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Unions Grasp for Influence Over Private Equity by Ivan Osorio

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Unions Grasp for Influence Over Private Equity by Ivan Osorio Unions Grasp For Influence Over Private Equity By Ivan Osorio Summary: When private equity firms unions are able to pressure companies by Enron and WorldCom scandals, has buy up companies they expect to avoid having the funds offer shareholder reso- sparked an unanticipated response from shareholder pressure campaigns—espe- lutions at corporate annual meetings. More some companies. To avoid burdensome cially those devised by labor unions. Or and more companies find themselves un- government regulation, they are deciding so they hope. der the gun, dealing with aggressive not to list their shares on American stock union-sponsored shareholder resolutions. exchanges—a trend that is leading to more ention the names of certain However, the enactment of the 2002 stock listings in overseas financial cen- large corporations, and many Sarbanes-Oxley Act, in the wake of the ters like London and Hong Kong. In some M people start to think bad things. ExxonMobil reaps “windfall profits” as it “gouges” drivers with high gas prices. Wal-Mart “destroys” city downtowns by ‘Corporate Campaigns’ Target Private Firms “undercutting” mom-and-pop shops. Sound familiar? That’s precisely how An Interview With Jarol Manheim organized labor and their allies want it. These companies have been targets of Labor Watch author Ivan Osorio “corporate campaigns”—public relations interviewed Jarol Manheim, Profes- onslaughts designed to damage a sor of Media and Public Affairs and company’s reputation. of Political Science at the George When planning corporate campaigns, Washington University. Professor unions and activist groups research their Manheim is the author of The Death target and identify its weaknesses. One of a Thousand Cuts: Corporate Cam- key pressure point is a company’s need paigns and the Attack on the Corpo- for capital. Because they often have great ration (Lawrence Erlbaum, 2000) influence over pension funds, many and Biz-War and the Out-of-Power Elite: The Progressive-Left Attack on the Corporation (Lawrence Erlbaum, October 2007 2004). Labor Watch: You have written ex- Unions Grasp For Influence Over tensively on corporate campaigns, ignore their major shareholders, so Private Equity which are multi-faceted public rela- pressure from this direction can be page 1 tions campaigns that labor unions and quite effective. More than that, cer- activist groups use to gain a certain tain kinds of shareholder resolu- ‘Corporate Campaigns’ Target advantage from a company. What role tions—such as those splitting the Private Firms does shareholder pressure play in this CEO and Board Chair positions or re- page 1 strategy? quiring multiple candidates for each position on the board of directors— Labor Notes Jarol Manheim: Companies cannot (Continued on page 6) page 8 cases, companies have even de-listed as labor unions and religious organiza- on the company to change its corporate their stock shares in the U.S. tions that had the capacity to pressure governance practices or adopt specific This has created great asset shopping corporations. public policy positions. opportunities for private equity firms, SDS and its allied organization, the Manheim, in the same panel discussion, which are buying up publicly owned com- North American Congress on Latin noted that “on the one hand, while [union panies. Because they do not trade pub- America, developed a careful methodol- membership] has been declining, another licly, private equity firms are not directly base of power has been increasing” exposed to the kinds of shareholder pres- through the leveraging of $3 trillion in sure that publicly traded companies face. To overcome their assets in public employee and multi-em- However, organized labor isn’t about to ployer pension funds run by boards that sit idly by and let this development con- continuing decline in the include union representatives. tinue unchecked. Union officials under- American workforce, A key to helping unions leverage these stand that they must adapt to a new in- assets was the establishment in 1995 of vestment environment and they are look- labor unions are the AFL-CIO Center for Working Capital. ing for bold new ways to meet the chal- This was the year John Sweeney became lenge of private equity. increasingly adopting president of the federation. Even before corporate campaign heading the AFL-CIO, Sweeney led the Leveraging Pension Funds stridently activist Service Employees In- The ideological roots of union corpo- strategies. An essential... ternational Union (SEIU), which perfected rate campaigns can be found in the 1960s campaign practice is the the strategy of the corporate campaign. left-wing group Students for a Democratic In his 1995 AFL-CIO inaugural address, Society (SDS). According to George Wash- shareholder resolution. Sweeney proclaimed, “We will use old- ington University political scientist Jarol fashioned mass demonstrations, as well Manheim, who has studied the history as sophisticated corporate campaigns, to ogy