Audit Notes: Walmart Rewrite, AMR’s Strategic Default, Debtors’ Prison

When The Huffington Post’s Lila Pearl Shapiro wrote a critical story about Walmart’s labor practices earlier this week, the company gave it a sort of reprint in its internal news service. It just happened to leave out all the pesky critical parts:

A day after The Huffington Post published an article that examined a new effort to organize workers at the retail giant, Walmart posted an altered summary of the story on the company’s internal news wire that removed all criticism of its labor practices. Instead, Walmart’s version trumpeted the company’s “competitive pay and benefits” in an era of joblessness, by combining passages from different parts of the story, in order to deliver the message that employees won’t benefit from unionization. There was no indication that the article had been altered from its original form.

It’s not uncommon for companies to promote flattering media stories internally, but this is different, public relations experts say. When a company appears to intentionally mislead its employees about how it is viewed externally, the tactic can backfire.

The New Yorker’s James Surowiecki has a good column on the American Airlines bankruptcy, pointing out that it’s essentially a strategic default. Commentators and analyst call that “smart business” for a struggling corporation and “immoral” for a strapped homeowner:

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

When it comes to debt, then, the corporate attitude is do as I say, not as I do. And, while homeowners are cautioned to think of more than the bottom line, banks, naturally, have done business in coldly rational terms. They could have helped keep people in their homes by writing down mortgages (the equivalent of the restructuring that American Airlines’ debt holders will now be confronting).

— NPR is the latest outlet to look at how the collections industry enlists the legal system to lock up people in a sort of modern-day debtors’ prison.

Here’s how it happens: A company will often sell off its debt to a collection agency, generally called a creditor. That creditor files a lawsuit against the debtor requiring a court appearance. A notice to appear in court is supposed to be given to the debtor. If they fail to show up, a warrant is issued for their arrest.

Mike Konczal:

Debtors who run into the law often don’t understand the process; since the debt has often been resold multiple times, they may not even recognize the names of the plaintiffs. It is also problematic that debtors who don’t show up for the summons are likely to be confused as to what they are being jailed for. They may think they are being jailed for nonpayment when they are actually being jailed for the failure to show up and not telling the court and creditors about their assets. It is in the interest of creditors to blur this distinction. Though debtors can often get out of jail by compliance, they may feel they need to pay off debts immediately to get out of jail instead. Debtors will be willing to make costly financial decisions, including using money that is legally protected from debt collectors, to get out of jail immediately. Indeed, many debtors are cash constrained and can’t deal with even temporary incarceration due to the costs of work and family disruptions and will be willing to do anything to get out of jail.

We need more reporting on this.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,