The history of labor and management relations is the ebb and flow of competition for a finite supply of business resources. But whichever side prevails, shareholder value can be diminished in the short run. Whether it’s wage increases that reduce capital, termination costs associated with labor reductions, or a proxy contest that uses up valuable management time and resources, it’s the company’s assets that are spent. That is why directors must always be facing goalposts that point in the direction of long-term economic benefit for their shareholders. Therein lies the way forward.
The continuum of labor negotiations proves that good results—those that satisfy labor, management and shareholders—happen when the parties collaborate. Even today, companies in industries that have a long history of contentious relations, such as automotive, have demonstrated this fact. Ford Motor Co. (see link below, “Turning Back Anti-Business Sentiment,”) is impressively improving conditions for employees, beneficiaries and shareholders by taking a long-term, value-oriented approach to issues of employment and governance.
Boards of directors need to understand this dynamic not only because it affects employees, but also because it often ends up in the complaint box that resides in the boardroom. If a company’s corporate governance policies are outdated or if directors are not up to the challenge of defending a given policy, they are sitting targets for unions and pension fund activists with limited share ownership rallying for change. Directors no longer have the right to choose whether to communicate to these investors—only when and how. They also need to understand their equity ownership profile in great detail and use this information to set priorities that closely mirror major shareholders’.
“The State of the Unions” is NACD Directorship’s report on the role that unions and public pension funds are playing today in corporate governance. It explores the methods and tactics used to fulfill their objectives, which can involve increasing returns to their beneficiaries, establishing a more powerful public image, or achieving political, social and even religious motives. Part I, “The History,” covers the formation of the American labor movement and the creation of government agencies charged with oversight. In Part II, “Unions as Shareholders,” Alexandra R. Lajoux provides insight into why and how unions and public pension funds are affecting corporate governance today. Cheryl L. Soltis reports in Part III, “Unions’ New Playbook,” on the intersection of politics, media and unions. Part IV, “Turning Back Anti-Business Sentiment,” provides a way forward for boards of directors dealing with this dynamic but challenging feature of the governance landscape.
The State of the Unions:
By Jeffrey M. Cunningham
Unionization in America was founded on three labor-management principles still recognizable today.
Producers vs. parasites. Labor and management were united under Terry Powderly, a machinist who led the Knights of Labor through the 1880s. The KoL was among the first unions to welcome African Americans and women. Powderly differentiated between what he called producers, which included both labor and management, and those he referred to as parasites—bankers and lawyers.
Pragmatic and proud. Samuel Gompers, who founded the precursor to the American Federation of Labor in 1881, served his version of unionism like a martini, straight and neat. He believed in the free market and felt that union involvement in politics was a distraction; his only goal was to win a greater share of America’s wealth for his members.
Change the world. In the 1930s unions enlarged their footprint by becoming instruments of social change and found an understandably receptive audience in a downtrodden workforce. The United Auto Workers were the leading symbol of the movement, and its future president, Walter Reuther, declared that unions would take on broader concern for the quality of society. This would have an impact on union history to the present day.
The Roaring Thirties (at Least for the Unions)
The Great Depression brought millions of workers into union ranks, and President Franklin D. Roosevelt cooperated by encouraging federal labor laws that enhanced union membership. He was the unions’ best friend and advocated what he called “fair competition”—government-blessed price fixing as a quid pro quo to management in return for higher wages. Thus was born the modern collective bargaining triangle composed of unions, management and politicians—and with the glaring absence of shareholders.
In 1935, New York Sen. Robert F. Wagner sponsored the National Labor Relations Act, which established the National Labor Relations Board and made collective bargaining a powerful tool for unions. Throughout most of its history, the NLRB has been union friendly. Not surprisingly, union membership increased from 12 percent to 28 percent of the labor force from 1934 to 1939, according to the National Bureau of Economic Research, the high-water mark for unionization in America.
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