Determining when or if companies must inform investors that their top executives have contracted coronavirus calls for a delicate balancing act between complying with regulatory requirements and respecting employees’ privacy rights, observers say.
“It’s a very thorny issue that there’s no black and white answer to,” said Dan A. Bailey, a member of law firm Bailey Cavalieri LLC in Columbus, Ohio, who represents directors and officers and insurers.
Experts recommend companies carefully weigh the particular circumstances of each case.
In April, Jay Clayton, chairman of the U.S. Securities and Exchange Commission, issued a statement stating that companies must provide investors with information on “material risks” to their business resulting from the coronavirus “to the fullest extent possible.”
Yet while the SEC explicitly requires companies to disclose certain types of information, such as top executives’ hiring or firing, there is no such demand with respect to their health. Furthermore, the executives have the right to keep their personal medical information private.
Reuters has reported that while Morgan Stanley CEO James Gorman revealed to employees that he had fully recovered from the coronavirus after first experiencing symptoms nearly a month previously, other executives have reported their illness shortly after their diagnosis.
Experts say that while the SEC lists the specific type of disclosures that must be made, there is also a catchall category into which reports on executives’ health would fall.
“The formal answer is, there’s a great deal of latitude” on what to reveal, said Boris Feldman, a partner with Wilson, Sonsini, Goodrich & Rosati in Palo Alto, California, who represents businesses.
“You balance the importance of the individual against their privacy rights,” without “unduly spooking employees,” he said.
“The practical answer is that most companies are not going to be putting out announcements about their CEO having the coronavirus unless they think it’s likely she won’t recover,” he said.
This is “because this is moving so quickly, and there’s such disparity in the outcome, and everybody’s trying to hold their employee base and customer base together,” Mr. Feldman said.
“Firms are not obligated from the SEC’s perspective to disclose their CEO’s health” and “as far as I know, there’s nothing different about COVID-19 that would change that,” said J. Timothy Mast, a partner with Trautman Sanders LLP in Atlanta, who represents companies in complex business disputes.
“Companies don’t have to reveal material, nonpublic information unless they have specific obligation to do so,” said Thomas O. Gorman, a partner with Dorsey & Whitney LLP in Washington, whose practice includes defending companies in SEC investigations and enforcement actions.
However, “the problem with executives who become ill is there’s a lot of public pressure that people want to know,” he said. “A lot of companies have taken the position that they will, in fact, disclose this information, because they think it’s a good practice, but that’s different from the law telling you that you must do it.”
“It depends on whether the executive is still able to perform their functions,” said Patrick M. Kennell, New York-based co-chair of the Insurance Coverage & Litigation Practice Group at Kaufman Dolowich & Voluck LLP.
If an executive is at home or even in the hospital but still performing his duties, it is not a reportable event, Mr. Kennell said. But if the executive is incubated and someone must take over his job companies “would be wise” to report it, he said.
Mr. Bailey said he recommends disclosure “absent a really compelling reason not to, although you’ve also got to weigh what it is you’re deciding to disclose.”
If it is just a matter of a coronavirus diagnosis with no symptoms it is “not a big deal,” while the situation is different if the executive has been hospitalized, he said.
“It’s what we do know, and how material it is, that is really going to be of interest to investors, and that changes literally overnight in this world, which adds a further complexity to it,” Mr. Bailey said.
“If you disclose the CEO has the virus, and that’s done in a way that suggests the CEO is in a pretty serious health crisis, that may be misleading if he’s really not, so you can’t go overboard with the disclosure, either.”
Lean in favor of disclosure, said Michael P. McCloskey, a partner with Wilson Elser Moskowitz Edelman & Dicker LLP in San Diego, who is a member of his firm’s securities and commercial litigation practices.
“The higher up you go up the executive chain, the more willing the company needs to be in favor of disclosure, but always balance that against a person’s privacy needs,” he said.
But disclosing this information creates other questions, including how often the information must be updated, said Thomas L. Hanley, chair of the public companies practice group at Stradley Ronon Stevens & Young LLP in Philadelphia.
“You open up all sorts of issues once you start making disclosures and, of course, there’s the litigation angle,” in which boards and companies get second-guessed by plaintiff attorneys who will have the benefit of hindsight, he said.
Mr. Hanley recommended boards keep good records of their deliberations, including how they reached their decision under the circumstances, and regularly revisit any decisions they make.
Many observers point out the issue of what a company should disclose arose with the illness of Apple Inc. Chairman and CEO Steve Jobs, who died in 2011. Experts say the question was debated at the time but never fully resolved.
One difference now from the situation with Mr. Jobs is that executives may rapidly fall seriously ill, while he was ill for several years and returned to work at one point, said Bonnie Y. Hochman Rothell, a partner and chief of the litigation practice at Morris Manning & Martin LLP in Washington.
In addition, Mr. Jobs was considered an important driving force behind Apple, which is “relatively unusual” among company executives, said William Passannante, New York-based shareholder and co-chair of the insurance recovery practice at Anderson Kill P.C.