Must Apple, while touting new iPhone success, also discuss CEO Jobs' health?

Must Apple, while touting new iPhone success, also discuss CEO Jobs' health?

Apple Inc. sold more than a million units of its latest iPhone model in the first three days, making it the most successful debut for a smart phone yet. The company has not been shy about touting the record sales of its updated iPhone, but will not say anything confirming reports that Steve Jobs had a liver transplant two months ago. (Trent Nelson / The Salt Lake Tribune)

This week, Apple Inc. hasn't been shy about touting the record sales of its updated iPhone. But the company will not say anything confirming reports from over the weekend that co-founder and CEO Steve Jobs had a liver transplant two months ago.

What happens to Jobs matters to Apple's investors, largely because he has become the public face of the company he started in 1976 -- and because he's widely seen as the creative force behind its products. Apple's stock has fluctuated along with Jobs' health since 2004, when investors first learned he had cancer, falling 7 percent at one point and another 1 percent Monday.

So do investors across corporate America have the right to know this sort of information as they struggle to manage their recession-hit portfolios? What are the rules under U.S. securities laws?

Q: Why did news about Jobs' liver transplant come from The Wall Street Journal and not Apple?

A: Companies don't have to give updates on their executives' health. That is typically not considered "material information," which must be disclosed under rules put forth by the Securities and Exchange Commission.

"Nothing is required unless the health issue affects his ability to steward the company," said Charles Elson, of the Weinberg Center for Corporate Governance at the University of Delaware.

Jobs also has been on medical leave since January, which means he technically isn't
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working for the company in an executive capacity.

Q: What is meant by "material information"?

A: The SEC requires companies to disclose information that would affect a reasonable investor's decision to buy or sell a stock. That includes information regarding earnings, mergers and acquisitions, new products and contracts, and events relating to investments, such as dividends.

When a CEO retires, dies or has his duties removed, a company must also inform the public. That is why Apple disclosed in January that Jobs was going on medical leave and Chief Operating Officer Tim Cook would assume oversight of the day-to-day operations.

Q: Apple's fortunes seem to rise and fall with Jobs' health. Shouldn't that require greater disclosure?

A: If information isn't deemed "material," then the decision to disclose lies in the hands of Apple's board, said Alexa Perryman, a professor of management at Texas Christian University's Neeley School of Business.

Even though Apple isn't required to disclose information about Jobs' health, and is not likely to do so, it might make sense "from a transparency standpoint" to do it, said the University of Delaware's Elson, given that Jobs represents so much of the Apple brand.

Q: Does the SEC monitor whether companies are making proper disclosures?

A: This is the meat and potatoes of what the SEC does. A case filed earlier this month was brought against three former execs of mortgage lender Countrywide Financial, charging them with violating the anti-fraud provisions of the Securities Exchange Act and of the SEC's disclosure rules.

The SEC alleges that ex-CEO Angelo Mozilo, former COO David Sambol and former CFO Erick Sieracki repeatedly misrepresented to the public that Countrywide was a prime quality mortgage lender with conservative lending policies, while in reality they knew it had loosened its loan policies and had accumulated a large number of high-risk, "toxic" mortgages.

The SEC further alleges that Mozilo made $140 million in profit by selling large amounts of his Countrywide stock while in possession of material, nonpublic information.

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