Just how loose those rules are has been made plain by the way Apple (AAPL) has handled news about the health of its CEO Steve Jobs, who received a liver transplant at Methodist University Hospital Transplant Institute in Memphis.

What's odd about the news is how it was conveyed to the public. Official confirmation came June 23, in the form of a statement from the hospital. Jobs gave the facility, and the doctor who performed the surgery, his permission to release the statement. But where was Apple's board? The institute's statement followed a June 20 report in The Wall Street Journal saying Jobs received the transplant in April. Bloomberg News initially reported in January that Jobs was considering a liver transplant.

Apple and its board have been largely silent on the issue since Jan. 5, when Jobs said his doctors found a "hormone imbalance" that was causing weight loss, the treatment for which he said was "simple and straightforward." Then, on Jan. 14, Jobs said he would take a medical leave until June because he had learned, during the prior week, that his health issues were "more complex than I had originally thought." During the interim, Apple has consistently reiterated that Jobs would be back at work in June and declined to elaborate on his condition.

Adhering to the Letter of the Law

But even before the medical leave, Apple and its board have maintained that they say as much as they have to about the health of an executive who was diagnosed with pancreatic cancer in 2003, underwent surgery to treat the disease in 2004, and has shown signs of physical ailment since 2006 that have led to incessant speculation over his physical well-being. Yet, as Apple director and Genentech's then-CEO [now chairman] Arthur Levinson said during a Feb. 25 shareholder meeting, Apple is in compliance with the law when it comes to disclosure over the health of its CEO.

Therein lies the rub. Ask legal and corporate governance experts and they'll tell you that indeed Apple is adhering to the letter of the law on this. That's because in the eyes of regulators, Apple really doesn't have to say much. The closest thing to guidance the SEC does give appears on page 15 of the form for filing an 8K report, used for alerting shareholders to events that may have a material effect on the company. Listed companies have to report the retirement, resignation, firing, or other departure of principal officers, and the hiring and appointment of new ones. That's it.

It's time for the SEC to tighten and clarify the rules. I know where a lot of Apple fans stand on this matter. The company continues to produce stellar products and its shares are on a tear. Apple's profits skyrocketed to $4.8 billion in fiscal 2008 from $266 million in 2004. Sales surged to $32.5 billion from $8.3 billion in that same time frame. The stock has risen tenfold through the end of fiscal 2008 from the beginning of fiscal 2004. Shareholders have little to complain about. Then they likewise shouldn't mind more data on Jobs' condition.

SEC: Case for More Disclosure?

The SEC has a strong legal basis on which to set down strict guidelines about reporting on the health of a CEO, say a group of academics whose research is due to be published in Business Horizons, the journal of the Kelley School of Business at Indiana University. The paper was authored by Alexa Perryman, a professor of management at Texas Christian University; Frank Butler of Florida State University; and John Martin of the U.S. Air Force Academy.

The authors outline extreme cases where shareholders were given plenty and too little information on the condition of a CEO. In 1993, when Tenneco (TEN) CEO Michael Walsh was diagnosed with brain cancer, the company made an extensive and detailed disclosure. Before he died in 1994, Walsh stayed on long enough to see the company through a restructuring and to designate a successor. In 2006, Frank Lanza, the CEO of defense contractor L-3 Communications (LLL), was recovering from surgery on his esophagus, supposedly for acid reflux, when he died suddenly of esophageal cancer, a condition about which L-3 investors were ignorant.

The legal basis stems from a 1976 decision by the U.S. Supreme Court, which ruled in TSC Industries v. Northway that "an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." The case had nothing to do with the health matters of executives, but rather information withheld from view about which shareholders would reasonably wish to know.

Too often, CEOs resist disclosure until the illness has reached a critical stage. Perryman and her co-authors suggest that the SEC lay down guidelines that would require disclosure any time there's an illness or medical condition that endangers the CEO's life, or would require a lengthy absence, or would impact the CEO's ability to do his or her job.

Apple & Steve Jobs: Tardy and Evasive

Apple's case certainly meets the criteria. It's hard to argue that Apple shareholders have had all the information about the health of the CEO to which they are arguably entitled. In fact investors had precious little information, and when disclosure has been made it has rarely if ever been in a timely manner.

Consider the first time Jobs was ill. The world first learned of his pancreatic cancer on Aug. 1, 2004, and then only after he had undergone significant surgery to treat it. It wasn't until many years later, when Fortune magazine reported it in 2008, that the world learned that the cancer diagnosis had been made in October 2003, without so much as a single word to shareholders.

After Jobs' return from the surgery in late 2004, Apple went about its usual way: introducing new iPods, moving the Mac platform to using Intel (INTC) chips, unveiling the iPhone -- spurring the company to incredible growth and profitability.

After this disclosure of the surgery, rare was the time Jobs would appear in public without his appearance being remarked upon. Forbes columnist Rich Karlgaard started sounding alarm bells about Jobs' apparent weight loss in 2006. And practically every time Jobs sat for a live interview with CNBC anchor Maria Bartiromo, she would make a point of asking him plainly and directly about the state of his health. His answers were always evasive and inconclusive.

The visible weight loss indicated a medical problem, the precise nature of which remains unknown. But it may have been a recurrence of cancer that ultimately necessitated a liver transplant. Thankfully, Jobs' prognosis is "excellent," physicians in Memphis say.

Severity of Jobs' Illness Still Unknown

But as details of his procedure emerge, it's becoming alarmingly clear how unwell Jobs had become. On June 23, the United Network for Organ Sharing issued a statement intended to assure the world that Jobs received no special treatment due to his wealth or status. The organization, which under a federal contract operates the national Organ Procurement & Transplantation Network, says that like any other liver transplant patient, Jobs was screened under a system known as MELD, short for Model for End-Stage Liver Disease. A MELD score -- ranging from 6 for less-severe cases and 40 for the most severe -- uses a formula based on tests of liver and kidney function meant to evaluate the risk of the patient dying within three months without a transplant. Patients who score 15 or higher are "at considerable risk of dying in the short term without a transplant," the organization says.

We don't know what Jobs' score under the MELD system was or when he received it. But judging from the timing of various statements in December and January from Apple, the mid-January Bloomberg report, and the Journal report that his transplant happened in April, it's apparent that his condition was severe enough early in the year to warrant a transplant within roughly four months -- i.e. that his MELD score may have been at least 15, and that the risk of death was high.

Apple declined to discuss this matter. The fact is, it doesn't have to, just like it didn't have to at various stages over the past five years -- because in the eyes of regulators, an executive facing a life-threatening illness doesn't qualify as an event that has to be reported to shareholders. It should.

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