A new lawsuit poses once again the sticky question of whether to disclose a CEO’s sickness — or how much to reveal about it. It’s an especially important question for publicly traded companies, whose investors might want to know. But even for privately held companies, it has reputational implications. Not handling the matter correctly can lead to a crisis.

On Aug. 22, a shareholder filed a proposed class-action lawsuit against C3.ai Inc., an artificial-intelligence company based in Redwood City, California (hat tip The D&O Diary). The suit alleges C3.ai downplayed the illness of founder, CEO and chairman Thomas M. Siebel, and then later admitted it may have contributed to its disappointing sales.

In February, Siebel, 72, circulated an internal note disclosing that he contracted “an autoimmune disease” that resulted in “significant vision impairment.” He insisted the ailment wouldn’t affect his ability to run the company. This was reiterated in a Feb. 25 earnings call. In its next earnings gathering, on May 28, the company predicted rosy future results.

Yet on July 24, C3.ai issued a press release announcing that Siebel and the board had launched a search for a new CEO. “I will remain fully engaged as chief executive officer of C3.ai until such time as the C3.ai board appoints my successor,” Siebel was quoted in the release.

‘Completely Unacceptable’

On Aug. 8, the same day as the company’s next earnings announcement, it issued a press release about restructuring its sales function. The release quoted Siebel saying that the quarter’s sales “were completely unacceptable.” In part, he blamed his illness, which he now admitted distracted him from the “sales process.” The next trading day, the share price dropped by more than 25 percent.

In the lawsuit, the plaintiffs allege the statements about Siebel’s ability to continue to run the company misled investors. “Defendants created the false impression that they possessed reliable information pertaining to the company’s projected revenue outlook and anticipated growth while also minimizing risk to the company’s profitability from defendant Siegel’s health concerns,” according to the complaint.

“The lawsuit touches on long-standing concerns about company disclosures concerning senior executives’ health,” Kevin M. LaCroix wrote in his D&O Diary post.

Indeed, companies struggle with this. Responses range from full disclosure to complete silence. For example, in 2015 United Airlines issued a press release announcing that CEO Oscar Munoz had suffered a heart attack. On the other hand, Apple was dogged for years with accusations that it wasn’t being open about Steve Jobs’ pancreatic-cancer diagnosis, which he first disclosed internally in 2004 and from which he died in 2011.

Reasonable Investor

The law doesn’t require such disclosure unless the executive becomes incapacitated, so there’s leeway for public companies in deciding whether and how much to reveal. The legal question is whether the information is “material” — whether a “reasonable investor” would deem it important. From our point of view, it’s a similar question for a company’s reputation: Would stakeholders view your company as secretive or lacking transparency if you withhold such information? Of course, the executive’s privacy also comes into play.

What’s not in question is that organizations should have a crisis communications plan in place for dealing with high-level executives’ illnesses, including having prepared statements at the ready. That plan would rely heavily on the company’s policy on this issue, such as when it should disclose such information. In fact, creating a plan would help the company formulate that policy.

Photo Credit: C3.ai

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