It sounds suspiciously like an episode of “Dr. Phil,” during which an unhappy girlfriend discovers the healing powers of Ben & Jerry’s. But Bank of America’s lawyers will have to use a lot more than Chunky Monkey to keep pay bonuses from becoming public information. The bank recently went under fire for its refusal to disclose details of 2008 bonuses given to its employees as well as those of its investment bank, Merrill Lynch.
New York Attorney General Andrew Cuomo and Rep. Barney Frank, D-Bristol, insist the bank should disclose the names of both its and Merrill Lynch’s employees receiving bonuses of more than $1,000,000. Cuomo and Frank cite the $45 billion in bailout funds given to Bank of America by a Wall Street rescue package as reason enough for taxpayers to know the bank’s internal pay information. Frank calls the demand for information a “matter of transparency and disclosure.”
Bank of America executives, however, see the situation very differently. The bank considers the $3.6 billion in bonuses given to Merrill Lynch employees directly before the merger as “subject to a reasonable confidentiality agreement.” But the December bonuses paid to employees occurred a questionably short time before the January merger.
Lawmakers are crying foul play about the bank’s refusal to reveal compensation information, but the bank maintains that it has acted in good faith. Bank of America lawyers came to the courtroom Friday prepared with an example they believe shields the bank from forced disclosure.
In 1979, the New York attorney general’s office investigated ice cream company Carvel for restraint-of-trade allegations. The New York State Supreme Court ruled that Carvel did not have to disclose its secret formula to its famous desserts. Known as the “ice cream defense,” the case established a precedent for the treatment of trade secret questions.
For Bank of America lawyers, this case creates precedent that pay information the bank garnered from Merrill Lynch’s records deserves protection as a trade secret. The bank argues that keeping pay scales a secret ultimately stops other banks from being able to undercut the bank’s salary offerings. Without this guarantee, the bank fears it will have a more difficult time retaining its employee pool.
Bank of America cites worker privacy as another concern. The bank claims that allowing public access to the bonus list wrongly reveals an essentially protected aspect of employment with the company. The case begs the question: As American taxpayers, how much should we know about the inner workings of our corporations if we are paying to prop them up? Obviously, trade secret protection exists for an important reason in American law. Companies should be able to protect the essential and specific information that keeps them in business, as long as that information conforms to ethical standards.
The relationship between corporations and their legal privacy protection strains, however, when the company relies on government funds. Cuomo and Frank maintain that the failure to disclose information suggests, at the very least, that the banks have been misleading their customers.
Certainly, the timing of the bonuses — during a painful recession — does not make Merrill Lynch look exceedingly innocent, nor does the $15 billion in last year’s losses on the company’s books. Nevertheless, if Bank of America truly needs to keep its pay information private to stay competitive in the marketplace, forcing disclosure could have a slowing effect on the banking system’s recovery.
The Bank of America case may springboard a discussion about the future obligations of companies who have received bailout funds. Tying taxpayer money to the success or failure of a company requires a new negotiation of public and private boundaries. If Americans want their bailout funds put to best use, restrictions must be carefully enforced to protect trade secrecy while still maintaining ethical requirements for company spending. It is important that any regulation of borrowed funds does not tread on the positive protections of intellectual property that already exist, and that the “competitive” aspects of the market are not forgotten in pursuit of balanced regulation. Bank of America may not have a legitimate claim to trade secrecy, but privacy issues will remain relevant as long as bailout funds support American corporations.
Lauren’s column runs biweekly Thursdays. She can be reached at l.palmer@cavalierdaily.com.
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