The 2008 financial crisis forced many to question the transparency in markets. There are people from both sides of the aisle that beg either caution or action.
Some push for more transparency in companies by making individual employees’ salaries public. The issue at hand is the lack of federal law. There is no congressional statute that would allow such authority from the federal government.
There is no precedent for transparency. The U.S. Trustee Program does not have any regulations concerning transparency. Chapter 11 of the bankruptcy code in United States Courts does not mention a single thing about salary disclosure.
That doesn’t mean companies that receive federal money shouldn’t disclose that type of information. These companies maybe should open their books and allow creditors to evaluate whether the investment is worth the hassle.
On the other hand, there are those who oppose salary disclosure. They believe that insider pay is a private matter that shouldn’t be public knowledge.
Paul Steven Singerman is one of them. He represented the Ruden McClosky bankruptcy law firm, which filed to keep insider-pay information confidential. Singerman believed that this type of information would “jeopardiz[e] the sale of the firm and needlessly expos[e] personal confidential information of people who had no role in its financial trouble.”
Out of the 250 Chapter 11 cases from the past 15 years, only seven companies tried to keep insider-pay information private. These triumphed, but not because of their sound fiscal record. Most of these companies have debts amounting more than $1 billion.
This is a lack of transparency. Then again, the government has no regulation at hand that would permit them to disclose insider-pay. The U.S. Congress would need to act in order for these companies to become more transparent. It’s not up to the courts or the president. This is up to Congress if it wants to make financial information more public.
The question is, should Congress do this? Should the government mandate companies to disclose insider-pay?
The answer lies in the status of ownership from companies. If a company receives public money, that company should disclose as much information as possible. Taxpayers have a right under the Freedom of Information Act. If the company is privately owned, then the government has no business in knowing how much a CEO gets paid.
Insider-pay information is not going to improve the status of these companies. Just look at our own government. We all know how much congressmen, senators, presidents and justices get paid, but that doesn’t guarantee a lower debt and a stronger economy.
Transparency doesn’t guarantee a more ethical and robust market. Certainty in the markets propels a more robust economy, not more regulation like insider pay legislation. There is a clear confusion between transparency and strength in the markets.
At the end of the day, Chapter 11 cases are irrelevant to the economy as a whole. The government has no right to know about insider-pay. It should buck down and encourage new investments instead of scaring CEOs.