The controversy over Apple CEO Steve Jobs’ health could have legal implications for the company’s board of directors including former Vice President Al Gore.
On Jan. 14, Jobs, in a statement released through Apple’s press division, revealed the health issues that had been plaguing him were more complex than he originally thought.
“In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June,” Jobs said.
Following that announcement, trading of Apple (NASDAQ:AAPL) stock was halted. But it opened back up in afterhours trading and took a plunge. It closed at 85.33 on Jan. 14, and opened at 80.57 on Jan. 15, the morning following his announcement – a loss of over 5 percent of the stock value and near the stock’s 52-week low.
And unfortunately for all parties involved, the bad news about Jobs’ health kept coming. On Jan. 16, Bloomberg reported Jobs may have to undergo a liver transplant as a result of complications that occurred due to his 2004 bout with pancreatic cancer.
However, legal scholars and financial media pundits have suggested Apple, specifically the company’s board of directors, should have done a better job communicating Jobs’ health because of the impact it has on the stock price.
The board’s liability in this instance has been discussed by media outlets including CNBC, the Jan. 16 Washington Post and Wall Street Journal.
However, missing from these reports is mention of one high profile board member, former Democratic presidential candidate Gore, who along with Jobs, are members of the Cupertino, Calif. company’s eight-member board of directors. And, as a board member, Gore, along with the other seven members, could face legal action for failing to disclose Jobs’ health ailments.
“If Al Gore is a director and is failing to meet his fiduciary duties to a corporation, then he may be sued as a director, just like anyone else who is a director,” Joan MacLeod Heminway, Associate Professor at the University of Tennessee College of Law explained to the Business & Media Institute in an e-mail.
Both Gore and Jobs are members of the board, but the other six board members also could face litigation:
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Bill Campbell, chairman and former CEO, Intuit Corp.
Millard Drexler, chairman and CEO, J. Crew
Andrea Jung, chairman and CEO, Avon Products
Arthur D. Levinson, Ph. D., Chairman and CEO, Genentech
Dr. Eric Schmidt, CEO, Google
Jerry York. Chairman, President and CEO, Harwinton Capital
According to Heminway, shareholders could pursue legal actions on two plausible grounds: 1) Breach of the fiduciary duty of loyalty for failure to oversee adequately the affairs of the corporation or 2) Securities fraud for failing to disclose accurately or completely the material facts relating to Jobs’ health.
“In neither case can the board be sued as a unit,” Heminway said. “The board is not a ‘legal person.’ So, it’s not subject to suit. The board is the collective group of individuals that manages the corporation, directly or indirectly. Individuals and corporations are both legal persons and can be sued.”
Rumors began to surface after Jobs unveiled the iPhone 3G in June 2008 and he appeared thinner and frail. An Apple’s spokesperson blamed a “common bug.” In December 2008, rumors began to swirl again after the company announced Jobs would not deliver his annual speech at the Macworld conference for the first time in 11 years.
To squelch those rumors, Jobs issued an open letter on Jan. 5 blaming a hormone imbalance for his weight problems and assured the public the “remedy for this nutritional problem is relatively simple and straightforward.” He vowed to stay on as CEO. Upon that announcement, the stock rallied to the mid-90s, but as rumors began to swirl again, the stock declined. After that came the Jan. 14 announcement about Jobs’ leave of absence.
A shareholder suit is a real possibility according to Jeff Macke, a panelist on CNBC’s “Fast Money” and founder and president of Macke Asset Management.
“If this stock stays down, Apple’s board is on the hook for litigation that shall never end,” Macke said on the Jan. 14 “Fast Money.” “And I’ll tell you what else – they bungled this as a release from soup to nuts. It was simply horribly handled.”
Macke reiterated that point on the Jan. 15 broadcast of CNBC’s “Fast Money,” blaming the board for not doing a better job.
“The board here is really doing a disservice to boards everywhere by not investigating this further, by not understanding this more deeply and by not communicating it to shareholders” Macke said. “The board to me is the one that is failing. Steve Jobs is Steve Jobs. But, if your CEO shows up demonstrably ill and you don’t convey that to the shareholders, you’re doing a disservice.”
Karen Finerman, another member of the CNBC “Fast Money” panel and the president and co-founder of Metropolitan Capital Advisors, Inc., also emphasized the board’s duty to Apple shareholders.
“I clearly think it’s a question to the CEOs health,” Finerman added. “Absolutely, the shareholders have a right to know. I even think something like them going through a bitter divorce is something that they should probably reveal to the shareholders.”
However, Gore – as a high-profile member of the company’s board – was elected to Apple’s board of directors in March 2003 and according to an April 1, 2003 Associated Press article, he was well compensated.
“Gore was granted 30,000 stock options with an exercise price of $14.95, according to a regulatory filing released Monday,” the AP article said. “It’s the standard compensation package for outside directors such as Gore, the company said. Under the plan, options vest and can be exercised in three annual installments of 10,000 shares, beginning with the initial election. Gore was elected to the board March 19.”
According to a March 26, 2008, Fortune article, Gore was given another 10,000 options at the strike price of $129.67, according to Jonny Evans at Macworld UK. Bloomberg reported on March 24, 2008, that “Gore exercised options to buy 1,000 shares at $7.48, reaping a potential profit of more than $124,000,” earlier that year.
Very little media attention was given to the board’s responsibility concerning the disclosure of Jobs’ health by the broadcast networks, with exception of a short report on ABC’s Jan. 15 “Good Morning
“The news that Apple’s CEO, Steve Jobs, is taking a leave of absence is raising legal and moral questions this morning,” ABC’s Deborah Roberts said. “The cancer survivor says his health problems are more complex than first thought. The law does not require executives to reveal medical conditions, but investors don't consider Jobs a typical executive. And some who suspect Apple’s board may have been hiding the truth are considering suing the company.”
Roberts report didn’t reveal the name of any of the board members, including Gore.
