Earlier reports from The Wall Street Journal were confirmed this week: Apple (NASDAQ:AAPL) chief executive Steve Jobs had a liver transplant two months ago at a Tennessee hospital.
"He received a liver transplant because he was the patient with the highest MELD score (Model for End-Stage Liver Disease) of his blood type and, therefore, the sickest patient on the waiting list at the time a donor organ became available. Mr. Jobs is now recovering well and has an excellent prognosis," Dr. James D. Eason of Methodist University Hospital Transplant Institute said in a statement.
Someone should pay for hiding material information like this. But it's not obvious that anyone will -- except perhaps for those who bought shares without understanding Jobs' health status.
Cue the chorus
I'm not the only one who thinks that the board failed to disclose a material event. Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) chairman Warren Buffett said as much during a recent CNBC interview.
"If I have any serious illness, or something coming up of an important nature, an operation or anything like that, I think the thing to do is just tell ... the Berkshire shareholders about it," Buffett said. He continued:
I work for 'em. Some people might think I'm important to the company. Certainly Steve Jobs is important to Apple. So it's a material fact. Whether he is facing serious surgery or not is a material fact.
While Buffett didn't explicitly say so, the implications of his finger-pointing are clear: Apple's board didn't do its job. At least one of the Journal's editors agrees.
"They have an obligation to disclose," the Journal's Deputy Managing Editor, Allan Murray, said in an interview with Yahoo! Finance TechTicker. "When you become a public figure, and CEOs of public companies are public figures, you lose some of your privacy rights and have a certain obligation to let people know what's going on. I think Jobs gets a pass [that] frankly CEOs of other public companies wouldn't get under similar circumstance."
Murray's comment stings like an indictment. I'm an Apple shareholder, and I've given Jobs and Apple the benefit of the doubt too many times. On Monday, I wrote about how investors didn't really care that Jobs had undergone a serious and possibly life-threatening procedure. True, but that wasn't really the point of the Journal's story. Who cares if they weren't actually concerned? They should be concerned. Apple has been rotten to the core when it comes to disclosure.
Stopping the stiff-arms
The SEC has already taken notice. Back in January, Bloomberg reported that the SEC was investigating whether investors had been misled by Apple's disclosures -- or lack thereof -- of Jobs' health problems. The company remained similarly tight-lipped in 2004, when Jobs secretly underwent an experimental treatment for pancreatic cancer.
Each time, the board has allowed Jobs to maintain his privacy, ignoring the concerns of shareholders. But this incident is more galling because of what Apple co-lead director Arthur Levinson said in February, during Apple's annual meeting of shareholders.
"We believe we have met all disclosure obligations," Levinson said. "Nothing has changed. Succession planning is something this board takes up regularly. You can assume we will do that responsibly."
No, sir, I can't assume anything. When you hide news of a liver transplant from shareholders, you are neither responsible nor trustworthy. Were the laws of the land tougher, you might be fitted for an orange jumpsuit.
Put it this way, Mr. Levinson: If you had been a candidate for a liver transplant before the Roche deal, would the shareholders of Genentech have wanted to know? I think you know the answer. We all do.
Prepare for a civil action
But we shouldn't expect the SEC to do much here. Hundreds of bankers should go to jail, but in the midst of a financial crisis caused by at-best-irresponsible stewardship at AIG (NYSE:AIG), Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) unit Wachovia, precious few seem destined for the Big House.
And remember: It took years for the government to put away ex-Qwest (NYSE:Q) CEO Joe Nacchio for insider trading, and his case could still go to The Supreme Court.
The best we can hope for, it seems, are civil fraud prosecutions of the sort the SEC is pursuing against former Countrywide CEO Angelo Mozilo and two other former executives. Mozilo is accused of cashing out $140 million in stock to avoid a crash he allegedly knew was coming.
Why it's not the same, but should be
"Fraud" may be too strong a word for what's occurred with Apple. But even if fraud were on the table, neither Jobs nor any board member has sold shares over the past six months. Only two Apple executives have cashed in stock since January, according to SEC filings. Senior Vice President Bertrand Serlet sold 10,000 shares in April, and Controller Betsy Rafael sold 7,198 shares in early May.
What's more, investors were fully aware that Jobs was suffering from health issues when he stepped aside for Tim Cook. The surgery took place during his leave. If no money changed hands, and investors knew that Jobs was sick, what's the big deal?
Well, for one thing, there's a huge difference between "sick" and "you're-near-enough-death-that-you'll-need-a-liver-transplant sick."
Timing is also an issue. The Journal story ran on Saturday. On Monday, Apple released iPhone 3G S sales figures without commenting on the Jobs story. See the lunacy here? Apple has, in effect, declared that iPhone 3G S sales are more important -- more material -- than the near-death experience of its co-founder and CEO. I'm not buying it.
No one is going to jail for this, but in a better world, someone would be. Until a board member is fitted for an orange jumpsuit, it'll be okay to get away with these "we'll tell you what you need to know, when you need to know it" distinctions.
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