The death of Oracle CEO Mark Hurd in October has highlighted a longstanding public company dilemma: whether and when to disclose the news that a senior leader has a serious health challenge.
Not only is the topic sensitive from a personal and privacy perspective, but there is no specific rule or duty that requires disclosure of a CEO's or other executive's adverse health information—unless the executive is incapacitated. While commentators and news articles sometimes suggest companies should publicly disclose any serious health issue affecting a CEO, the law leaves substantial discretion for the board of directors to evaluate the specific facts, and allows for a non-disclosure approach when the CEO can continue to perform his or her key duties. This is partly because health falls into a category of information that has over time been treated differently from core business information for purposes of judging materiality—that is, information a reasonable investor would consider important—under the federal securities laws.
Not surprisingly, company executives and boards have chosen various approaches to disclosing high-profile health conditions. The three main paths companies have taken are full disclosure, partial disclosure and silence. This article explores the pros and cons of each approach given the complexities of defining "material" information in the context of health. It also explains the duties of the board and the CEO, which include keeping one another informed, and offers principles-based recommendations to limit risk exposure under securities laws.
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