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Disclose, Disclose, Hide

posted by Elizabeth Warren

All my professional life, I have heard that there are three rules of bankruptcy:  "disclose, disclose, disclose."  Worried about a conflict?  Disclose it. Want to make a payment? Disclose it.  Starting a new business initiative? Disclose it.  In fact, I thought disclosure was the quo for the quid of the automatic stay and other bankruptcy-induced protection.  Evidently I was misinformed.

Gretchen Morgensen reported in the New York Times yesterday that Delaware bankruptcy judge Kevin Carey ruled that the Werner Company, a ladder maker, wouldn't have to disclose the bonsues it was handing out to the executives as part of the reorganization plan.  The reason?  Such disclosure ""may create low morale and an unhealthy work environment." Just to drive home the point, the hearing itself was closed to the public.

What can this mean except that the employees are asked to take a hit while the executives are taking home sacks of money?  And if keeping it a secret is supposed to help morale, then is it fair to assume that the amount of money the executives are keeping is more even than the rank-and-file employees could possibly imagine?

So the new rule is "discose, disclose, and keep it a secret if the big boys want it that way"?  I just want to be sure that I have it right before I try to teach it to a new generation of students.


As a matter of course, publicly traded companies have to disclose compensation for their five highest-paid executives. The idea that "low morale" and an "unhealty work environment" would excuse those regular disclosure requirements would be laughable.

This rule strikes me as outrageous, especially as we may be poised for a serial bankruptcies for the remaining legacy industries to shed pension, union contracts, and remaining retiree healthcare costs. The purpose of such a rule, I assume, is to create sufficient incentives to attract executives to invest in this specialty type of management.

But it is not entirely clear to most workers will benefit from these reorganizations, since the remaining job will pay so much less and offer minimal security in old age. The entire system appears to favor investors and management--apparently, even in procedural aspects of bankruptcy litigation. At a minimum, disclosure would facilitate a debate on the merits of a new, wealthier class of distress managers.

Even from the debtor’s (i.e. management’s) perspective this seems like a bad move – all the secrecy has simply drawn attention to the motion, and the employees (like us) will now probably assume the worst about these bonuses. I’m not sure how this maintains employee moral.

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