Hammer Case Raises Issue of What Needs to Be Told
Occidental Petroleum Chairman Armand Hammer was due to make a presentation to the Los Angeles Society of Financial Analysts last Thursday. He didn’t show up. Occidental officials didn’t say so until late Friday, but the 91-year-old executive had a good reason. He was in UCLA Medical Center awaiting insertion of a cardiac pacemaker.
The incident revived debate about how candid companies ought to be about the health of their key executives.
Securities and Exchange Commission rules require public companies to disclose any “material event” that a reasonable shareholder would expect to know. But the rule is so broad that companies have wide latitude to make their own judgments about what (and when) shareholders are entitled to know about the health of the people running their company.
Failure to disclose doesn’t guarantee that a company can control events. It also raises questions about whether a company’s silence allows some shareholders to benefit from information known only to a few.
Occidental should have been more forthcoming in disclosing Hammer’s condition because the company’s situation is “so unusual,” said Bill Feathers, president of the Los Angeles chapter of United Shareholders Assn. He cited Hammer’s age and prior stock speculation based on his health.
Other companies have also delayed disclosure when illness struck.
In 1987, J. B. Fuqua, then 69, chairman of Atlanta-based Fuqua Industries, underwent a cardiac procedure to clear a clogged artery. The procedure wasn’t disclosed until a reporter questioned the company more than a week later about the discovery of a court affidavit. In the affidavit, submitted in an attempt to delay a trial involving a former Fuqua business unit, Fuqua’s doctor cited the procedure to support a request that the chairman be allowed some time before appearing in court.
MCI announced in the spring of 1987 that its chairman, William G. McGowan, had undergone heart surgery. Not until two weeks later was it revealed that the surgery had been a heart transplant.
In recent years, however, more companies have opted for prompt disclosure.
Marriott Corp. announced immediately on Oct. 2 that chairman J. W. Marriott Jr. had suffered a mild heart attack.
Los Angeles-based MCA Inc. issued an immediate statement in June, 1987, when chairman Lew R. Wasserman, then 74, was hospitalized for what was termed routine surgery to remove polyps from his colon. MCA’s share price gyrated on speculation that a weakening of Wasserman’s influence could lead to a takeover attempt.
Similarly, Occidental’s shares jumped $3 Friday on heavy volume, closing at $31, after traders got a whiff that something was amiss with Hammer.
The events apparently were set in motion by Hammer’s failure to appear at the analysts’ meeting Thursday. The Wall Street Journal, quoting a reporter who was at the meeting, reported Monday that Occidental chairman and chief operating officer Ray R. Irani had told the analysts Thursday that Hammer was absent because of “doctor’s orders” and that his “ribs are hurting.” Irani didn’t return calls Monday.
By Friday morning, rumors were circulating in Los Angeles that Hammer was in the hospital’s intensive care unit. In New York, the stock was rising on heavy volume. The hospital was silent, except to say that a statement was being prepared.
The stock exchange halted trading in Occidental shares just before the end of the day because of an order imbalance. Late in the afternoon, the hospital confirmed that Hammer was in the intensive care unit, but wouldn’t say why. Hours later, Occidental told the entire story and Hammer himself told the Los Angeles Times that he was well. The stock slipped back to $29 on Monday.
The SEC bars companies from giving out false or misleading information and requires them to disclose any facts that have rendered previous information misleading, said Mary Beach, associate director of the SEC’s division of corporate finance. But she stressed that disclosure “is not a black or white question.”
If there has been a pattern of speculative trading in a company’s stock because of reports about the health of an official, a company might want to consider that in assessing whether to disclose, Beach said. If company officers were selling stock based on their knowledge of the official’s health, that would be material inside information, she said.
The disclosure of an illness shouldn’t hurt a well-managed company where “succession has been established,” said Lawrence W. Fisher, president of Braun & Co., a Los Angeles public relations firm. Fisher said he has never had a client in such a situation, “but I couldn’t imagine that we would recommend keeping it a secret. I think it is material.”
