(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
A couple of years ago, when I taught a series of seminars on public company disclosure issues, I started things off with a riddle:
Q: What do you get when you cross a piece of fruit with a liver and a pancreas?
A: An SEC investigation – IF the fruit is an Apple, and the liver and pancreas belong to Apple CEO Steve Jobs.
Of course, I was referring to Apple’s disclosures about Jobs’ health over the past several years, which led to widespread criticism and a well-publicized SEC investigation. After the announcement of Jobs’ resignation as CEO of Apple Inc. last week, I was reminded of the controversy. Unfortunately these mishandled communications are part of the legacy of Jobs’ years at Apple, but they do teach some lessons about good (and not-so-good) disclosure practices for public companies. Here are some of the relevant events:
2004 – Jobs has surgery for pancreatic cancer, leading to years of speculation about his ongoing health.
June 2008 – Apple spokesperson to Wall Street Journal: Jobs looks thin due to a “common bug.”
January 5, 2009 – Jobs posts a letter on the company web site, and company issues a press release saying that Jobs is undergoing “relatively simple” treatment for a “hormone imbalance.” Jobs vows, “I’ve said . . . all that I am going to say . . . .”
January 14, 2009 – Jobs posts a new letter on the company web site – his health issues are “more complex”, and he is taking a six-month leave.
June 2009 – There is a leaked report that Jobs has had a liver transplant, which occurred in April 2009.
July 2009 – Bloomberg reports on an SEC investigation into the January 2009 disclosures by Apple.
I couldn’t find any subsequent reports of SEC enforcement proceedings resulting from the investigation of Apple. However, the publicity was embarrassing, and most people would agree that Apple’s practices were not optimal, possibly as a result of trying to balance Jobs’ well-known desires for privacy with the media frenzy surrounding his every move.
The Apple experience is a reminder of the importance to public companies of following good disclosure practices. For example:
- Consider a formal communications policy to control the flow of information to analysts, media, etc. This will reduce the risk of inconsistent or misleading statements and help promote compliance with Regulation FD. Make sure the policy is updated to deal with social media issues.
- Once the communications policy is in place, make sure there is ongoing training and monitoring of compliance with the policy.
- Make sure disclosure controls and procedures are formalized (written and compiled), and that the internal disclosure committee keeps proper records.
For a more complete list of disclosure tips for public companies, see this prior post.
A Further Lesson – Succession Planning is Critical
The Steve Jobs saga also teaches lessons about the importance of succession planning, especially CEO succession planning, as an element of corporate governance. Apple has been criticized for its lack of disclosure about its succession plan. However, the smooth hand-off to former CEO Tim Cook has certainly helped Apple’s share price stay stable in the aftermath of the announcement.
A recent study entitled “‘Home-Grown’ CEO” (PDF) by the A.T. Kearney consulting firm and the Kelley School of Business dramatically illustrates the benefits of good succession planning. As summarized by A.T. Kearney, the research of S&P 500 companies found that “ . . . the 36 non-financial companies with exclusively ‘home-grown’ CEOs – those developed and selected from within their ranks – consistently outperformed the remaining companies that went outside for their CEOs. . . .” The results reported in the study are striking, and are a wake-up call to boards that have not given sufficient attention to succession planning.