Even with a friendly administration in the White House that aggressively bailed out the United Auto Workers, labor unions have had a rough go of late. Private-sector union membership continues to dwindle, as unionized companies -- weighed down by unsustainable pay and benefits -- lose out in the marketplace to their nonunionized peers.
Public-sector unions have fared less badly in terms of membership, but budget constraints have forced states like Indiana, Wisconsin and Rhode Island to institute necessary reforms to benefits and pensions. (And states that have resisted such reforms -- especially California -- have seen their fiscal situations deteriorate.)
Stymied by marketplace pressures and government constraints, labor unions are turning to the corporate ballot box, attempting to exercise the shareholder voting power of employee pension funds to muscle American corporations in their preferred direction. In a recent column in the Washington Post, Harold Meyerson praised unions for "using the voting power of their pension funds" to organize "shareholder opposition to excessive executive pay and corporate political donations."
Aside from the underlying merits of Meyerson's beef with American corporations, the problem with his mechanism is that employee pension funds, under the federal Employee Retirement Income Security Act, or ERISA, are supposed to focus solely on increasing shareholder returns and safeguarding workers' financial interests. Even if a company's actions are damaging to organized labor, labor pension funds shouldn't be advancing union interests at the cost of jeopardizing their beneficiaries' retirements by undercutting the profitability of the companies in which the funds invest.
In March 2011, the Office of the Inspector General of the U.S. Department of Labor suggested that union funds may be using "plan assets to support or pursue proxy proposals for personal, social, legislative, regulatory, or public policy agendas." And in July 2011, the D.C. Circuit Court of Appeals opined that public and private employee pension funds may be "pursu[ing] self-interested objectives rather than the goal of maximizing shareholder value."
An analysis of data from the Manhattan Institute's Proxy Monitor database, which catalogs shareholder proposals submitted to America's largest publicly held corporations, suggests that unions' funds may well be acting for reasons other than increasing the value of their shares. Labor funds disproportionately sponsor proposals related to executive compensation or seeking to separate companies' chairman and CEO positions -- proposals particularly sensitive to corporate leaders since they directly target management's pay or control, respectively.
Employee pension funds also tend to introduce more shareholder proposals at companies that are the ongoing targets of union-organizing campaigns. In 2012, companies in the lightly unionized and labor-targeted financial services and retail sectors received significantly more shareholder proposals backed by employee pension funds than companies in other industries. Among the companies receiving multiple proposals this year are publicly announced union-organizing targets like Bank of America, Citigroup, Rite Aid, Safeway, Wal-Mart and Wells Fargo.
Companies in other sectors that faced multiple union proposals seem to have been targeted for reasons other than stock performance. ExxonMobil, Anadarko Petroleum and Abbott Laboratories, for instance, each received multiple union-backed shareholder proposals in 2012 despite significantly outperforming their peer groups in the year prior. But each of these companies, unlike most large corporations, gave PAC monies disproportionately to Republican candidates. Moreover, Anadarko's efforts to exploit natural-gas hydraulic fracturing potentially threatens older union-intensive jobs in coal energy production. The CEO of Abbott, which received more union-backed shareholder proposals than any other company, very publicly supported public-employee-union reforms in various states, including Wisconsin and Illinois.
By and large, shareholders have been rejecting labor-backed proxy activism, but executives and boards may eventually decide to capitulate rather than fight such strong-arm tactics. Let's hope they don't -- and let's hope that the Department of Labor, charged with enforcing ERISA, looks more closely at how union-backed pension funds are overseeing their retirees' investments.
James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute, which sponsors a publicly available database of corporate shareholder proposals, proxymonitor.org.