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UK's listed firms must tell markets of serious executive problems

Shareholders need to know about sickness

Stock market-listed companies have a duty to inform shareholders if an executive's illness threatens to affect the firm's performance, a company law expert has said. That duty does not bind unlisted UK firms, he said.

In the wake of Apple's revelations about chief executive Steve Jobs's illness one expert has said that UK firms whose shares trade on the public markets should ensure that the markets are told about any illness or circumstance that might impair the performance of a crucial executive.

"Companies have a duty to disclose anything that might have an impact on the company's financial performance or change its prospects," said Andrew Hornigold, a corporate law expert at Pinsent Masons, the law firm behind OUT-LAW.COM.

Speculation has surrounded Jobs's health for a year, and the private Apple founder has just published the details of a treatable hormone condition that has been the cause of recent lost weight.

The issue was significant for Apple because its periods of success as a company have been closely associated with Jobs's stewardship. Industry observers believe that company shares would suffer if Jobs were suddenly not in a position to run the company.

"Directors of any company have a duty of care, skill and diligence to the company," said Hornigold. "This could extend to directors ceasing to hold office if personal issues meant that they could no longer perform their functions."

While unlisted companies would have to remove any director whose personal circumstances meant they could not fulfil their duties, they would be under no duty to inform shareholders about those circumstances.

The situation is different for listed companies because the status and historic performance of an individual could affect the value of his employers' shares," said Hornigold. "Stock markets demand that any information whose disclosure would lead to a substantial movement in shares is disclosed. This could include information about personal issues facing key directors or executives."

Hornigold said that some financial activity has obviously rested on the status of single individuals in the past. "We have seen this in the football industry, where the sale of a club has been impacted by whether a manager or player will stay or go," he said.

In more mainstream business, Hornigold said that it was most likely to be an issue in creative businesses where the ideas of an single executive can make a huge impact.

"This can really be the issue where creative people are involved. In fields such as computer game design, for example, the value of a company can be very closely tied up with individual people," he said.

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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