The law discriminates among a corporation's secrets. In the eyes of the law, commercial secrets of corporations are legitimate secrets that deserve legal protection and nondisclosure, but personal secrets of executives are not as deserving of legal protection and nondisclosure. This divergent treatment of secrets has resulted in a legal landscape of perplexing, paradoxical paths for corporations and executives concerning executive disclosures--a precarious landscape that has left corporations and investors dangerously susceptible to revelations of private facts that shock market valuation and institutional stability.
This Article explores this divergent treatment of secrets in the context of public corporations and the private individuals who manage them, and offers a new way of thinking about corporate and personal secrets. This Article conceives the concept of Executive Trade Secrets as a pragmatic theoretical framework for unlocking this paradox of secrets and addressing the challenges surrounding executive disclosures. This Article is the first to use trade secrets law to address the interdisciplinary legal issues surrounding executive disclosures. It re-conceptualizes private matters of executives as legally protectable trade secrets by unfolding the hidden symmetry between commercial secrets and personal secrets. It reveals Executive Trade Secrets as faithful to the first principles of the laws of trade secrets, privacy, securities, and corporations, and explains how such fidelity protects the privacy interests of executives and the corporate interests of shareholders. This Article, ultimately, constructs a way to think anew about executive disclosures and the larger issues at the modern nexus of secrecy, privacy, and commerce.
INTRODUCTION I. PUBLIC FIRMS AND PRIVATE MANAGERS A. The Disclosure Obligations of Public Firms B. Disclosure Obligations Relating to Executives C. The Rise of Executives/The Fall of Executive Privacy II. LEGAL TENSIONS & INCONSISTENT PRACTICES A. Tensions Under Federal Securities Law B. Tensions Under Corporate Law 1. Duty of Care 2. Duty of Loyalty C. Tensions Under Privacy Laws D. Inconsistent Practices III. INTRODUCTION TO TRADE SECRETS IV. THE EXECUTIVE TRADE SECRETS FRAMEWORK A. An Introduction to Executive Trade Secrets B. Fidelity to Laws Concerning Executive Disclosures C. Executive Disclosures with Executive Trade Secrets D. A Political Analogy: Executive Privilege V. KEY IMPLICATIONS OF EXECUTIVE TRADE SECRETS A. A Shield to Protect or a Shield to Hide? B. Better Executive Pools & More Public Firms C. The (Further) Commoditization of Personal Privacy CONCLUSION INTRODUCTION
Secrets pose vexing problems for law and society. (1) The WikiLeaks scandal that unfolded in 2010 illustrates the difficulties concerning secrets in the Information Age. (2) Free societies and free markets generally require openness and transparency. (3) But individuals, states, and firms that inhabit and participate in those free societies and free markets often desire intimacy and secrecy. (4) To satisfy these divergent goals, the law discriminates among secrets--aiding some to hide in the dark, (5) while pushing others into the light. (6)
In the context of public corporations, the law facilitates hiding business secrets but helps expose the secrets of business executives. (7) In the eyes of the law, commercial or trade secrets are legitimate secrets that deserve legal protection and nondisclosure (8) while personal secrets concerning private facts of executives are not as deserving of legal protection and nondisclosure. This discriminatory treatment of secrets has resulted in a muddled legal landscape of paradoxical paths concerning executive disclosures of private information--diminishing privacy protections for executives, weakening legal safeguards for investors, and leaving corporations and investors dangerously susceptible to revelations of private facts that shock market valuation and institutional stability.
