Risk & Compliance

Keeping Compensation under the Covers

While individuals are increasingly seeking privacy in divorce cases, going so far as to hire private judges, it's rare for a company to get involve...
Alix StuartFebruary 3, 2006

How far should a business go to protect its compensation information? For The Capital Group Cos., a holding company for asset-management firms including the American Funds, the distance extends all the way to divorce court.

The Los Angeles–based firm recently sought and won an order to seal practically all divorce-trial proceedings of one of its top fund managers, Timothy D. Armour. The reason? The privately held company feared that the documents would reveal salary, equity, and benefits information for the 22-year company veteran, and spark jealousy among his colleagues.

“To have [Armour’s] compensation made public is not only a violation of privacy, but is bad for morale,” says Capital Group spokesperson Chuck Freadhoff, adding that it would be “very difficult” and “counterproductive” to try to explain Armour’s pay.

It’s certainly not the first time that corporate interests have come to the fore in a private divorce. At one point in his 1997 divorce trial, former GE Capital Services head Gary Wendt asked to have his testimony sealed to protect GE’s stock price, while former CEO Jack Welch agreed to repay GE for certain perks when the lavish lifestyle his 2003 divorce papers revealed incited shareholder ire.

Attorneys who handle executive divorces, however, say Capital Group’s direct intervention is unusual. While individuals are increasingly seeking privacy in divorce cases, going so far as to hire private judges, it’s rare for a company to get involved in the fray. “It’s routine that the privacy issues of the privately held company will be asserted, [but divorcing spouses] usually find a way to reach an acceptable level of confidentiality by themselves,” says James H. Feldman, partner in the Chicago office of Jenner & Block LLP.

Capital Group’s success in court is also surprising, since judges tend to prefer redacting small portions of testimony rather than sealing the bulk of a trial, notes attorney Cheryl Lynn Hepfer, president of the American Academy of Matrimonial Lawyers.

The trial was ongoing at press time. News media organizations initially contested the efforts to keep the papers secret, but later dropped their case. Armour’s ex-wife, Nina Ritter, had also tried to keep the trial public. Her attorney, Dennis Wasser, would not comment on whether she would continue that effort.

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