Realigning Corporate Governance: Shareholder Activism by Labor Unions
Thomas, Randall S., 1955-
Schwab, Stewart J.
This paper investigates the increased shareholder activism by labor unions and their pension funds, who are now the most aggressive institutional shareholders. Sometimes unions propose traditional corporate-governance measures through procedures familiar to shareholders. Only the union sponsor is novel. But recently unions have pushed innovative methods to get corporations to listen to shareholder complaints. These methods include mandatory amendment of corporate by-laws by shareholders and floor proposals submitted for a shareholder vote at the annual meeting. Unions as shareholders have conflicting roles. We distinguish union-shareholder initiatives designed to further unions' traditional organizing and collective bargaining goals from those that enhance unions' role as a participant in strategic corporate decisions, a newer vision of the union role. With either the traditional or new role, the union shareholder can fight management in ways that benefit other shareholders, or can benefit workers at the expense of other shareholders. We use this framework to describe labor unions' current voting initiatives. From the labor perspective, unions themselves recognize the need for new approaches - including approaches that do not reflexively regard efficiency and profitability as goals of "enemy" shareholders. From the corporate perspective, unions need new approaches because they have remained peripheral players in the boardroom despite their vast stock holdings. We find legal reform to be unnecessary, because existing legal and market checks adequately constrain potential opportunistic union behavior. These checks include the fiduciary structure of Taft-Hartley union pension funds; the need to persuade other self-interested shareholders to vote for union initiatives; and the disciplinary power of capital markets, product markets, and the market for corporate control. These forces adequately limit labor unions' ability to expropriate more corporate value for their members, if they would choose to pursue that course of action. Finally, we suggest that union-shareholder activism may have long-lasting effects on unions' role in corporate governance, but only if unions focus their shareholder voting initiatives in areas where they have special advantages in monitoring management. If unions can package their proposals in ways that emphasize to other shareholders ways in which the two groups' interests are aligned, then union-shareholder activism may become an important force in corporate governance. Note: An earlier version was published in CSFLA No. 38 under the title, "Labor Unions as Shareholders: Careful Monitors or Wildcat Strikers."