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In Sickness and in Wealth the Boss's Decision Has an Impact

August 30, 2011 (SmartPros) In an article which appeared in The Atlantic magazine in January Ben Heineman, former general counsel of GE, argued that Apple had a duty to disclose to investors the nature of the illness that was requiring its chief executive Steve Jobs to take a medical leave of absence.

Going further than that, Mr Heineman said the Securities and Exchange Commission in the US should introduce rules requiring listed companies to disclose the nature of serious illnesses of their senior executives as this was material information that would influence an investor's decision to buy or sell securities in those companies.

When Mr Jobs' resignation as CEO was announced last week Apple's shares fell by around $5, wiping $20bn off the company's value within minutes of the news.

By Friday of that same week, during the course of trading the Apple share price actually reached a new high. Mr Jobs had, after all been on medical leave of absence for two quarters already and his successor Tim Cook had been running the business and delivering strong results during that time.

No doubt the timing of Mr Jobs' resignation when Apple's share price was already high at the time was not a coincidence.

So it would seem Mr Heineman's arguments don't hold water. Apple, which jostles with Exxon Mobile for the position of world's largest company, is bigger than just one man.

The fact that investors didn't know the nature of Mr Jobs' illness and his request for privacy was respected did not, beyond a blip of a few days, have any impact on investors' decisions to buy or sell Apple shares.

Mr Jobs didn't disclose the nature of his illness but his drastic weight loss meant the fact that he was ill was obvious to all and anyway he was the big boss.

But what about directors whose illness or disability is not evident? Do they have a duty to disclose to the board or to investors that they are or have become ill or disabled? The starting point is that employees of any level of seniority do not have a duty to disclose to their employers any illness or disability.

It is fairly common for employers to require prospective employees to complete a pre-employment questionnaire, and an employee must answer the questions asked truthfully or run the risk of being disciplined for being dishonest, but an employee who is, or becomes, ill or disabled is not legally required to tell their employer.

Of course many employees do inform their employers - often because they need to take sick leave or regular absences from work for treatment or would like to discuss with their employer reasonable adjustments to their working arrangements which will assist them to continue working.

Sometimes there are health and safety issues, especially if a job involves driving or the handling of heavy machinery, which means an employee must advise his employer of a diagnosis.

But many employees, and company directors in particular, choose to keep their condition private and to manage any absences from work for treatment round their normal working day or by taking holiday. Do directors, who have additional directors' duties over and above those contained in their contracts of employment, breach any of those duties by not disclosing medical conditions? Directors' duties are codified in the Companies Act 2006. These duties include a requirement under Section 174 of the Act to exercise the care, skill and diligence that may be reasonably expected of a person carrying out the functions carried out by the director in relation to the company.

Directors must therefore be confident of their own ability in fulfilling their role as director and of their capacity to discharge their duties.

In practice, most directors, like Steve Jobs, instinctively comply with this duty even though they may not be formally aware of the legal requirement.

They carry on doing the job for as long as they are capable of doing so, but if they approach the point of not being capable they act in the best interests of the company and hand over the reins to someone else, usually of their choosing, before crossing over that point.

And should your company find itself in a situation where a director lacks that self-awareness, that's the point at which you should consider taking specialist employment advice.

Damian Phillips is partner and employment law specialist at Darwin Gray

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2011 Western Mail. via ProQuest Information and Learning Company; All Rights Reserved

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