Why I Won't Be Selling Apple

I've taken a beating for daring to challenge Apple's (NASDAQ:AAPL) board of directors and its decision to keep quiet about CEO Steve Jobs' liver transplant. So be it. I still believe the board failed to disclose a material event.

Very few of you agree. Instead, you seem to think I should shut up and be happy with my generous gains. If only I expected less.

A better ending to this saga
Your comments, many bristling with righteous anger, delivered a machine-gun litany of counterarguments designed to put me in my place:

• "He didn't die!"
• "The stock is up!"
• "The iPhone 3G S is a hit!"
• "What the [expletive] is your problem?"

The End Justifies the Means! But of course, it doesn't -- not in life, nor in stocks. Does the following statement from Jobs, given in January, suggest to you in any way that he might be facing an illness so serious that within months, he'd need a liver transplant?

Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.

If the answer is "no," then didn't the board have an obligation to disclose, especially when research says that roughly one in four patients who need a liver transplant dies before receiving one?

The Apple that (gulp) could have been
Raise your hand if you'd still be holding shares of Apple right now, were Jobs no longer with us. No doubt many of you still would be, but I'd bet good money that a number of you wouldn't. The board knows this, too. That's why you'll find a definite warning on page 21 of Apple's latest 10-K annual report.

"Much of the Company's future success depends on the continued service and availability of skilled personnel, including its CEO, its executive team and key employees in technical, marketing and staff positions," the document reads. [Emphasis mine.]

For comparison's sake, neither Microsoft (NASDAQ:MSFT) nor Hewlett-Packard (NYSE:HPQ) nor even Dell (NASDAQ:DELL) refers to its chief executive so pointedly. Jobs is that different, that important, that material.

Very few CEOs stand on a similar pedestal. One of the few who does criticized Apple on CNBC last week: Berkshire Hathaway's (NYSE:BRK-A) Warren Buffett.

On page 18 of Berkshire's 10-K, also under risk factors, the company's disclosure reads: 

"Investment decisions and all major capital allocation decisions are made for Berkshire's businesses by Warren E. Buffett, Chairman of the Board of Directors and CEO, age 78, in consultation with Charles T. Munger, Vice Chairman of the Board of Directors, age 85. If for any reason the services of Berkshire's key personnel, particularly Mr. Buffett, were to become unavailable to Berkshire, there could be a material adverse effect on the Company."

A taut, fine line
Losing Jobs would hurt Apple, just as losing Buffett would hurt Berkshire. Yet one commenter to my original story about this raises a perfectly good and perhaps irrefutable point.

"The company and the SEC have no right to the disclosure of Steven Jobs' medical history," wrote Foolish reader Puffin100. "There is a more important law in this matter called HIPAA, that protects our right to medical privacy." 

Fair enough. One of our own Foolish attorneys, when asked about this, said in an email that she thinks there's definitely a tension or conflict between HIPAA and Regulation FD, the securities law that defines disclosure requirements. The SEC doesn't specify just how much information a company must disclose about its executives' health.

Moreover, the SEC has a checkered history when it comes to prosecuting cases involving Regulation FD. Schering-Plough (NYSE:SGP) paid $1 million in fines in 2003 after its investor-relations chief was accused of selectively disclosing negative, non-public material information.

But the agency also chose not to take action against John Mackey, the CEO of Whole Foods Market (NASDAQ:WFMI). In 2007, Mackey was found to have been making disparaging comments about Wild Oats Market, a rival he later acquired, under a pseudonym on a Yahoo! Finance discussion board.

Long live my Apple shares
So perhaps your cockeyed stares are well-deserved. I'm nonetheless standing by my story. I'm also standing by the stock.

The end doesn't justify the means, but it also doesn't justify a sale. The board's actions, while deplorable, have no impact on product strategy -- a strategy I still believe in as a shareholder. And let's be honest: My criticisms matter more if I'm an Apple shareholder, an owner with skin in the game, than if I'm merely an observer. I have a vested interest in seeing the people on Apple's board get disclosure right.

They haven't yet. I'll keep writing, and keep holding, in hopes that they do.

Get your clicks with related Foolishness:

• Nine years ago next month, Regulation FD went into effect.
• Our Foolish CEO, Tom Gardner, weighed in on Reg FD in a session before Congress.
• Some government work makes you smarter.