Today comes the unhappy news that Apple CEO Steve Jobs is once again taking a medical leave of absence.
Apple is not a company known for openness when it comes to just about anything: products, problems, how it approves apps for the iPhone – you name it. And it seems that, once again, Apple is searching for the right balance between its CEO’s personal privacy and proper disclosure from a publicly traded company.
It’s not an easy task. For several years, I was the investor relations officer at a public company and there were a couple of occasions when a difficult decision had to be made about:
A): Whether or not to disclose
B): How much to say
C:) How and when to get the word out.
Here’s how we worked the problem:
A:) Whether or not to disclose: This one should be relatively easy. The test should be that if the news is something that an investor would likely want to know before buying or selling the company’s securities, there is a duty to disclose. Of course, there is a huge gray area here, but a test for reasonableness should be applied. In other words, most reasonable people probably don’t need to know that the CEO had knee surgery, since it is unlikely that the knee surgery will affect his or her ability to do the job over the long term. If, however, the surgery goes horribly wrong and the CEO will need four months to recover, that is probably a disclosable event.
Another way of applying this test is: If the discussion to disclose lasts more than five minutes, then you probably should say something.
Clearly, Apple had a duty to disclose.
B:) How much to say: This gets a bit more complicated. It depends on the issue. In the specific example of Apple, if I knew something to be an absolute incontrovertible fact, then I would advise the company to disclose as much as necessary as it relates to his role at the company. So, by this test, we know that Mr. Jobs is sick and that he will be out for an indeterminate amount of time. It does not matter if he is sick, or bored or going on walkabout in the Australian outback for some unknown period. All that matters is that he won’t be around to run the company.
If at some point in the future (say, a month from now) he returns to health (something I think we all hope for Mr. Jobs), then Apple makes an announcement that he’s back on the job and we move on. If, however, a month from now Apple becomes aware that Mr. Jobs will never return to being an active CEO, then I believe there is a duty to disclose that immediately. I don’t think we have a right to know what is specifically is wrong. We (shareholders) only have a right to know how his absence affects his role at the company we own.
Bottom line: There is a duty to update material information as it becomes available.
C:) How and when to get the word out: This is also a gray area, though Apple handled it pretty well by doing it on a Monday when the markets were closed for Martin Luther King day. This gives analysts a chance to analyze and a full 24 hours before trading in the stock resumes. In our second-by-second, “shoot first, ask questions later” news environment, this is a pause that refreshes. Of course, there is no way of knowing when the decision was made for Mr. Jobs to take this leave. After all, he was not at the Verizon-iPhone launch event last week. But, tactically, today was a good day to announce it.
It may sound crass or unfeeling to be discussing a human being’s health in such a cold, business-like manner, but this is the bed that Apple has made for itself.
Steve Jobs has created a cult legend around himself as the final arbiter of all products, down to the last detail. If Steve doesn’t like the way a button clicks on the iPhone, it doesn’t get released. But that also means that people believe, rightly or wrongly, that all of Apple’s fabulously successful products begin and end with Steve Jobs. “Without Steve, what is there?”, people legitimately ask.
Also, as mentioned, Apple is super-secretive. If you don’t tell people what is going on, then rumor, whispers and speculation will fill in for the truth. That may or may not help Apple executives and their PR staff, but it is almost never good for investors.
As a long-time friend and very successful (now retired) professional investor once told me:
“Wall Street loves good news and can handle bad news, but it hates NO news.”
Tomorrow’s trading in Apple stock will be interesting, but not necessarily fun for all. But, then again, proper disclosure is not always about fun, games and cool gadgets.