Steve Jobs Health

The Steve Jobs Health Factor & the Law: Gauging Materiality

Aside from a bunch of bankruptcy news (here and here), the big corporate stunner of the day is the revelation that Apple CEO Steve Jobs — just a week after reassuring investors and employees about his health — has a “more complex” medical condition and will take a leave of absence until the end of June.

Apple CEO Steve Jobs, Oct. 14, 2008. (AP)The disclosure by Jobs, whom the Journal notes is key to Apple, sent the stock down $6 to $79.33 in after-hours trading. Charlie Wolf, a financial analyst with Needham, told the Journal that the “Steve Jobs health” factor could cause the stock to fall an additional 10% to 15%.


So what’s the legal issue? You guessed it: Materiality. Did the board have a duty to disclose the info to investors?


“The board must decide if the CEO’s health is considered material information, meaning that an investor would consider the information important in deciding whether to buy or sell the company’s securities,” said Pepper Hamilton’s Steven R. London in an e-mail. London heads the firm’s Shareholder Activism Team. “If the information is determined to be material, then the company must disclose the news to the public or require all of its insiders to refrain from trading in the company’s securities.”


London said the board must consider the “prominence of the key officer within the company and the extent of the illness. An illness that is likely to result in death or likely to incapacitate an individual who is a critical driving force in the company in the reasonably near future would be considered material. . . If Apple previously suggested that Steve Jobs was not seriously ill, and his condition changes, then Apple may have an affirmative obligation to disclose the deterioration in his health.”

Before Picture

After Picture

When reached by phone, London told us: “If you’re an investor, you might have relied on last week’s statement, which gave the perception that the health issue is not serious and therefore the risk of losing Jobs as CEO is not significant. Perhaps you made your investment decision of whether to buy, sell or hold based on that statement. Then, a week later, the company changes its tune. The recovery, if there is to be one, will take longer, you learn. Now the price of the stock is going down. And if you bought you’re probably angry. So you sue the company, based upon last week’s statement, which you’d argue was materially misleading and you traded on that.”
“The flip side,” added London, “is that the company has a defensible argument as to why each statement was made, and why the respective statements were truthful at the time. After all, medical science is not perfect or definitive.”


A call to Apple was not immediately returned.