illness was a personal matter. Some shareholders and corporate governance gurus grumbled, but Jobs recovered, the company prospered, and the incident eventually faded.

But now, Apple and its Board of Directors are again taking heat for failing to disclose what some believe to be material information about the CEO' s health. In the case of a CEO like Jobs, who so completely personifies the company he leads, a case could be made that any health issue, no matter how trivial, constitutes material information that must be disclosed to shareholders. On the other hand, the sharp drop in Apple' s share price when the latest round of health rumors started to circulate might suggest that the market has already accounted for Jobs' health issues, which we all hope are not as serious as some are reporting.

The rules governing what is "material" information in a situation like this are open to interpretation, and Jobs is an unusual case. But if you are a member of the Apple board, why take a chance? Why risk a fight with the SEC? Why risk expensive shareholder litigation, and perhaps even personal liability, over an avoidable technicality?

Refusing to reveal the facts just feeds the rumor mill and sends a message that things are perhaps more serious than anyone thought. If the situation is, in fact, serious, it would be wise for Apple to remember that it is always better to get whatever negative information you have to deal with out in the open as quickly as possible.

Allowing negative news to come out bit by bit only serves to extend the life of the story. And failing to fully disclose the true state of the CEO' s health could create even more damaging allegations that the company broke the rules by holding back material information that shareholders were entitled to know.