The Fallacy Of Full-Disclosure

Should key executives from publicly traded companies have to disclose serious illnesses and risky treatment alternatives?

This is one of the questions posed by CNN Money writer Peter Elkind in a recent expose piece on Apple founder and CEO, Steve Jobs.

From ‘The Trouble With Steve Jobs’:
“A Buddhist and vegetarian, the Apple CEO was skeptical of mainstream medicine. Jobs decided to employ alternative methods to treat his pancreatic cancer, hoping to avoid the operation through a special diet – a course of action that hasn’t been disclosed until now.

For nine months Jobs pursued this approach, as Apple’s board of directors and executive team secretly agonized over the situation – and whether the company needed to disclose anything about its CEO’s health to investors.

News of his illness, especially with an uncertain outcome, would surely send the company’s stock reeling. The board decided to say nothing, after seeking advice on its obligations from two outside lawyers, who agreed it could remain silent.”

So what should a top executive from a publicly traded company legally have to disclose? What ‘risky’ personal decisions should be restricted by a company’s board?

The rules from the SEC are foggy at best. Aside from revealing “material” information that affects a company’s growth, profits or operations, and structuring decisions that rival the best interests of shareholders, there isn’t much a company legally needs to provide investors.

How ridiculous is this???

I’m all about employee rights when it comes to personal choice, but it seems a wee bit strange that a top officer can make questionable decisions about their health while fundamentally risking the future success of the company they are running. Heck, professional athletes can’t so much as play tennis or ride a motorcycle during the playing season – so why can key employees at publicly traded companies “roll the dice” with their lives and not have to mention it as material information?

As we move into an era of increasing hesitance from the investing community, the folks at the SEC should give their heads a shake and develop policies that protect shareholders who incur huge financial risk betting on the leadership of publicly traded companies.

Photo courtesy of aligned strategy.

  • Texas Banker

    Just to be clear: “A” top officer can’t be a “they.” “A” top officer can be a “he” or a “she”, but not a “they”. Now, “officers” are “theys”. Similarly, for “a” top officer, it can’t be “their” health. The English language allows us to be wonderfully precise and to avoid incorrect references. Your article is a good one, but poor use of grammar detracts.

  • Nonplussed

    “So what should a top executive from a publicly traded company legally have to disclose?”

    Well, about as much as you disclose about personal cleanliness, how well you can ride a bicycle on a public highway, whether you had a sexually transmitted disease when you were younger, your IQ, how often you attend church and your ability to discern the difference between personal rights versus mawkish and exploitative sensationalism. All of these fall this side of the line governing personal rights of disclosure, whereas your question falls squarely the other side.
    One might also add that the sum total of human achievement has been reached by humanity striving against insurmountable odds and adversity, both general and personal. The level playing field you seek is only achievable by de-franchising those in society not blessed with wealth, opportunities and perfect health.
    The term for this is fascism.
    On this Easter Sunday, you should consider this;-
    ‘Let he who is without sin, cast the first stone…’

  • Am

    “I’m all about employee rights when it comes to personal choice”
    No you’re not – you are more interested in worrying about if you made your two cents on a trade on AAPL stock.


  • Adam,

    This is a classic ‘slippery slope’ problem. Once you start saying companies need to disclose non-business-performance, non-regulatory requirement information, where do you draw the line?


  • Adam

    It is a slippery slope indeed and a challenging set of rules to manage for the SEC. Nonetheless, in my opinion it is quite duplicitous to think that the possible death of a top officer of a publicly traded company is not material.

    What would impact the future long-term growth potential of a publicly traded company more: a quarter of missed revenue targets or the news that a CEO risked their life with un-tested treatment techniques? As an investor, I would argue the later.


  • Rob

    This is a tough issue. To carry out Mike’s point about slippery slopes, you could argue that drug use, sexual affairs, driving too fast, and other things need to be disclosed.

    My personal belief, which is entirely unsupported by anything other than personal experience, is that a good boss is building a company that will run without him/her, which makes this less of an issue. Although, in the era of the Ego-Driven CEO, I doubt many bosses are trying to build a company that makes their job unimportant.