Realigning Corporate Governance: Shareholder Activism by Labor Unions
Labor unions are active again – but this time as capitalists. The potential strength of union pension funds has long been noted, but until recently unions have held their stock passively or invested in union-friendly companies. In the 1990s, however, unions have become the most aggressive of all institutional shareholders. In most cases, it is hard to find a socialist or proletarian plot in what unions are doing with their shares. Rather, labor activism is a model for any large institutional investor attempting to maximize return on capital. Unions, union pension funds, individual union members, and labor-oriented investment funds are using the corporate voting process to push for a wide variety of changes in corporate governance. These range from redemption of rights plans to implementation of confidential shareholder voting to caps on executive pay. This shareholder activism by unions requires a major realignment of the traditional ideologies of shareholder, worker, and manager. Managers traditionally were thought to represent shareholders’ interests and unions were thought to represent workers’. Of course, a viewpoint that equates managers’ and shareholders’ interests is naive. Corporate scholars have long emphasized a divergence between managers and shareholders. Indeed, in the 1980s workers often aligned with managers against shareholders in thwarting hostile takeovers, depriving shareholders of substantial premiums in the process. Most empirical work has found that workers were not harmed by takeovers and so gained little from this alignment. In the 1990s, a historic shift has begun, as worker-shareholders prod other shareholders into holding management more accountable. Important changes in corporate governance have already resulted. To maintain its momentum, this realignment will require unions to modify their self-image as well. Unions, swept along by actions of their pension funds, increasingly will focus on the long-run health of corporations. If they do not, labor-shareholder activism may be a fad of the 1990s, doomed to fizzle. But the potential exists for fundamental change in both corporations and unions.