Two prominent episodes involving Apple, one of the most secretive companies in the world, (9) and its reclusive former chief executive, Steve Jobs, illustrate this dangerous discriminatory treatment of secrets:
The Mysterious Illness. In the summer of 2008, Steve Jobs's sickly appearance at a trade show sent Apple shares moving. (10) Apple shareholders and the marketplace began wondering whether Mr. Jobs's pancreatic cancer, for which he was treated in 2004, had returned. (11) Apple refused to comment on his health condition, stating that it was a "private matter." (12) For months, the company's shares fluctuated under the uncertainty cast by Mr. Jobs's health and rumors surrounding it. At various times, Mr. Jobs was reported to have suffered a heart attack (13) or died. (14) Finally, in January of 2009, Mr. Jobs told the world in a letter that he was suffering from a "hormonal imbalance" with a "relatively simple and straightforward" remedy and that he would "continue as Apple's CEO during [his] recovery." (15) About a week later, Apple announced that he was taking leave from the company due to health reasons. (16) Following this unexpected announcement many in the legal and corporate community suggested that Mr. Jobs and Apple may have violated federal securities law and state corporate law by not timely disclosing his private health condition to investors, given his importance to the company. (17) Amidst the outcry, the Securities and Exchange Commission (SEC) commenced an investigation shortly thereafter. (18)
As a coda, in January 2011, Mr. Jobs once again took medical leave from Apple under similarly mysterious circumstances without any meaningful disclosure from Apple or Mr. Jobs to the public. (19) Apple shares again dropped precipitously upon the announcement of his leave. (20) In August 2011, in a short letter, (21) Mr. Jobs resigned as chief executive of Apple. (22) Shortly after the announcement, Apple shares dropped 5% during after-hours trading. (23) Mr. Jobs would pass away a few weeks later in early October 2011 at the age of fifty-six. (24)
The Misplaced iPhone. In the spring of 2010, an Apple engineer misplaced a top secret prototype iPhone at a bar. The phone was subsequently found and sold to the consumer electronic weblog, Gizmodo.com, which examined it "as if it were an alien from another planet" and posted numerous images and commentary of the device for Apple-obsessed consumers and competitors. (25) Apple then reported the phone stolen. (26) The blogger in possession of the phone subsequently returned it after Mr. Jobs and Apple's general counsel contacted him. (27) Following the phone's return, a special task force of armed police officers and investigators broke down the front door of the home of Gizmodo's editor and confiscated several personal items in connection with the misplaced phone. (28) The iPhone 4--the ultimate iteration of the misplaced prototype--was launched in the summer of 2010 and became the most successful product launch for Apple. (29) In just three days, over 1.7 million units were sold. (30) While some questioned Apple's heavy-handed tactics, (31) few legal commentators disputed that Apple had a right to protect the secrets of its iPhone prototype. (32)
In sum, these two episodes, the Mysterious Illness and the Misplaced iPhone, highlight the contrasting legal treatments and perceptions of business secrets and the secrets of business people. While Mr. Jobs's refusal to reveal his private medical secrets incited an SEC investigation, Apple's aggressive (and armed) defense of its product secrets garnered understanding. The law must better address this divergent treatment of secrets as private lives of executives continue to attract more public attention.
This Article explores this divergent and paradoxical treatment of secrets, in the context of public firms and the private individuals who manage them, and introduces the concept of Executive Trade Secrets as a pragmatic theoretical framework for executives, investors, and regulators to address and to think anew about executive disclosures of private facts. This Article is the first to use trade secrets law to address the difficult interdisciplinary legal issues surrounding executive disclosures. (33) This Article aims to reveal that the secrets of the Mysterious Illness are much like the secrets of the Misplaced iPhone, that some personal secrets of executives are like the commercial secrets of the businesses they manage. Both are worthy of legal protection and nondisclosure. Executive Trade Secrets, as conceived here, will change conventional understandings of executive disclosures, (34) strengthen privacy protections for executives, and further the corporate interests of shareholders. Ultimately, it will offer a new way to think about executive disclosures and the larger issues at the modern nexus of privacy, secrecy, and commerce.
It should be noted upfront that this Article does not intend to create a heroic construct to shield all private information of executives from public disclosure, nor does it intend to elevate the privacy rights of executives. Instead, this Article inquires into the legal paradox between business secrets and secrets of business people, and it reveals the hidden symmetry of both types of secrets and key implications uncovered by this revelation.
This Article proceeds with this revelation in five parts. Part I starts with an exposition of the laws of corporate secret-telling. It begins by documenting the disclosure requirements of firms and executives under federal securities law. (35) It then explicates on the rise of executives and the fall of their privacy. (36)
Part II exposes how the secrets of executives are shielded from the public and shown to the public. It commences with an exploration of the legal tensions arising out of executive disclosures by traversing the main fault lines at the nexus of securities law, corporate law, and privacy...