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Individual Privacy vs. Informed Investors: A Corporate Dilemma

Individual Privacy vs. Informed Investors: A Corporate Dilemma

By Ryann M. Aaron

On September 22, Goldman Sachs CEO, Lloyd Blankfein, announced he is suffering from a curable form of lymphoma. Although Blankfein stated that his cancer is curable and he anticipates working “substantially as normal” while he receives chemotherapy treatment, many are already speculating as to his possible successors.1 Amid this kerfuffle, some might be more concerned about the greater implications brought about by this announcement. For instance, what causes a CEO like Blankfein to divulge such personal, private information when most of us consider our medical information confidential and off limits? And if Blankfein is obligated to disclose his medical information, how would he know the appropriate time to share the news?

Although announcements like Blankfein’s seem somewhat commonplace, arguably, they may be rarer than expected as some CEO’s keep the specifics of their medical conditions secret. Consider, for example, the January 17, 2011, Steve Jobs announcement that he was taking his third medical leave although he had been diagnosed with pancreatic cancer in 2003, well in advance of his 2011 announcement.2 Or the May 14, 2010, Sara Lee announcement that CEO, Brenda Barnes, was taking a medical leave while keeping her stroke under wraps.3 So what then leads a CEO like Blankfein to come forward with his private medical information?

Answer: The Securities Act of 1933 and the Securities Exchange Act of 1934.

These Acts require certain publicly traded companies to disclose any “material” information to prevent the reporting of misleading statements.4 Material information is defined as information where “there is a substantial likelihood that a reasonable investor would attach importance in determining whether to buy or sell the securities registered.”5 Because the SEC has not provided guidance on this specific issue, much uncertainty exists as to whether a corporate executive’s personal health conditions may be considered material. Furthermore, a corporate executive might be uncertain about when medical information becomes material. Should information be disclosed upon diagnosis of a condition? Does the information become material once the medical condition reaches a certain level of health concern to the executive? Does the medical condition have to substantially impair the executive’s duties to become material?

In a 2009 article, legal scholar Allan Horwich proposed an addition to the SEC reporting requirements as a potential solution to this problem.6 This addition requires a company to disclose medical information of a “covered person” if that person is known to be suffering from a physical or mental illness that “substantially impairs or is substantially likely within two years to substantially impair the capability of the covered person to perform the functions…represented in any public disclosure that the covered person is performing.”7 Covered persons are directors, employees, or independent contractors that are fundamental to the financial performance of the company.8

While this proposal, if adopted, would certainly provide clarity on the reporting of medical information, such a requirement would have serious implications on an individual’s right to privacy. After all, this proposed Act would now be an explicit law requiring an individual to disclose personal medical information no matter the diagnosis if such condition were thought to substantially impair that individual’s ability to perform work-related functions. Not only is this an invasion of privacy, but the Act is also problematic in that it serves only to shift the inquiry from what is “material” to what is considered a “substantial impairment” of work performance. Thus, the same ambiguities arise regarding how and when to disclose a medical condition depending on how one defines “substantial impairment.”

Although the current SEC requirements do not provide specific guidance on medical disclosures, clearly Blankfein’s announcement shows that companies are fearful of violations if they are thought to be misleading investors by keeping them in the dark. Blankfein is the second CEO from one of the country’s largest banks to announce a cancer diagnosis in the last 15 months, following James Dimon of J.P. Morgan Chase & Co. who has been treated for throat cancer.9 These announcements give rise to a dilemma between an individual’s right to privacy and investors’ rights to make informed decisions in securities trading.10 For now, the current SEC reporting requirements seem adequate although they depend on subjective determinations of how and when a corporate executive’s medical condition becomes material.

1 http://money.cnn.com/2015/09/22/investing/goldman-sachs-lloyd-blankfein-lymphoma/index.html.

2 Ufuoma Barbara Akpotaire, Examining Timely Disclosure of Material Information to Shareholders and the Privacy Concerns of Executive Officers, March 29, 2011, p. 3, 19 available at http://www.academia.edu/2539325/Examining_Timely_Disclosure_of_Material_Information_to_Shareholders_and_the_Privacy_Concerns_of_Executive_Officers.

3 Akpotaire, supra n. 2 at p. 3.

4 17 C.F.R. §§230.408(a), 240.12b-20.

5 17 C.F.R. §§230.405, 240.12b-2.

6 See Allan Horwich, When the Corporate Luminary Becomes Seriously Ill: When Is a Corporation Obligated To Disclose that Illness and Should the Securities and Exchange Commission Adopt a Rule Requiring Disclosure?, 5 N.Y.U. J.L. & Bus. 827 (2009).

7 Horwich, supra n. 6 at 867-68.

8 Horwich, supra n. 6 at 868.

9 Justin Baer, CEO Illness Hits Hard At Goldman, The Wall Street Journal, September 23, 2015, at C2.

10 The Goldman Sachs Group, Inc. (GS) stock price seems relatively unaffected by Blankfein’s announcement. GS was trading at $183.35 before the announcement on September 21, 2015, and was trading at $175.59 as of October 1, 2015. This is compared to a high and low price in August 2015 of $205.97 and $178.22, respectively. See http://quotes.wsj.com/GS/advanced-chart (last visited October 1, 2015).