Apple faces credibility crisis over Jobs' health

Company has faced hard choices in handling Steve Jobs' growing health issues. The latest revelations raise new questions about Apple's honesty with investors.

Apple may have wanted to protect Steve Jobs' privacy with the way it chose to address his health. But the end result is a credibility problem that will not go away easily.

After initially reassuring the public that Jobs' health issues were real, but not all that serious, Apple's statement Wednesday that his problems had grown "more complex" outraged many investors and corporate governance experts. Jobs will remain Apple's CEO, but he is turning the responsibility for day-to-day operations over to COO Tim Cook until the end of June to focus on his recovery.

Now that Jobs' health issues seem far more serious than Apple initially indicated on January 5, investors are not satisfied with the cryptic "more complex" explanation provided by Apple, and are publicly wondering if the company has been deceiving them all along.

Jobs gets started.
Questions about Steve Jobs' health intensified following his appearance at Apple's Worldwide Developers Conference in June. He appeared to have lost a significant amount of weight. James Martin/CNET News.com

"The most indispensable chief executive in the United States, beloved by customers and investors for his magnificent turnaround of the company he founded -- and for the amazing gadgets his company produces -- can no longer be trusted on the subject of whether he is healthy enough to continue running the company," wrote Joe Nocera, columnist for The New York Times and one of the few people in the financial media who has spoken directly with Jobs concerning his health.

The main question? After months of insisting that Jobs' health was a private matter, why did Apple release two vaguely worded statements within days of each other, one saying he was fine, and the other saying he was going to have to take some time off?

Apple's responsibility to disclose the true state of its CEO's health has been discussed numerous times in the past several years. While there are no strict guidelines regarding disclosures as they relate to executive health, any health issue that affects a CEO's ability to run the company can be considered "material," and therefore needs to be disclosed to the board of directors and the public.

There are many potential scenarios for how this saga came to pass. It's quite possible that the true source of Jobs' pronounced weight loss was uncovered in the days between its first disclosure on January 5 and Wednesday's announcement. Anyone who has dealt with serious health issues knows that initial test results aren't always accurate, and that doctors can disagree on diagnoses.

But it seems more likely that Apple has had to beg Jobs to be more forthright about his health, and Jobs, a famously hard-headed man, resisted. CNBC reported Wednesday that two prominent tech industry executives considered close friends of Jobs believed him to be very ill and in "serious denial" regarding his health and its effect on his ability to run Apple.

When Jobs was first diagnosed with a rare form of pancreatic cancer in October 2003, he kept the diagnosis secret for nine months while pursuing alternative medical treatments that troubled some of his confidants, according to a March 2008 Fortune story. That strategy ended once his tumor began to grow, and Apple announced that he had undergone successful surgery to remove the tumor after the operation.

In the years that followed, Apple occasionally had to deal with rumors regarding Jobs' health, but nothing like what followed his appearance at Apple's Worldwide Developers Conference in June--he appeared to have lost a significant amount of weight. At that time, Apple insisted Jobs' health was a private matter.

It might have taken the intervention of Apple COO Tim Cook to force Steve Jobs to talk about his health, and the issue will not go away for Cook as he runs Apple during Jobs' medical leave. Apple

When Apple announced that Jobs would be skipping Macworld , it stuck with that communications strategy, deflecting all questions about his health even though the decision appeared to happen very quickly and took IDG completely by surprise .

A few weeks later, a Gizmodo report that his health was "declining rapidly" finally appeared to spur Apple into commenting directly on Jobs' health just before Macworld started. But the information they released on January 5 does not square with the information released Wednesday, and regardless of the company's intent, that is troubling to outsiders.

Jobs is widely believed to personally approve every piece of official communication that emerges from Apple. It seems clear that he detested having to make the initial statement, writing "so now I've said more than I wanted to say, and all that I am going to say, about this."

But as much as Jobs may have liked that to be the case, it was never going to be so. That's because once Apple opened the door to the idea that Jobs' health was public information, there was no going back. And if it wasn't completely forthright about the state of Jobs' health on January 5, it has also opened the door to legal action.

Did Jobs deceive Apple and shareholders regarding his health? No one has uncovered hard evidence that he did. But it sure looks bad, and securities lawyers are sure to exploit the situation given the drop in Apple's stock in after-hours trading Wednesday and a further drop Thursday.

Apple is a notoriously secretive company. That strategy has allowed Apple to generate hype better than perhaps any company in America, but it could have backfired in a big way Wednesday. So how can Apple respond?

Lay bare the succession plan, said Patrick McGurn, special counsel at RiskMetrics Group's ISS Governance Services. Tim Cook will run Apple while Jobs is recuperating, but the board of directors needs to reassure investors that it has a long-term plan for providing Apple with leadership, whether that's Cook or anyone else on the management team.

"That's where the uncertainty is. No one can predict the health issues, (but investors are) looking for some level of assurance that the board does have a plan in place" for a post-Steve Jobs Apple, McGurn said.

Apple has hinted at such a plan in the past, but hints won't cut it anymore. And that's going to be a very difficult thing for a company raised in a culture of secrecy to do, especially while Jobs is still its CEO.

About the author

    Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.

     

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