Business and Society 9th Edition by Archie Carroll,Ann Buchholtz

Exercise 2

Reporting Bad News-Whose Interests Matter?
The rules about disclosing bankruptcy to the public are unclear, and so companies are able to make their own decisions about when to disclose the fact that they are filing for bankruptcy protection. The Wall Street Journal analyzed the bankruptcy filings of 90 large public companies and found that 29 did not disclose their bankruptcy preparations in any way. A few collapsed too quickly to report, but most made the decision not to let the public know. Is that a bad thing?
On one hand, a free market relies on transparency and honesty. Bankruptcy filings are material information and, as such, investors have a right to know that a company is in distress. On the other hand, filing for bankruptcy protection is intended to help the company to get out from under debt and keep operating. Disclosure can work against that process. With the introduction of innovations such as credit default swaps, creditors are less likely to be motivated to work with the company. Furthermore, employees with mobility are likely to begin departing once they know the company's future is in doubt. Investors have a right to know, while stakeholders have a right to their livelihood. Where do you draw the line?
1. Do investors have the right to full information about a company's plans to file for bankruptcy?
2. Does a company have the right to keep bankruptcy procedures private prior to filing in order to work out an arrangement that will allow the business to continue?
3. Whose interests are more important-the investors or the stakeholders who depend on the business?
4. If you were writing the rules for corporate disclosure, where would you draw the line?