Steven Jobs and His Health Issues: Overview (Part 1)

It may be one of the most common law school exam questions ever written.  Rule 10b-5 prohibits securities fraud.  One of the elements of the cause of action is materiality.  Moreover, in non-disclosure cases, the issue is often whether a company had a duty to disclose.  It is a common enough question, then, to ask whether a fatal illness for a CEO is material and whether, under some circumstances, the company has a duty to reveal the fatal illness. 

The situation with Steve Jobs, the CEO at Apple, has taken the matter out of the academic and into the realm of reality.  A little over a week ago, Jobs released a letter describing his health, apparently responding to rumors arising at least in part from his apparent weight loss.  Back in 2004, Jobs suffered from pancreatic cancer.  According to the letter:

• As many of you know, I have been losing weight throughout 2008. The reason has been a mystery to me and my doctors. A few weeks ago, I decided that getting to the root cause of this and reversing it needed to become my #1 priority.

• Fortunately, after further testing, my doctors think they have found the cause — a hormone imbalance that has been “robbing” me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis.

• The remedy for this nutritional problem is relatively simple and straightforward, and I’ve already begun treatment. But, just like I didn’t lose this much weight and body mass in a week or a month, my doctors expect it will take me until late this Spring to regain it. I will continue as Apple’s CEO during my recovery.

• I have given more than my all to Apple for the past 11 years now. I will be the first one to step up and tell our Board of Directors if I can no longer continue to fulfill my duties as Apple’s CEO. I hope the Apple community will support me in my recovery and know that I will always put what is best for Apple first.

The letter indicated that his doctors "think" they found the cause and that it was a "hormone imbalance."  The diagnosis of hormone imbalance was criticized by some as vague and relatively uninformative.  The letter suggested the cure was "straightforward" but clearly left open the possibility that Jobs would step down if unable to fulfill his duties as CEO.

On Wednesday, a little over a week later, Jobs issued a second letter, this one to employees, indicating that his health issues were more "complex" than what had been previously reported and that he would be taking a medical leave of absence.  According to the letter:

• I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.

• In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.

• I have asked Tim Cook to be responsible for Apple's day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board of directors fully supports this plan.

The text is obviously vague and says very little about any new information or the actual health of Jobs.  It does suggest that the problem is sufficiently under control that he will return in June.

We ask two questions.  First, does this disclosure raise issues under the Federal securities laws?  Second, does the disclosure raise corporate governance concerns?  We deal with each in subsequent posts.