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Disclosure of Executives’ Personal Facts

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The debate over whether public companies need to disclose executives personal (and usually private) information gained considerable volume when a visible leader, Steve Jobs, was involved. In his case, he was diagnosed with cancer, which is normally something that is rarely disclosed. Medical issues are protected by privacy laws and other issues. The issue arises when an executive like Jobs has such close ties to the success of their company (recall Apple before Jobs returned and the fact that he is listed as “co-inventor” on some 103 seperate Apple patents), does the medical issue become material for the company? A private counsel for Apple advised their Board that privacy laws trump disclosure regulations.

Instapundit linked to a blog called Concurring Opinions, which looked at the most recent article in Forbes (which I linked to in a post from March 29) on this. The new piece of the debate surrounds a paper from Joan McLeod Hemingway, a professor at the University of Tennessee’s Law College, titled “Personal Facts About Executive Officers: A Proposal for Tailored Disclosures to Encourage Reasonable Investor Behavior.”

Hemingway argues for increased disclosures in Federal rules, as they relate to executives. Previously, I wrote that I did not think changes from the SEC were likely on this issue. What should be noted is that Boards should be motivated in the interest of their shareholders. Along with better disclosures (and here is more of the theoretical bits), the company can reduce its contracting costs through the increase in quality accounting information available to investors.

Apple’s Board may not believe this to be significant. On the other hand, materiality laws have very complex standards that are difficult to build a case around in court. This places emphasis on Apple’s financial reporting track record. It is one that involves an accounting policy that is right along the lines of what the can get away with. Minimum disclosures and market timing are popular for the company. Also, the SEC’s case involving Steve Job’s backdated options come to mind. Many companies that exhibit these aggressive accounting tactics only see allegations of misdeeds arise when they become squeezed by declining profits and increasing market expectations.

Continued movement on this disclosure issue will be very interesting. As will Apple’s accounting policies.

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Written by walonline

May 8, 2008 at 7:36 am

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