January 15, 2009
More on Steve Jobs and Disclosure
Posted by joanheminway

OK. So I now am forced (oh, twist my arm!) to comment on the disclosure of Steve Jobs’ health status. With Gordon (directly and through his January 6 posting) and Christine (through her posting earlier today) egging me on, I am back at the ‘glom’ for a cameo run.

Gordon and Christine provide a good preliminary analysis (with Gordon, of course, quoting heavily from me and Jayne Barnard, whose work informs mine). Under federal securities law, since there are no mandatory disclosure rules covering executive health concerns, the materiality standard under the gap-filling rules (Rule 408(a) under the 1933 Act and Rule 12b-20 under the 1934 Act) and the antifraud rules (especially Rule 10b-5 under the 1934 Act) is the workhorse on this issue. This assumes there is a duty to disclose, of course. Jayne Barnard (in a comment left earlier today to Gordon’s posting) insightfully notes that any document requiring disclosures under Item 303 of Regulation S-K may provide such a duty. I also note here that Apple Inc. appears to have at least a Form S-8 registration statement that is active at the moment, but practitioners would argue that a duty to disclose arises from that mere fact . . . .

At any rate, assuming the existence of a duty to disclose, both the general standard for materiality and the specialized probability/magnitude balancing under Basic v. Levinson, 485 U.S. 224, 232 (1988), for analyses of contingent or speculative information, may be applicable here. Is there a substantial likelihood that information about Jobs’ health is important to the reasonable investor in the market? Is there a substantial likelihood that disclosure of Steve Jobs’ health would be viewed by the reasonable investor as having significantly altered the total mix of information available to public investors? Finally, viewing information about Steve Jobs’ health as contingent or speculative information about his continued tenure as the CEO of Apple, does a balancing of the probability that he will not be able to continue to lead Apple against the magnitude of his departure from Apple (as an iconic founder/CEO) counsel disclosure? Yes, yes, and yes.

But what must be disclosed? What are the material facts here? Is the exact nature of his current health situation itself a material fact, or do we now have all the information that we need?  That’s hard for us public speculators to know, since we do not know all of the facts. We can hope that the board of directors of Apple does have all of the facts and is carefully and continuously assessing what it must and will disclose, but that is not a given. Truth be told, a balancing of privacy considerations against relatively weak officer fiduciary duties surrounding disclosure provide little basis for a legal duty on the part of Jobs to disclose everything to the board. Under the circumstances, I am sure that the conversations between Jobs and the board have been sensitive and nuanced. More than law is at stake here. I wish the board good luck in these difficult disclosure deliberations and Steve Jobs a speedy and full recovery.

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