The Two Sides of Corporate Secrecy

The testy exchanges between Apple and its investors around disclosure of Steve Jobs’ medical condition brings a fine resolution to the question of what information companies owe investors and what the latter have a right to expect. Apple has traditionally made high art out of controlled disclosure. The secrecy that surrounds the introduction of succeeding generations of iPhones, for example, serves both to heighten their attractiveness to customers at rollout and to withhold their design and features from competitors’ eyes until the ultimate moment. This benefits the company, and it certainly benefits the company’s shareholders.

Apple and its investors, however, have lost their unanimity recently in the matter of disclosure of Mr. Jobs’ health condition, and the debate over whether the company has to tell the world exactly what his physician is telling Mr. Jobs has evolved into a noisy one. Does Mr. Jobs’ right to privacy prevail, or do investors’ rights to material information about company management take precedence? Many have registered opinions. What has not been heard is that there really isn’t a conflict.

Investors need—and have a right—to know the effect of an executive’s illness on the company. Any company can convey this information without disclosing a medical diagnosis. Why does our local technology analyst at, say, Goldman Sachs have to know that an executive might have a certain cancer? Is his prognosis likely to be more reliable than the doctor’s?

No. You don’t have to disclose medical details in order to convey information that is material to investors. The company is obligated to say what it knows about the impact of an executive’s condition on the company’s business. It is certainly obligated to give its best estimate of how long the executive will be off the job. It is also obligated to convey a physician’s opinion as to the probability of the executive returning as a functioning individual within a specified length of time. The physician is free to offer his or her estimate of the likelihood of various results—of the executive returning, or not returning, or returning part time. This is the information to which investors have a right, and it should not conflict with the executive’s demands for medical privacy. After all, it’s clear he’s not on the job, and the company therefore finds itself in a position where it must say something reasonable in response to investor concerns.

The dissonance arises when the company’s internal analysis of what is diclosable and what is not runs head on into its general preference for saying as little as possible most of the time—about anything. In such a culture, the company’s internal discussion about how to address investors’ ire is likely to arrive at the privacy ploy well before anyone realizes that it’s possible to accommodate both sides. Exercising strategic secrecy where the business requires it is a strength. But a strategy that legitimately controls information for business purposes is not the same as an insular corporate culture whose purpose is to isolate the company from scrutiny. Apple may be finding that out.

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