Unions find a voice in the boardroom
By Deborah Brewster
Published: May 3 2004
UNIONS IN THE U.S. HAVE never achieved the same level of influence as their
comrades in Europe and the decline in their membership has accelerated in
recent years, from a high of 21m in 1980 to a record low of 15.7m in 2003.
But organised labour appears to be finding a toehold of influence in
corporate America through an unlikely means - shareholder proxy votes.
Union pension funds such as that run by the AFL-CIO, the unions' umbrella
organisation, have never been shy in giving their views on management but
are finding a more receptive audience in this year's annual meeting season.
They have a new ally in state pension funds, which control sizeable pots of
money - $2,500bn (?2,085bn), or about 8 per cent of the US stock market -
but have until now been largely acquiescent towards company management.
Fed up with three years of losses, the funds, many having union
representatives on board because of high union membership among state
employees, are showing their muscle.
Some, such as the Illinois state fund, are ending policies under which they
automatically voted with management. They are also joining forces, with the
big north-eastern state funds meeting almost weekly to discuss upcoming votes.
The effects have been felt at companies as diverse as Walt Disney, where
Michael Eisner, the chief executive, was forced to give up his chairman's
role; Safeway, which yesterday attempted to head off a shareholder revolt
led by five state pension funds by offering to bring in new independent
directors; and Marsh & McLennan, where four pension fund shareholders
forced the insurance group to appoint an independent former prosecutor to
In the past few weeks Calpers, the market leader in corporate governance
activism, has caused a stir by withholding support from directors at
hundreds of the 1,600 companies in which it holds shares, including Warren
Buffett at Coca-Cola and the top management at Citigroup.
Although the $125bn New York state fund shared Calpers' stance on
Citigroup, the move had little effect: 96 per cent of the votes were in
favour of management.
The more activist funds tend to be those from Democratic states, such as
California and New York, and those with union representatives on their
boards. Among those serving on the Calpers investment committee, for
example, is Mike Quevedo Jr, who has had a 30-year career as a union
organiser. The chairman of the Illinois fund, which is part of the Safeway
push, is a labour represenUnions find a voice in the boardroom
By Deborah Brewster
Published: May 3 2004tative.
These facts have not escaped the notice of business groups, who are gearing
up for a fight. John Castellani, president of the Business Roundtable,
which represents 150 of the biggest companies in the US, said: "Calpers is
a labour-dominated group and a lot of these funds are labour
union-dominated organisations . . . the moves on Safeway are clearly
related to the strike there".
The fur is flying over a proposal by the Securities and Exchange Commission
to allow shareholders to nominate company directors on the management's
slate. The plan, on which the SEC will decide soon, has become the most
controversial it has ever proposed. It is almost unanimously supported by
labour and state pension funds and unanimously opposed by business groups.
The Business Roundtable is quick to point out that the proposal originated
with the American State, County and Municipal Employees' Association, a
union body that has used its small $600m pension fund to put forward two
dozen shareholder proposals in the past year.
Business groups believe that the rule might become a Trojan horse for funds
to force labour-friendly candidates on to company boards.
Mr Castellani said: "This will provide an opportunity for special interest
groups such as unions to hijack corporate agendas. [The funds are] wrapping
themselves in the cloak of good corporate governance to gain power and
influence. They will come out after a while with their real demands."
Alan Hevesi, the New York comptroller who heads his state's pension fund,
disputes the theory. He said recently: "We want these companies to succeed,
we want them to perform, we want them to make money. We are capitalists in
the ultimate sense of the word, the American sense of the word".
Rich Ferlauto, AFSCME pension investment policy director, said: "We want
more shareholder-friendly directors, whether they are labour-friendly or not.
"State pension funds lost 15 per cent of their assets in the past few
years, with companies likUnions find a voice in the boardroom
By Deborah Brewster
Published: May 3 2004e Enron and WorldCom. It's no wonder they are
paying more attention to their investments."
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