WORKPLACE: Spring 2002
SOCIAL TOPICS (Archive): WORKPLACE
Workers and Their Capital:
Labor Unions as Shareholder Activists
Published, Spring 2002
By Steven Heim
Ralph Nader has said that the American people would have great power for social change if we controlled what we owned: millions of acres of federal lands, hundreds of billions of savings deposits, trillions in pension fund assets, and much more. While citizens nominally "own" these vast resources, control over them is vested in federal agencies, banks, and money managers.
U.S. pension fund assets total over $7 trillion, the biggest source of investment capital in the world. These funds are tantalizingly huge but are blocked from worker control or influence by federal laws and regulations. Labor unions directly influence only one type of pension fund: labor union-sponsored, multi-employer pension funds. These are formally known as joint trustee Taft-Hartley pension funds, representing $420 billion or 6 percent of pension fund assets. Labor unions and employers have equal representation as the trustees for these funds. In contrast, the bulk of U.S. pension fund assets are with company-sponsored and public employee pension funds.
Labor unions realize that this vast wealth has little influence on financial markets and companies for the benefit of working people. "We asked money managers what they were doing with our pension funds and assets," said Leo Gerard, president of the United Steelworkers of America (USWA). "Why do their decisions have such negative repercussions for the beneficiaries - working people?" Examples include plant closings and factories moving overseas, among others.
Many labor investors, like social investors, share a similar investment goal - strong financial returns that augment labor's mission. So, labor unions have called for the "high road" to corporate competitiveness through adopting high performance workplace practices, compliance with labor and environmental laws and regulations and respect for the basic rights of all workers. They employ three main strategies using pension fund assets:
- Shareholder resolutions promoting good corporate governance and policies that benefit workers;
- Proxy voting guidelines and investment manager evaluations; and
- Targeted investments supporting economic development and worker-friendly companies.
U.S. labor unions, along with public pension funds, have sponsored many shareholder resolutions dealing with corporate governance and board accountability, such as executive compensation, classified boards, and tender offer defenses. Along with social investors, labor unions supported resolutions against apartheid in South Africa. Recently, labor unions have sponsored shareholder resolutions more directly related to workers such as on Equal Employment Opportunity (EEO), operations in Burma, and global labor codes of conduct.
In fact, U.S. labor unions have used shareholder resolutions and activism as part of corporate campaigns and unionizing drives. Successful initiatives include Rio Tinto (2000), Marriott and Union Pacific (1998), and Wheeling Pittsburgh Steel (1997). The three-year global shareholder campaign against Rio Tinto, the world's largest mining company, was the first led by global unions, including U.S. unions. In May 2000, the two union-sponsored proposals received 20 percent and 17 percent of the votes, the former addressed corporate governance issues and the latter called for Rio Tinto to comply with basic trade union rights globally. This strong support encouraged Rio Tinto to reach new labor agreements in Australia after years of fighting to oust the miners' union.
Labor unions are also using proxy voting guidelines and investment manager evaluations as a tool. Investing in Our Future: AFL-CIO Proxy Voting Guidelines is the AFL-CIO's general guide for voting proxies for multi-employer pension funds. Since 1997, the AFL-CIO also conducts the AFL-CIO Key Votes Survey, which ranks Taft-Hartley money managers on key votes ranging from executive compensation to employment discrimination to see whether they voted union pension fund proxies in ways that benefited workers. Also, the AFL-CIO's Investment Products Review rates 40 investment products that market themselves as worker-friendly in four areas: real estate and mortgages, public equity, private capital, and international.
Like other pension funds, labor unions invest a small portion of their pension money in private equity investment pools for greater financial returns. Unions, however, are targeting their funds to also foster complementary benefits of job creation and retention, better working conditions and pay, and economic development. Examples of projects they fund include union-built power plants and construction projects and shopping centers anchored by union supermarkets. The Heartland Labor Capital Network, with support from the USWA, is drawing from successful Canadian models of union-funded venture capital funds to promote regional, jobs-oriented investment strategies for union pension funds.
Apart from targeted investments, the main gains from labor-shareholder activism may be political rather than economic, according to Marlene O'Connor, a law professor at Stetson University in Florida. She says the U.S. labor movement benefits by (1) generating positive publicity from making management more accountable, (2) demonstrating that working people are the beneficiaries of many institutional shareholders, (3) establishing that such shareholder activism is politically feasible and gains bipartisan support, and (4) altering managers' perception of workers' interest in their investments. O'Connor argues that "corporate governance will trump labor laws in importance, and shareholder rights will constitute a new focal point for labor relations in the twenty-first century."
In the end, providing a secure and decent retirement is the goal for labor's pension funds -- or any pension fund. Achieving that goal will provide collateral benefits for today's workers, here and abroad, through inspired shareholder activism. Already, labor unions and social investors share many activist strategies to influence company practices for economic justice. The partnership has only just begun. (See Highlights of Walden's Labor Shareholder Partnerships, below)
For more information:
- Working Capital: The Power of Labor's Pensions, edited by Archong Fung, Tessa Hebb, and Joel Rogers. Cornell University Press: Ithaca, NY, 2001
- AFL-CIO Office of Investment: (202) 637-3900
Steven Heim is a social research analyst. Since 1994, he has also worked closely with Rural Vermont, a family farm and environmental advocacy group.
Highlights of Walden's Labor Shareholder Partnerships
Walden worked to sponsor the first shareholder resolution filed by a mutual fund, prompting Angelica Corp. to negotiate in good faith with its union. This was after a two-year struggle led by the Amalgamated Textile Workers Union (now known as UNITE) to get the company to bargain with its workers. (1986)
Service Employees International Union joined Walden, the primary sponsor of an equal employment opportunity (EEO) shareholder resolution with Home Depot. This proxy vote became the first ever EEO-related "Key Vote" by the AFL-CIO. (1999)
Walden helped workers at Imerys' Alabama plant win the right to a fair election in which the PACE International Union prevailed. This was after a Walden representative spoke at Imerys' annual meeting in France and management pledged to not retaliate against union supporters. (2000)
Workers at an Arizona plant of Taiheiyo Cement Co. of Japan won their first contract in almost four years. This was after Walden joined with PACE International Union and the Just Transition Alliance, a grassroots labor and environmental justice coalition, to pressure management to bargain with the workers and address the local community's environmental concerns. (2002)
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