Labor Flexes Its Muscles As A Stockholder

When angry investors fired off letters to embattled Philip Morris Cos. recently, the signers included usual shareholder activists such as the California and New York City public employees' pension plans. But two others stood out: the Teamsters and the United Food & Commercial Workers (UFCW). The unions, whose pension funds together own about 0.5% of Philip Morris, have been leaders in the effort to get the company to split apart its food and tobacco units. And last year, a Teamsters proposal to toss out management's poison pill garnered a 40% vote.

Philip Morris isn't the only company facing organized labor in its new role as stockholder. Since 1992, the number of union-mounted proxy battles has quadrupled. The newfound activism has set off a furor, as targeted companies denounce unions for pursuing hidden bargaining agendas as well as higher stock values. The Securities & Exchange Commission is being dragged in, too, since it must decide whether proxy resolutions merit being sent out for a vote. "This is the sleepy power of employee stock ownership finally waking up," says Joseph R. Blasi, a Rutgers University management professor.

NO POISON. Labor's boardroom muscle-flexing stems largely from simplified SEC proxy rules that took effect in 1993.

Unions have jumped at the opportunity. At least 13 sponsored 70 proxy battles this year, vs. 30 fights in 1993 and 16 in 1992, according to the Investor Responsibility Research Center (IRRC), a research group based in Washington.

Labor can pose a double-barreled threat to management when it represents both employees and stockholders. Often, unions mount proxy battles when bargaining isn't an issue. For instance, only 500 Teamster members work at Kmart Corp. But of the $46 billion in assets held by the union's 150 pension funds, $35 million is in Kmart shares. And the union was unhappy with the company's stock performance. So the Teamsters joined other investors in early June to veto management's plan to raise as much as $900 million by issuing new stock in its specialty-store units.

Unions sometimes have other motives, however. At Philip Morris, the Teamsters' primary concern is its pension funds' $180 million investment. But the union also feels that its 5,000 food-worker members there would have more secure jobs if the potential tobacco business liabilities weren't hanging over their heads. "Our starting point is shareholder issues, not employee ones," says Teamsters President Ron Carey. "But it makes it more attractive if there's a union issue there, too."

It is these employee concerns that arouse management ire. For instance, the Teamsters initiated proxy fights over corporate governance issues such as poison pills at the three largest trucking companies this year--in the middle of national freight talks. "The Teamsters are trying to organize parts of our company," fumes James R. Allen, a vice-president at Consolidated Freightways Inc., where the union has sponsored a total of five proxy resolutions since 1993--none involving labor issues. "They do this having failed in the proper labor relations arena."

RISKY BUSINESS. Such complaints have put the SEC in the hot seat. In January, it refused to allow two officials of Dow Jones & Co.'s in-house union to sponsor a resolution to limit the CEO's pay, arguing that the union was simply using the proxy process to advance its bargaining goals. However, such decisions put the commission in the risky business of divining union motives. Agency officials concede, for instance, that they would have allowed the same proposal at Dow Jones if it hadn't come from a union. And the agency allowed the UFCW to propose that Food Lion Inc. disclose its executives' profit-sharing accounts--even as the union mounts an aggressive campaign against Food Lion labor law violations. "There have been a series of contradictory decisions on unions' motivation," says Pat McGurn, a corporate-governance expert at the IRRC.

Shareholders have won only 11 of the 430 proxy fights they have mounted this year, the IRRC says. Unions accounted for 7 of those, probably since they chose companies where they were most likely to win, says McGurn. In short, business is likely to hear more from labor shareholders about how to run a company.

         Less exclusionary Securities & Exchange Commission rules on proxy
         initiatives have triggered union-sponsored actions. Some examples:
      Company         Initiative
      KMART    Clothing Workers and Teamsters joined dissidents to defeat
         company stock offering
      PHILIP MORRIS   Teamsters and Food Workers helped to form shareholder group
         that wants company to split its food and tobacco units
      CONSOLIDATED    Five Teamsters resolutions in 1993 and 1994, including
      FREIGHTWAYS      one calling for staggered board, won some 40% of vote
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