Must Apple discuss CEO Steve Jobs' health?

NEW YORK — Apple wasn't shy Monday about touting the sales of its latest iPhone (selling more than a million units in the first three days). But the company didn't 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 Apple' products. Its stock has fluctuated along with Jobs' health since 2004, when investors first learned he had cancer.

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

Here are some questions and answers about disclosure requirements.

Q: Why did news about Jobs' liver transplant come from The Wall Street Journal and not from 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 to be disclosed unless the health issue affects his ability to steward the company appropriately," said Charles Elson, director 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 working 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, changes in auditors, bankruptcies and events relating to investments in a company, like dividends and stock-repurchase plans.

Companies also must disclose certain information relating specifically to top executives, including stock ownership, securities transactions, compensation and personal and professional biographical data.

When a CEO retires, dies or has his duties removed, a company must tell 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: But Jobs is an iconic figure and Apple's fortunes seem linked to his 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 A. Perryman, a professor of management at the Neeley School of Business at Texas Christian University.

She said the SEC rules lack specific guidelines regarding health disclosures about executives, which means corporate directors have discretion over what kind of information they decide to tell the public.

"It's a fuzzy, gray area of what is required," Perryman said. "There is certainly interest among investors, but that doesn't mean they have a right to know."

Even though Apple isn't required to disclose information about Jobs' health, it might make sense to do so — even if that can rattle the stock.

When Jobs announced in January that he was taking a leave through June because his medical problems were more complex than first thought, Apple shares sank 7 percent.

The stock fell 1.5 percent Monday to $137.37 in the first day of trading since the transplant news came out on Saturday. But that was a much smaller decline than the major market indexes posted; the Nasdaq composite index tumbled 3.4 percent.

"From a legal standpoint, Apple doesn't have to disclose a thing. But from a transparency standpoint, they should disclose," said Delaware's Elson, from the University of Delaware. Even though Jobs' health may be his personal business, he represents so much of the Apple brand that investors deserve to be updated, Elson said.

Q: Will Apple ever have to disclose the liver transplant?

A: No. "This can be deemed a private situation and can be kept confidential," said G. William Speer, senior counsel at the law firm Bryan Cave in Atlanta. "The information only has to be known by the board and the company."

If Jobs returns to work soon, as the company says he plans to do, there is even less likelihood Apple will feel the need to disclose any specifics relating to his transplant.

J. Robert Brown, a professor at the University of Denver Sturm College of Law, said even though investors would like to get the health updates, "the courts are going to be hesitant to require companies to disclose medical histories."

That may be very true in this case, Brown said, because the transplant apparently didn't impede Jobs' ability to return.

The New York Times reported Jobs was at work Monday, citing a person who saw him. Apple wouldn't say if he was back permanently.

Even though companies for the most part don't have to disclose CEO health issues, many companies do — but well after the fact. Perryman, who has studied health disclosures, has found many companies wait until the executive is healthy again to tell investors about the problem.

Q: That seems to set up a situation whereby insiders at a company — the board and top executives — may know about a health problem, but the public doesn't. Aren't there potential conflicts in that?

A: Even if a company doesn't tell investors about a CEO's health issue or something else, the information is considered "material" for insiders who know about it. That means they aren't allowed to trade the company's stock on that news, or they could face allegations of insider trading if the news got out, securities-law experts said.

Q: Does the Securities and Exchange Commission monitor whether companies are making proper disclosures?

A: This is the SEC's meat and potatoes.

For example, a case filed this month was brought against three former executives of Countrywide Financial, charging them with violating the anti-fraud provisions of the Securities Exchange Act of 1934 and of the SEC's disclosure rules.

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

The SEC also alleges Mozilo made about $140 million in profit by selling big amounts of his Countrywide stock while having material, nonpublic information.