The power of labor unions may be slipping at the bargaining table, but it’s growing in -- of all places -- the boardroom.
At more than 200 corporations this year, union-sponsored pension funds will try to remove directors or top managers, or otherwise make an imprint on company policy.
Such actions, of course, are part of a broader push -- a revolution, really, in the governance of U.S. corporations. This long-term move for reform was sparked originally by the collapse of Enron Corp., WorldCom Inc. and other companies where accounting shenanigans and other forms of fraud led to massive losses for investors, including pension funds.
Now, labor unions representing nurses, hotel workers, carpenters and others under the aegis of the AFL-CIO are offering more shareholder motions than ever. Indeed, on matters of corporate governance, unions account for just about half of all shareholder proposals, even though only about 1,200 union-sponsored pension plans exist compared with 47,000 corporate-sponsored plans.
Organized labor is being joined by public-employee pension funds, such as the California Public Employees’ Retirement System and the New York State Common Fund, in offering initiatives that place a bull’s-eye on company directors. For example, these forces helped swell the shareholder votes last month against directors of Walt Disney Co., including Chief Executive Michael Eisner.
Unions also are strongly behind the attempt to remove CEO Steven Burd and two others as directors of Safeway Inc. on grounds that mismanagement has triggered operating losses and a severe drop in the stock price. They also contend that the company has compromised the independence of its auditors. A Safeway spokesman dismisses the campaign as nothing more than old-fashioned “labor-union pressure” -- retribution for Safeway’s tough stance during the recent supermarket strike.
Some see grave dangers in the rising influence of unions in corporate affairs. Jarol Manheim, a professor of political science at George Washington University, cautions that all the meddling by labor could restrain business and “make U.S. companies less competitive.”
Yet for all those feelings, the trend seems only to be accelerating. The AFL-CIO, which directly influences $400 billion in multi-employer pension funds, is targeting 10 large companies, including Apple Computer Inc., Citigroup Inc. and Comcast Corp. Its aim: to dislodge those directors who voted for what union investment vice president Bill Patterson calls “egregious” (read: “super-rich”) pay packages for the brass.
Before Enron set off this era of reform, the Securities and Exchange Commission would not allow executive pay to become an issue for shareholders to consider because it was seen as part of the “ordinary business” of the firm -- under management’s sole discretion and not something that should be subject to investor “micromanagement.”
These days, though, the SEC has decided that remuneration for managers and directors is a fitting issue for shareholder input. What’s more, the commission soon may issue a ruling making it far easier for shareholder groups -- unions included -- to nominate their own candidates for the board.
“We’re not looking to take over the corporation, but to have a voice through one or two or three seats on the board,” says Gerald McEntee, chairman of the 1.4-million-member American Federation of State, County and Municipal Employees.
McEntee first proposed the idea of nominating directors in 2002, asking that his union pension fund have access to proxy materials at more than a dozen major corporations. Last month, AFSCME succeeded in placing a new director on the board of Marsh & McLennan Cos., the financial services firm hit by scandal at its Putnam mutual fund subsidiary.
Labor should be able to continue to capitalize on its shareholder muscle as long as it knows when to flex it -- and when not to.
“Union-sponsored directors have to represent all the shareholders,” notes Ira Millstein, a partner in the New York law firm Weil Gotshal & Manges and an authority on corporate governance. “If the unions get parochial and start offering resolutions that say, ‘This company can never outsource,’ that would not be acceptable.”
Still, Millstein says that “social issues could be taken up in proxy votes.” And McEntee maintains that how a company treats its employees is “very properly” an issue for shareholder representatives to scrutinize and bring to the attention of a corporate board.
Labor in America finds itself, in many respects, knocked back on its heels. Fewer than 10% of private-industry employees are unionized today, compared with more than 35% in the 1960s. Union concessions in contract talks have become routine in many sectors, from the supermarkets to the Detroit automakers to the airlines.
And yet unions have found another way to assert themselves and their interests. Proxies, not pickets, may be their best hope for the future.
James Flanigan can be reached at firstname.lastname@example.org. For previous columns, go to latimes.com/flanigan.