WSJ Editorial: The ‘Shareholder Bill of Rights’ is good for union leaders but bad for business

The Schumer Proxy. By THOMAS J. DONOHUE
The ‘Shareholder Bill of Rights’ is good for union leaders but bad for business.
WSJ, Aug 01, 2009

When Congress reconvenes after Labor Day, Sen. Charles Schumer (D., N.Y.) will try to advance his “Shareholder Bill of Rights.” Among other things, this legislation, which Mr. Schumer unveiled in May with the backing of Andy Stern, president of the Service Employees International Union (SEIU), would give the Securities and Exchange Commission (SEC) the legal authority to grant shareholders access to the corporate proxy for nominations to boards of directors. Meanwhile, the SEC will close its public comment period Aug. 17 and begin to consider new regulations on shareholder access to proxy statements.

This sounds harmless enough, a way of giving shareholders a chance to have their concerns put to a vote. But in reality, Mr. Schumer’s bill would give union-backed shareholders who hold a small interest in a company—as little as 1% of the shares—enormous leverage to promote their own agendas. It would require companies to allow, and essentially pay for, unions and other activist shareholders to run a competing slate of board candidates.

Granted, there is plenty for shareholders to be upset about these days. But the answer isn’t to pit one group of agenda-driven shareholders against all others. Corporate boards are designed to hold management accountable to the interests of all shareholders. Allowing unions to rig the proxy rules for their own advantage is simply bad corporate governance.

Unions already employ shareholder activism to advance a special interest agenda, using the stock owned by their pension funds to support shareholder resolutions having little if any connection to the financial performance of the company. This includes repeated motions by the AFL-CIO to require pharmaceutical companies to disclose their drug reimportation policies and pressuring oil companies to reduce greenhouse gas emissions.

They also have used their pension funds to force employers to negotiate union contracts or agree to specific demands. Richard Trumka, secretary treasurer of the AFL-CIO, said in 2000 that the labor federation planned to use the “clout of union pension funds as major corporate stockholders to influence contract talks and organizing drives.”

Ironically, unions’ management of their own pension funds does not inspire much confidence in their ability to influence the management of public corporations. Many union funds are in a precarious financial position, without enough assets to pay out the benefits they have promised.
According to the Department of Labor (form 5500 filings), the Plumbers and Pipefitters National Pension Fund is funded at just 54%, and the Sheet Metal Workers National Pension Fund is at only 39%. Even the SEIU recently reported that one of its largest pension plans is in “critical” status because it won’t have enough money to pay promised benefits.

Still, some may ask what is wrong with union pension funds wielding their power to advance their own special interests? Plenty.

The Employee Retirement Income Security Act. ERISA requires pension assets—which include proxy votes—to be used for the “sole purpose” of benefiting plan participants and not to pursue unrelated objectives. Politically and socially motivated proxy activity may violate the fiduciary duties of union pension trustees.

In addition, union members themselves don’t want their retirement assets used for special interest crusades. A nationwide survey by Voter Consumer Research taken this spring found that 88% of union households agree that “the most important goal of union pension funds should be to manage pension funds so they’re financially secure and return the best retirement income for retirees.” Just 9% thought funds should be managed to “advance the union’s social and political goals.”

The Chamber of Commerce recently commissioned a study by the respected economics firm Navigant Consulting which found that shareholder activism by union pension funds provides no economic benefit to pension-plan participants. In fact, the study found evidence that this shareholder activism actually reduced shareholder value.

Workers should have the right to join or leave unions under fair rules, and unions have every right to represent their members on pay, benefits, and working conditions. But organized labors’ attempts to use stock holdings to advance narrow agendas not in the best interest of all shareholders is unsound, and toying with their own members’ retirement savings is indefensible.
Mr. Donohue is president and CEO of the U.S. Chamber of Commerce.