Here are some things you might be on the listen for at the upcoming video conferences/meetings:
1. Efforts to weasel out of obligations to employees: If employees work or have worked, they must be paid. Employees also must be paid their accrued vacation and reimbursed expenses. Employees may be entitled to severance pay under state or federal WARN laws. In a WARN mass lay-off it doesn’t matter whether employees quickly find new jobs (on their own or by moving with a group to a new firm), severance is owed.
I assume Heller management may have some kinds of deferred compensation plans/perks; depending on how these were set-up, some money may be owed to employees. Same is true with bonus and stock investment plans.
Listen carefully when management talks about health insurance: Heller management might be legally entitled to cut-off medical plans very quickly and/or limit the number of employees to who COBRA is available. Listen for an unequivocal confirmation that there are no issues with the 401k or any other retirement funds that might affect our ability to access/rollover our accounts. And ask when the plan(s) are being shut down.
2. Blaming the banks: If there is any degree of weaseling on obligations to employees, management/shareholders will try to blame it on the banks, e.g., “gosh, we’re really sorry, but the bank won’t let us pay you.” If you hear that, alarm bells should be ringing loudly because it’s a weasel attempt to get off the hook but still look like a good guy.
Banks don’t force customers to break laws. No bank is going to tell Heller management that they cannot pay what is legally owed to their employees. It’s true that the banks might tell the shareholders that they – the banks – won’t lend/advance money for the shareholders to pay their obligations, but that’s very different than saying “you can’t pay them.” If the banks won’t lend/advance the money, then it’s up to the Firm and the shareholders to find another way to come up with the money to pay the employees. An LLP isn’t the absolute person protection that some like to think (just ask the Brobeck partners).
Employees work for one, many, or all partners. At least in California, wage claims can be made against not just the firm, but also or alternatively against individual partners.
3. “Sorry, there’s no money:” Another statement that should set off the alarm bells. Of course there’s money, and lots of it. Not only are there accounts receivables, but there’s also a huge asset in the value of the business which has been, is being, and will be taken to other firms. A portion of that value is owed to Heller or, if and when it goes into dissolution, the Heller estate.
For example, though not well publicized, there’s quite a list of firms that took in former Brobeck partners and ended up paying millions to the Brobeck estate. If the bank debt is secured (and possibly backed-up to some extent with personal recourse guarantees from shareholders), so the banks stand first in line to be paid off. Still, there should be a lot of money left after the banks are paid off.
In Brobeck’s case, and keep in mind that Brobeck had run up a huge bank debt, the amount recovered after the banks were paid totals over $75 million, possibly as much as $100 million. With Heller’s reputation as financially conservative, it is most likely that bank debt is much lower than Brobeck’s was, but its receivables and the value of business taken away should be at least as high as Brobeck’s, thus the assumption that there is indeed money available.
The questions, however, are how much of that money Heller management really want to collect, and what they really want to do with it. Heller management probably won’t mind hitting up most clients for the accounts receivables, but they might very likely not want to go after other firms for the value of business taken from Heller. The Heller shareholders are out there trying to sell themselves and their books of business, trying to make the best compensation deals possible for themselves, and that’s a lot easier to do if the acquiring firm thinks it’s getting the partner(s)’s book free and clear, i.e., won’t have to pay anything to Heller for the value of the book. So it’s easy to imagine that the Heller shareholders and management will agree not to pursue recovery of money for the value of business taken to new firms—even though that money could be used to pay what’s owed employees and other unsecured creditors.
4. “The partners are losing much more:” At one other blog, a partner is complaining about having lost his capital. The affect of some shareholders moaning about their lost capital is to make some/many employees feel sympathetic to the shareholders or even guilty for asking to be paid. It’s as though shareholders are saying “my loss is much greater than yours, you should be glad you haven’t lost as much as me, and you certainly shouldn’t be asking me to pay for your loss.”
In my view that’s total hooey. Economic loss, and the harm caused by it, is relative. Comparison of absolute numbers is not only misleading, but also downright deceptive. On average, Heller shareholders made over $1 million a year. Despite their grumbling and their seemingly constant pursuit of ever more money, these are wealthy people. In all likelihood, the partners’ wealth and position will allow them to bear and recover their loss much easier and much faster than the average staffer can.
In the Brobeck collapse, no partners lost their homes and ended up living in shelters, but staffers did. So if you hear shareholders trying to minimize employees’ loss by comparing it to their own, then you might have to decide whether they’re doing so because they’re clueless idiots or manipulative weasels.
5. The Nuremberg Defense: It’s not uncommon for people to have trouble accepting and acknowledging that their actions or inactions have hurt others. Most of us seem to have a need to be thought of as a good person. I wouldn’t be surprised to hear that a lot of shareholders, especially the rank and file ones, are telling themselves and whoever will listen some variation of “it’s not my fault.” Some will say they didn’t know, some will say there was nothing they could do, some will say both. And most of the employees will feel sorry for some or all shareholders, and will let them off the blame hook. What’s most important now, however, isn’t taking blame for the past, but rather taking responsibility in the present and future. Fault is a red herring. Right now it doesn’t really matter how this happened or who caused it or who knew what was going on. What does matter is that they all know what’s going on now. For however many years, they reaped the considerable benefits of partnership, of being an owner of the firm. If the ability to think of themselves, and have others think of them as a good person, then they have to accept and own up to the fact that as owners of the firm they have legal and moral responsibilities to their employees. They might not be to blame for things going sour, but if they don’t step up now to make sure all employees are treated fairly then they will be at fault.
6. The False Heroes: This is definitely related to the last point. Some shareholders might make quite the show of patting themselves on the back for taking some employees with them to their new firms. These types act like letting a few people into their lifeboat not only discharges their responsibilities to all the employees, but more obnoxiously that they’re some kind of heroic saviors. As noted elsewhere, only those who can directly benefit the shareholder(s) are given a seat in a lifeboat. Others, especially administrative staffers, won’t get offered a seat.
The way I see it: if a hundred people get thrown into the water on your watch, pulling a half dozen into a lifeboat doesn’t make you a hero. Heroes are those who make sure no person’s left behind. And say or think what you will about Tower Snow, but he did not leave Clifford Chance until he’d made sure every employee found a new job.
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I continue to believe that Heller management and shareholders will behave responsibly and honorably to their employees. I fervently hope none of the alarm bells mentioned above will ring anywhere throughout Heller. As in the past, I’ve written this hoping that it’ll prove completely unnecessary, but with the sad recognition that there’s at least some small possibility that it won’t be.
Over and out.