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Privacy and Health Disclosure Liability

3-business-people-in-boardroomPublicly held corporations must disclose information that may have a material effect on the company—and officer health is not among examples listed in the government’s definition of “material.”

As an officer or director at your organization, you have an obligation to disclose any information that might materially affect your company or affect investors’ decision to acquire or sell shares.

Personal privacy trumps disclosure obligations as long as you are able to continue performing your duties for the company—until you turn over your duties as a principal officer, you are not required to inform shareholders. However, shareholders will likely come to know of any health issues whether or not you disclose immediately.

Shareholder Litigation

There are two scenarios that could give rise to shareholder litigation should you choose to protect your privacy and not reveal that you are experiencing health issues. In both of these cases, stock price would have to drop dramatically to merit a shareholder lawsuit.

Shareholders could claim that the announcement of your illness came at the end of a period of misrepresentation and that the company had concealed information about your well-being for an extended period of time. In this case, plaintiffs would need to establish that the information was material.

In the event of your departure from the firm, shareholders could say more should have been disclosed prior to the leave, and that by not disclosing information, the stock price was artificially inflated.

In any case, if your company is highly dependent on you for proper functioning, if there is a doubt, the best practice is to disclose information about your health.

Your Right to Privacy

Disclosures are not necessarily required about officer health—and after all, it is difficult to decide at what point it is appropriate to disclose information. However, the issue is highly debated, and some believe that the potential harm an officer’s absence could cause the company constitutes a material effect.

Risk Transfer

Directors and officers (D&O) liability insurance will cover legal costs in the event of a shareholder claim. Both you and your business can benefit from a D&O policy. Since there is no such thing as a “standard” policy, an independent insurance broker is invaluable when purchasing D&O coverage.

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