As usual, LA Times business columnist James Flanigan gets (some of) the facts right but draws the wrong implications:
The power of labor unions may be slipping at the bargaining table, but it's growing in — of all places — the boardroom. At more than 200 corporations this year, union-sponsored pension funds will try to remove directors or top managers, or otherwise make an imprint on company policy. ...
"We're not looking to take over the corporation, but to have a voice through one or two or three seats on the board," says Gerald McEntee, chairman of the 1.4-million-member American Federation of State, County and Municipal Employees. ...
Labor in America finds itself, in many respects, knocked back on its heels. Fewer than 10% of private-industry employees are unionized today, compared with more than 35% in the 1960s. Union concessions in contract talks have become routine in many sectors, from the supermarkets to the Detroit automakers to the airlines. And yet unions have found another way to assert themselves and their interests. Proxies, not pickets, may be their best hope for the future.
Good for labor, perhaps, but what about the rest of us? The interests of unions as investors differ radically from those of ordinary investors. The pension fund of the union representing Safeway workers, for example, is trying to oust directors who stood up to the union in collective bargaining negotiations. Union pension funds have used shareholder proposals to obtain employee benefits they couldn't get through bargaining (although the SEC usually doesn't allow these proposals onto the proxy statement). AFSCME's involvement especially worries me; the public sector employee union is highly politicized and seems especially likely to use its pension funds as a vehicle for advancing political/social goals unrelated to shareholder interests generally.
Giving AFSCME and other union pension funds a vehicle for board membership, as the SEC is considering, strikes me as a particularly bad idea. The impact of a shareholder right to elect board members on the effectiveness of the board’s decisionmaking processes will be analogous to that of cumulative voting. Granted, some firms might benefit from the presence of skeptical outsider viewpoints. It is well-accepted, however, that cumulative voting tends to promote adversarial relations between the majority and the minority representative. The likelihood that cumulative voting will results in affectional conflict rather than cognitive conflict thus leaves one doubtful as to whether firms actually benefit from minority representations.
The likelihood of disruption in effective board processes is confirmed by the experience of German firms with codetermination. German managers sometimes deprive the supervisory board of information, because they do not want the supervisory board’s employee members to learn it. Alternatively, the board’s real work is done in committees or de facto rump caucuses from which employee representatives are excluded. As a result, while codetermination raises the costs of decisionmaking, it seemingly does not have a positive effect on substantive decisionmaking. (See my article Privately Ordered Participatory Management: An Organizational Failures Analysis.)
For more, see my op-ed column Does the SEC Know When Enough is Enough?, which critiques the SEC's pending rule proposal to allow shareholders to directly nominate directors. The op-ed is an abbreviated version of the normative arguments made in my 20-odd page essay A Comment on the SEC Shareholder Access Proposal.