Randomly Noted

I agree with what my colleague and fellow blogger Gabriella Stern wrote here about the disclosure obligations of the Apple Inc. board of directors and the illness of the company’s leader, Steve Jobs. Despite already being on medical leave, shareholders did indeed deserve to know that Jobs, the man widely viewed as Apple’s innovator-in-chief, had a liver transplant about two months ago.

It sheds light on an interesting and ongoing issue in U.S. corporate disclosure. In simplistic terms I describe it as the difference between material and merely important. To reach the level of materiality, and thus obligate a publicly traded U.S. company to report it, new information has to be of a level to change the mix of an investor’s thinking about the company.

The definition of what is material is not written down anywhere. It is developed in case law and so open to some, usually lawyerly, interpretation. A few years back in a court case, the Securities and Exchange Commission said something is material if “there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment decision. Also, if there was a substantial likelihood a reasonable investor would think the information ”significantly altered the total mix of information available” about a company.

Lots of word in there open for interpretation, such as “substantial” and “reasonable.”

Anyway, there’s another subjective decision boards of directors ought to make and that’s on information’s importance. Is something simply important for investors and shareholders to know? It might not be material, but it is still important. And they should err on the side of being inclusive in the definition of important. All things equal, the more information out there the better for all.

It would seem the Jobs surgery, while certainly a sensitive and personal matter for Jobs, also was important for holders and investors to know about.