Labor Deals That Offer A Break From `Us Vs. Them'Kevin Kelly and Aaron Bernstein
Employee empowerment. It's a management catchphrase encompassing everything from work teams to employee ownership of corporate stock. Until recently, many big companies wanted it in their union contracts--but only if labor didn't gain real clout. Now, however, some big companies are poised to give the concept new oomph.
Over the past few months, a spate of new deals in the airline and steel industries has given unions unprecedented power (table). Contracts at Inland Steel, LTV, Northwest Airlines, and TWA have set up formal mechanisms for worker input along the lines of those heralded at General Motors' Saturn Corp. In some cases, employees also stand to exercise significant control over key aspects of corporate decision-making, such as capital investment, mergers, asset sales, and even hiring senior management. Contends William Compton, head of the Air Line Pilots Assn. local at Trans World Airlines Inc.: "We are forging the workplace of the future."
Now, the Big Kahuna in Washington is planning to add momentum to the trend. On July 26, more than 300 corporate executives, labor leaders, and academics will gather in Chicago at the behest of President Clinton to discuss this very topic: the future of the American workplace. The conference, which will be led by Labor Secretary Robert B. Reich and Commerce Secretary Ronald H. Brown, will showcase companies that have adopted the cooperative approach the President favors.
BEST SEATS. In the meantime, the airlines are breaking new ground. As TWA struggled through Chapter 11 bankruptcy last summer, its unions agreed to $660 million in concessions in exchange for 45% of the company's equity. They got 4 of the 15 board seats and the right to name one of two vice-chairmen. Labor also played a key role in the recent selection of former Piedmont Aviation Inc. President William R. Howard to be TWA's CEO. The unions' clout extends far beyond the formal structures. Compton says he talks at least three times a week with TWA senior managers to iron out problems and get updates on the carrier's finances. And employee committees meet with TWA executives to discuss ways to cut costs and boost productivity.
Northwest is now following TWA's lead. Northwest won a tentative agreement from its unions in early July to swap $886 million in wage concessions for up to 37.5% of the company's equity, plus three board seats. Labor's actual control will go much further: Northwest agreed that 5 votes of the 15 board members could block most major corporate decisions, including asset sales, financing plans, or bankruptcy filings. The union assumes that its representatives can make alliances with others on the board to defeat moves it opposes.
Similar deals may be in the works at other major carriers. On July 16, unions at United Airlines Inc. presented the company's lawyers with a package that offers $3.36 billion in wage and benefit cuts over five years. Pilots, for instance, would take an 11.9% pay cut. In return, the unions want up to 60% of the carrier's equity. Current shareholders would get cash, debt, and stock for their shares. Although United is financially sound, employees worry that it could get into trouble if Northwest gains a big edge in costs. Moreover, adds one participant in the talks, "it's a question of how much control labor should have."
HOW FAR? Steel unions are also gaining deeper involvement in company affairs. Pacts at LTV and Inland Steel gave workers or their representatives seats on the board, profit sharing, and strong job-security guarantees in return for simpler work rules and job reductions through attrition. While not as extensive as those at the airlines, the deals give employees some say over how the companies realign themselves to become more competitive. Says United Steelworkers negotiator Jack Parton: "We ain't going to survive by fighting every three years."How far will the trend go? Clinton has argued that the U.S. must adopt European-style labor-management cooperation to succeed globally. That hasn't happened yet, but the shift toward more cooperation is gaining momentum in the U.S. That means "employee empowerment" is one catchphrase that isn't likely to lose its resonance any time soon.
WHERE LABOR IS GAINING CLOUT INLAND STEEL Recently agreed that the union could nominate a board member and that union officers can attend executive meetings and meet regularly with department managers LTV A labor/management steering committee now oversees new technology, and labor won an extensive new training program NORTHWEST AIRLINES If the machinists vote yes, labor may have potential veto power over most investments, management changes, and any bankruptcy, breakup, or asset sell-offs UNITED AIRLINES Labor proposes to give $3.4 billion in concessions over five years for up to 60% of the company's stock, plus significant control over big decisions DATA: BUSINESS WEEK