There has been lots and lots of hand-wringing about the issue of Steve Jobs’ health. Shareholders and others feel misled, and there is some talk that Apple may have committed fraud by providing bad information about the state of its legendary CEO’s health. But no one feels all that comfortable with the idea that chief executives should have to give up their rights to medical privacy. So what should be done?
The answer is surprisingly simple: let shareholders decide.
Instead of attempting to develop a blanket rule that would apply to all companies in all industries, why not leave the mattter of health disclosure to the markets. We could simply ask a company to plainly state it’s health disclosure policy. Shareholders could then decide what level of discount to apply against this policy.
We suspect that for many companies which are not led by charismatic, creative executives, the discount won’t be very steep. Does anyone really think that, say, the fate of Boeing is highly contingent on the health of its current CEO? If Boeing announced that it was keeping a closed door policy on health, or simply that it wasn’t even going to have a health disclosure policy, we doubt the stock would move very much.
At other companies, however, investors may decide that the health of its leadership is a major issue. These companies would be incentivized to be more open, as investors would likely apply a steep discount against a closed-door policy. They would, however, be able to decide whether or not the cost of this discount would outweight the cost of perhaps not having a certain executive who highly prizes his privacy.
To make this more concrete, let’s get back to Apple. We suspect that a lot of Apple investors would probably prefer to have Jobs at Apple even if Apple said it would never again tell them anything at all about his health. That is, they’d bear the risk of uncertainty about his health in favour of the benefits of having him around.
There’s no real way, however, of figuring this stuff out in advance. Answering the questions about what shareholders value more is what the markets are for. It’s sad we need to be reminded of this as often as we do.
Larry Ribstein, the brilliant law professor at the University of Illinois College of Law, says this is probably the best (and perhaps the only) way through the thorny thicket:
How about this solution: let the shareholders decide After all, non-disclosure mainly hurts the company – the lack of information raises investor risk, and therefore the company’s cost of capital. The shareholders ought to be able to balance the extra recruiting and retention costs of a full disclosure rule (and “decency,” for what it’s worth) against traders’ needs to know all the facts. Conversely, how can a regulator possibly decide that tradeoff for all firms, executives with varying degrees of importance, and the full range of diseases known to medical science?