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 
its board.

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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