Amid all the chatter surrounding Apple CEO Steve Jobs’s ill health, one thing is clear to me: the Securities and Exchange Commission (SEC) is also unwell.
After striking out on Madoff and Stanford, the SEC’s unprecedented probe into whether Apple’s board of directors failed to disclose material information about Jobs’ health may be considered a form of playing catch up. But the commission’s priorities are wrong, and its inquiry is misguided. Considering that in the Madoff case the SEC failed to close in even after receiving tips for over 10 years, it seems to me that its resources should be spent on ensuring that there are no other Madoffs at large, not hunting for a paper trail about Jobs’ physical condition.
Regulation governing CEO health disclosure is unnecessary and impractical—and wasting our resources in this futile attempt won’t do anything to prevent another Madoff-like scandal. Even former SEC commissioner Joseph Grundfest said recently that Apple crossed no line if it failed to provide thorough disclosures about Jobs’ health, unless company insiders traded on the knowledge before it was disclosed publicly. “One of the hallmarks of a complex medical condition is a diagnosis can change over time,” Grundfest said. “If the board has told the truth, then they’ve handled it best as they could.”
If the SEC brings a case against Apple, it would set an alarming precedent and open the floodgates to frivolous lawsuits from shareholders curious about a CEO’s health and personal life. The possibilities for abuse are endless. What if a CEO has a condition which is treatable and not immediately life threatening? Worse, what if the condition is generally not life threatening but the CEO dies—would this constitute a failure of disclosure? Will we be appointing physicians to boards of directors next?
The Board’s Job
The answer to this issue is simple. The responsibility of determining whether a CEO is able to continue in his or her role and what, if any, health issues should be disclosed rests squarely on a company’s board of directors. Boards have a fiduciary responsibility; they are elected by shareholders to oversee management’s performance, and are directly responsible only to them. They have the ability and the authority to balance the competing needs of public disclosure and private matters. The board’s principal charge is to ensure that the company’s leadership is fully capable of running the enterprise and that includes physically, emotionally, and intellectually. That is the bright line boards use when determining what kind of disclosures and actions they are required to take.
With regard to health matters, there are too many gray and sensitive areas to make regulatory scrutiny appropriate. We know this from the manner in which our country’s Presidents’ health issues have been treated throughout history. Health issues often are not cut and dry. Tests and second opinions take time. People may recover complete health even after a debilitating illness. In all likelihood, Jobs was unsure of his health issues and any determination of his condition was evolving and neither clear nor final. His recovery from Pancreatic cancer is an example of an illness that generally would incapacitate its victim, yet Apple’s great successes have been formed during and after the time Job’s suffered from this illness. Shouldn’t a CEO and his or her board be allowed to deal with this time of uncertainty —taking the right amount of time and the right professional advice to understand the implications fully? CEOs may shoulder greater responsibilities and so their health is a fair subject for inquiry, but they deserve the same respect for due process as the rest of us.
“If the SEC brings a case against Apple, it would set an alarming precedent and open the floodgates to frivolous lawsuits from shareholders curious about a CEO’s health and personal life.”
Most important, why should CEOs disclose personal health details when they do not interfere with their performance? Even in the face of personal adversity, Steve Jobs has been a stellar CEO. He has fulfilled his duty to deliver shareholder value. Apple’s board has done a pretty good job too. It did not panic when Jobs had surgery for cancer five years ago and it allowed him to come back and drive extraordinary value for shareholders. Carol Bartz, who has just been tapped to be CEO of Yahoo!, was diagnosed with breast cancer the same week she became CEO of Autodesk. She worked through her treatment and went on to grow Autodesk’s revenue by almost five times and increased the share price nearly tenfold.
Regulatory Distractions
Just like with Sarbanes Oxley, more government intervention in board room affairs does not necessarily make things better and I think arguably will make things worse. Unnecessary interference by the government on this issue simply distracts CEOs and boards from the real imperatives—getting the company through tough economic times, getting the strategy right, and executing.
Although not corporate CEOs, Abraham Lincoln’s depressive episodes, John F. Kennedy’s battle with back pain, John McCain’s fight with melanoma and Lance Armstrong’s battle with cancer should serve notice to the SEC and for that matter to shareholders that health issues and company performance are not necessarily correlated.
Clearly, we shouldn’t turn a blind eye to the issue of CEO health. But private health matters should not become public spectacle. The board of directors, with its clear roles and responsibilities, can and should make the call when a CEO’s health becomes a material issue.
Dennis Carey is a Senior Client Partner in the CEO & Board Services division at executive search firm Korn/Ferry and author of “CEO Succession.” Carey specializes in CEO succession and the recruitment of CEOs and corporate directors.
Editor’s Note: Opinions expressed in Viewpoint are those of the author only and do not represent the views of Directorship or the National Association of Corporate Directors.