If Apple’s Disclosure Practice Becomes Corporate America’s Norm… (AAPL)

Apple Inc. (NASDAQ: AAPL) is holding up rather well when you consider the weekend news that Steve Jobs had a liver transplant.  Unless you are Steve Jobs himself, the bad news isn’t that Jobs had a liver transplant.  It is that the transplant was about two months ago.  Whether or not the company MUST disclose that on a more timely basis is a topic for much debate.  But what should not be an issue is the performance of the stock during the time that Jobs has been out of the day-to-day operations at Apple.  If this becomes an acceptable benchmark, then the real risk here is that this practice of not disclosing information could spread.

Of course, the argument boils down to what “material” is, and then there is the notion of how to define “timely.”  Apple is a monster success story.  That is not under debate.  Its products are top-notch and its clients now have a cult-like following.  But what happens if companies start deciding this broad of an interpretation of “timely” and “material” does not need to be disseminated to holders?

Many other companies that have squeaky-clean images or that are doing well could start to hold back on material information.  If companies can start showing that their stock rose during any period in question of when material information was not being disclosed on a timely basis, then every notion of Regulation FD (Fair Disclosure) could in theory come up for grabs.

We can offer a hundred scenarios which may or may not come to pass.  Recently,  a major retailer decided to stop reporting monthly same-store sales and to stop offering guidance monthly.  What if the head of logistics has health issues that the company doesn’t disclose and the team there slacks off 1%?  Whether or not that is material depends upon how the bottom-line would turn out.

What about when individual CEOs of companies run into legal issues?  How many CEOs have been busted for lying about their degrees and qualifications?  What about an airline CEO getting charged with driving under the influence?

Let’s pretend for a moment that things did not improve drastically in the economy and bias in the stock market from March’s panic-selling lows?  What if the market popped a bit but then things rolled over as many suspected, predicted, or even hoped for?  Shareholders would have been screaming for that leadership of Steve Jobs.  Or what if a manufacturing delay or system glitch was in the new releases and proved to be a disaster?  What if a court case for some of Apple’s key intellectual property had a nasty development under a new judge?

Under any of those or a dozen other situations you could imagine that shareholders would be demanding to know when Jobs is coming or what the real circumstances are for his ability to run the ship.

Again, this is a debate that will not end with one article nor will it end immediately.  There is a risk that other companies might use this case a benchmark for the future.  That is called precedent under case law.  If a company feels as though what is a “material” development was not as material as how Apple has handled all of the disclosure in the case of Steve Jobs, then you know what can happen.

If this does turn out to be a serious mishandling of disclosure practices by a public corporation that has to answer to shareholders, then a rising share price and very popular products should not create an exception to the rules.

Jon C. Ogg
June 22, 2009