US unions spearhead shareholder activism

Gil McGowan, AFL Staff

In the wake of numerous high-profile cases of corporate mismanagement and fraud, U.S. labour organizations are stepping up efforts to change the way American businesses do business.

So far this year, American unions and their pension funds have filed 297 corporate shareholder proposals, up 55 percent from the total number of proxy resolutions they introduced in all of 2002, according to Investor Responsibility Research Center.

"Unions have used the proxy process before, but they are getting more active," said Jay Lorsch, a professor at Harvard Business School. "Union pension funds are also significant shareholders, and they have decided to use the proxy process to try to influence corporate governance."

In February, the AFL-CIO, a federation of 65 unions, introduced a shareholder resolution at Tyco International Ltd. - which like, Enron and WorldCom, was recently found guilty of fraud on a massive scale.

The AFL-CIO’s Tyco resolution would require shareholders to approve the size of executive buyouts.

The measure will be voted on at Tyco’s annual meeting in Bermuda on March 6. Unions affiliated with the AFL-CIO have more than $400 billion in assets in their pension benefit funds, including hundreds of thousands of shares of Tyco.

The AFL-CIO’s proposal is one of four being offered at Tyco; the others were filed by pension funds for the American Federation of State, County and Municipal Employees and the International Brotherhood of Electrical Workers, and the officers of Amalgamated Bank, which is owned by the Union of Needletrades, Industrial and Textile Employees.

Tyco spokesman Gary Holmes declined to comment on the proposals. However, in its proxy statement, Tyco has indicated that it will recommend that shareholders vote against the union proposals.

The AFL-CIO is preparing to release its own report on labor-related shareholder proposals this spring. They say AFL-CIO affiliates and their pension funds have filed 380 proposals so far this year, almost double the number filed in 2002.

Most of these proposals attack stock options awarded to executives, said Brandon Rees, research analyst at the AFL-CIO investment office.

Specialists say a weak economy and anger over escalating executive compensation are causing shareholders – and in some cases, the targeted companies – to pay more attention to the union proposals. Of those filed in 2002, said IRRC, 41 were withdrawn after specific action was taken by the firms they targeted.

"Corporate governance is getting tremendous play in the general press because of corporate malfeasance - Enron, Tyco, you name it," said Bruce Beebe, editor of Directorship Monthly, a resource for corporate directors on best board practices and trends. "There is a sense among institutional investors that they have not taken nearly as active a role on such issues as compensation and independent audits. Unions and church groups were filing proxy resolutions for years, but people are paying more attention now. It’s front page news."