for conducting research on corpora- and tactics of corporate campaigns (see make worker rights the civil rights issue tions. Their aim was to identify the weak- interview on page 1), it was SDS that of the 1990s.” nesses of a targeted company. Then they adopted as a central philosophical prin- Sweeney’s strategy got a huge boost in would identify key “stakeholders” who ciple “a view of the corporation, per se, as 1998, when the Securities and Exchange could bring pressure to bear on the com- the critical actor in contemporary Ameri- Commission revised its Rule 14a-8 to al- pany. Stakeholders included anyone can society and as a target of opportunity low shareholders who meet certain floor whose goodwill was necessary to the to force social change.” criteria to submit resolutions and have company’s survival, including customers, SDS student activists in the late 1960s them included in the company’s proxy suppliers, financial lending institutions, concluded that they would have to change materials. Before 1998, companies could the media, government regulators and the the behavior of large corporations in or- exclude proposals that dealt with social general public. For publicly traded com- der to change American society. And they issues such as the environment and hu- panies, another key constituency was the could achieve that difficult goal only by man rights. But the new SEC rule allowed firm’s shareholders—a pressure point that forging alliances with other groups such some social policy resolutions to go be- unions have since learned to exploit. fore shareholders over management ob- To overcome their continuing decline in jections. A driving force behind this the American workforce, labor unions are change was the more than 2,000 letters that increasingly adopting corporate campaign Editor: Patrick J. Reilly shareholder activists sent the SEC. strategies. An essential corporate cam- Publisher: Terrence Scanlon In 2005, SEIU, the Teamsters, the United paign practice is the shareholder resolu- Address: 1513 16th Street, NW Food and Commercial Workers and tion. As attorney Eugene Scalia pointed Washington, DC 20036-1480 UNITE-HERE disaffiliated from the AFL- out at a 2005 Federalist Society panel, Phone: (202) 483-6900 CIO and formed a new federation called union power remains on the ascendant Change to Win. Earlier that year, SEIU es- Email: [email protected] despite its membership declines because tablished SEIU Capital Strategies, an or- Website: www.capitalresearch.org they have learned how to use corporate ganization with parallel functions to the campaigns. Unions are finding “common AFL-CIO Center for Working Capital. Labor Watch is published by Capital ground” with institutional investors, in- Some observers correctly recognized this Research Center, a non-partisan education cluding public employee pension funds. as a sign that the SEIU would leave the It’s now a standard practice for unions to and research organization classified by the AFL-CIO. IRS as a 501(c)(3) public charity. Reprints advance their goals by introducing reso- lutions at public company shareholder are available for $2.50 prepaid to Capital Labor Meets Private Equity meetings. Typically, the resolutions call Research Center. Fittingly, SEIU President Andrew Stern Page 2 Labor Watch October 2007 has moved quickly to respond to the rise maintains BehindtheBuyouts.org, a Murray, union control over the pension of private equity. He has met with the website which promises to reveal embar- funds “makes the firms more open to heads of some of the largest buyout firms, rassing information about private equity union arguments than most public com- including David Rubenstein of the Carlyle executives whom union officials believe panies.” (Of course, union influence will Group, Stephen Schwarzman of might be unsympathetic to union interests. be reduced to the extent that private eq- Blackstone and David Bonderman of TPG For example, the site claims The Carlyle uity buyout deals rely on other sources (formerly Texas Pacific Group). Group’s David Rubenstein has a com- of capital.) “I’ve been incredibly impressed,” Stern pound in Nantucket “large enough to ac- Further, couple union pension fund in- vestments in private equity with cash- hungry unionized firms seeking to be In August, Stern warned pension funds that invest bought out and watch the sparks fly. At a May congressional hearing, Rep. Maxine on behalf of SEIU’s one million public-sector Waters (D-Calif.) asked Stern, “So, public employee pension funds and union funds members to think twice before they invest in the could be investing in deals where people portfolio funds or buy shares in a future initial are going to get laid off?” Stern had to admit that pension fund managers have public offering of Kohlberg Kravis Roberts. one key responsibility—to get the best investments for the people whose money they are investing. But that means there told Wall Street Journal columnist Alan commodate 30 overnight guests.” A has to be a limit to the amount of pressure Murray. “Compared to most of my meet- Carlyle spokesman called this claim unions can impose on private equity firms.
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