Now that the United Auto Workers will likely own big stakes of General Motors and Chrysler (possibly 39% of GM and 55% of the latter) some very thorny questions arise. How will management work with some degree of union ownership? First, let’s look at a few facts. The UAW won’t directly own equity stakes in the car companies. The shares will be owned by a Voluntary Employee Benefits Trust, or VEBA, which invests cash and manages a portfolio to pay union healthcare benefits. When all of the legal proceedings are done, which should be next year, the VEBA trusts will have a board of trustees who could get representation on the boards of the companies.
Does that mean GM CEO Fritz Henderson would be working, in part, for the union? Partly. He may have to answer questions at board meetings from VEBA trustees or their appointed representatives. But this isn’t going to be like an employee-owned company when the workers actually pick management.
Things could get touchy during union negotiations, however. Henderson and whoever Fiat picks to run Chrysler will have to cut a deal with labor and then make sure the board is comfortable with it. If the VEBA trust has union-friendly people on its board, that could make labor negotiations uncomfortable for management.
But believe it or not, there will be checks and balances. The union trustees could pressure management to play nice and give labor fat contracts. But if that results in a less competitive car company, then GM or Chrysler would lose money and their shares will lose value. Then, the trust will have a tougher time paying those health benefits. And remember one this: Trustees have a fiduciary duty to the trust. They may like the UAW. They may also support the cause of blue-collar affluence. Heck, they could be fire-breathing socialists who loathe management. But their legal duty is to manage that trust and make sure it can make a return on its investments and pay the benefits that the union negotiated years ago.
The UAW’s VEBA could do a couple big things to make sure there aren’t conflicts of interest. First, they appoint trustees who are smart business people and know how to manage an investment. These should be the kind of minds who know that GM and Chrysler need low costs to survive and thrive. Second, in order to get cash into their funds, they will need to sell down their stake in both companies. They will need to do this at some point because you don’t pay doctors and hospitals with shares of GM.
There are plenty of critics who hate the idea of the union and government owning pieces of the carmakers. But in a way, VEBA ownership of shares in GM and Chrysler could force labor to realize—right down to the nitty gritty of their own medical benefits—how important it is for these two companies to make real money. If they don’t it would be their own members who lose healthcare benefits. And to the UAW, great healthcare is the last thing that its leaders have ever wanted to touch when it came time for a new four-year labor deal.