Corporate Bankruptcies and the Fall of Polaroid

A federal bankruptcy judge recently approved United Airlines' default on 120,000 employee and retiree pensions — the largest in U.S. history. Like United, many companies now find themselves strained by financial promises made to employees and have begun looking to Chapter 11 for relief. Though many big names have emerged from bankruptcy leaner and more competitive, employees rarely share their boardrooms' enthusiasm. Rachel Gotbaum reports on the storied collapse of American photo icon Polaroid.

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A federal bankruptcy judge recently approved United Airline's default on 120,000 employee and retiree pensions, the largest in US history. Like United, many companies now find themselves strained by financial promises made to employees, and have begun looking to Chapter 11 for relief. Though many big-name companies have emerged from bankruptcy leaner and more competitive, employees rarely share their boardroom's enthusiasm. Rachel Gotbaum reports on the storied collapse of American icon Polaroid.

RACHEL GOTBAUM reporting:

In its heyday, Polaroid employed some 20,000 workers. The Massachusetts company was as well-known over the years for its generous employee benefits as it was for its instant cameras. Dan O'Neill worked as a machinist for Polaroid for 31 years.

Mr. DAN O'NEILL (Former Polaroid Employee): For years, I was faithful to that company and everything else. It was a family. It was a real family.

GOTBAUM: Three years ago, at the age of 61, O'Neill took early retirement from Polaroid. As part of the deal, O'Neill was told he would receive a generous severance package. He could also count on health and life insurance for himself and his wife that Polaroid had promised the retirees who had worked for the company for decades. But on his last day of work, O'Neill got a call from his boss with some bad news.

Mr. O'NEILL: And he told me--he says, `Dan, don't come in Monday to sign your final papers,' that `There's not going to be any severance. You're not going to get any life or medical. The company has claimed bankruptcy.'

GOTBAUM: In the wake of the bankruptcy, O'Neill and 6,000 other Polaroid retirees lost the lifetime benefits they were promised, and thousands of other workers were laid off. O'Neill immediately transferred his pension out of Polaroid, but many others lost much of theirs in bankruptcy proceedings. And the stock that the employees were forced to buy to help avoid a hostile takeover in the 1980s became virtually worthless.

Mr. O'NEILL: What I planned for originally was a good life of retirement the way it was given to me, but then I was told that there's nothing there.

GOTBAUM: Polaroid claimed it was $1 billion in the red. In the weeks before declaring Chapter 11, Polaroid executives reaped millions of dollars in bonuses. A year later, in 2002, Polaroid was purchased by One Equity Partners for $255 million. The sale included large bonuses and stock options for those same Polaroid executives who took the company through bankruptcy. Dan O'Neill says Polaroid's employees and retirees were squeezed out of the deal.

Mr. O'NEILL: I just couldn't believe that Polaroid was doing this to all of us and leaving us out in the ocean, floating out there, as they scalped the money from the company.

GOTBAUM: The retirees went to court to try to get their benefits back. They lost. But last month, as part of a settlement with Polaroid, they each received a check for $47. At the same time, Polaroid was purchased again. Executives who brokered that deal earned millions of dollars in bonuses from the sale.

Professor ELIZABETH WARREN (Harvard Law School): It's clear that we have a set of rules that permit a company like Polaroid to treat its employees and retirees very badly.

GOTBAUM: Elizabeth Warren is a professor at Harvard Law School.

Prof. WARREN: We live in an environment now when choosing to file for Chapter 11 can simply be a sound business strategy, a profit-maximizing way to deal with certain obligations that have become very expensive and very unprofitable.

GOTBAUM: For its part, no one at Polaroid would speak on tape. There are those who defend the bankruptcy laws and say they are not only fair, but a way to save businesses and preserve jobs in the community.

Mr. ED SMITH (Bankruptcy Attorney, Bingham & McCutchen): The idea is that a business that has some real life is better off staying alive than being dead.

GOTBAUM: Ed Smith is a bankruptcy attorney for Bingham & McCutchen in Boston.

Mr. SMITH: What the court is trying to do is to preserve the life of the business. And to do that, the business has to find a way of shedding a number of its obligations to get down to its core business, which is still profitable.

GOTBAUM: The approval by the bankruptcy court to allow United Airlines to default on its pension obligations is the most recent example, and, says Warren, there will be many more to follow. For NPR News, I'm Rachel Gotbaum in Boston.

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