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Leave Pete Buttigieg’s McKinsey NDA Alone

Stephen L. Carter

(Bloomberg Opinion) -- News organizations this week declared that the electorate needs to know exactly what Mayor Pete Buttigieg did, and for whom, a decade ago during his stint at the consulting firm McKinsey & Company. The Democratic presidential candidate has asked McKinsey to release him from the terms of his non-disclosure agreement so that he can answer their questions.

Here’s hoping McKinsey stands up to the pressure.

The issue arose after the New York Times published an article about work the consulting firm did for Immigration and Customs Enforcement. (McKinsey has flatly denied the major allegations made in the piece.) The newspaper followed up with an editorial demanding that Buttigieg tell voters the identities of his clients and the nature of the work he did for them. Others piled on. The Huffington Post, for example, accused the candidate of “dodging questions.” 

Buttigieg, who has insisted he has no regrets about his time at McKinsey, has lately become a critic of his former employer, calling its work with immigration authorities “disgusting.” The Los Angeles Times calls the contretemps a “collision of the growing use of nondisclosure agreements in the private sector with the public’s expectation of transparency from candidates seeking higher office.”

But there was no collision until the news media chose to create one. Non-disclosure agreements are neither evil nor new. They’re a tool of long standing to enable one party to share its secrets with another, confident that the second party will keep those secrets confidential. Without such agreements, the provision of professional services would become effectively impossible, because clients would never be sure their secrets would be kept — including, in many cases, the secret of the fact that they hired a lawyer or consultant at all. That some secrets hidden by a particular non-disclosure agreement are of interest to others can’t be relevant to whether to undo it; the agreement exists precisely because the information it protects has value.

When I teach contract law to first-year law students, here's how I explain non-disclosure agreements: Suppose that you sue me, claiming to have been wrongfully terminated. I offer you a choice. I will pay you either (1) $50,000 to drop the lawsuit with no strings attached or (2) $100,000 to drop the lawsuit and promise not to disclose any of the underlying facts to anyone. The structure of the second offer means that I value your silence at more than $50,000. If you value your right to speak out about the underlying facts at less than $50,000, you will accept that offer. If you place a higher value on your right to speak out, you will demand more. If we wind up making a deal, at whatever price, it means that you believe you’re better off selling your right to speak out than keeping it.

Why on earth should that decision be anyone else’s business? The agreement isn't enforceable unless you've been paid, and you entered into the agreement with your eyes wide open. If we regulate nondisclosure agreements — for example, by following the lead of several states that now allow judges in certain circumstances to order them unlocked — then we reduce the value of the agreements to both the parties paying the money and the parties receiving it. Thus the next time around, the party desiring to protect its secrets will pay less, as it must take into account the possibility that the secrets won’t stay secret.

Of course, we can all imagine circumstances in which one party is coerced or deceived into signing the agreement, but those can be dealt with according to the usual rules regarding coercion or deception in the contracting process.

In any event, it’s hard to see how any of the usual critiques of NDAs apply to Pete Buttigieg. He wasn’t settling a complaint. Certainly nobody claims that he was coerced. He was simply getting paid for professional services.

Newspapers can argue that the public interest demands that the non-disclosure agreement be set aside. But courts have repeatedly rejected this argument. That would be a good rule for politics too.

The fact that people would like to know what secrets Buttigieg has promised to keep for McKinsey doesn’t place any obligation on McKinsey at all. McKinsey & Company is the sort of place that will always attract ambitious young people planning to move on to the next big thing. It's hard to see how the fact that having worked there is now causing one of them difficulties in a campaign for public office places any obligation on McKinsey.

Yet, weirdly, the news media seem to consider the whole thing McKinsey’s fault. Here’s the Times again: “The most straightforward solution is for McKinsey to release him from his vows of silence — or at least to substitute a significantly more permissive agreement.”

No, that solution isn’t straightforward. We might pardonably call it ridiculous. Why should McKinsey bear the loss? McKinsey’s clients — not Pete Buttigieg — are the ones the agreement protects. Confidentiality is the principle on which much of the world of professional services is built. Consulting firms, law firms, public relations firms, just about everybody who regularly does business with major companies requires employees to sign non-disclosure agreements. Many of these service companies, as part of their orientation, instruct new hires never to tell anybody who their clients are. Part of the security one gets in return for the fees paid to a law or consulting or public relations firm is the assurance that your secrets will stay secret.

If due to news media pressure this longstanding arrangement is cast aside, future clients of law firms or consulting firms will know that there’s a new risk in engaging the firm — to wit, that secrets seen as politically juicy will no longer stay secret. Due to this risk, future clients will pay less for the firm’s services. This development in turn will lead to lower compensation for employees. That’s a fairly hefty cost to place on tens of thousands of bystanders so that the news media can satisfy its hunger for information about a single political candidate.

Happily, there’s another way out. The candidate has raised a lot of money; the media organizations eager to make a feeding frenzy of whatever might emerge are (mostly) profitable. Rather than demand that McKinsey give it away for free, Buttigieg or the news media or some combination thereof should purchase McKinsey’s rights to enforce the contract. 

This is the simplest, fairest, and most efficient answer — and the negotiation process itself would yield important information. Because if the would-be purchasers can’t find a price at which McKinsey will sell the secrets the agreement protects, we’ll know that the news media and the activists value them less than the company does.

In which case they should stay secret.

To contact the author of this story: Stephen L. Carter at scarter01@bloomberg.net

To contact the editor responsible for this story: Sarah Green Carmichael at sgreencarmic@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park,” and his latest nonfiction book is “Invisible: The Forgotten Story of the Black Woman Lawyer Who Took Down America's Most Powerful Mobster.”

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