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Union pension funds start throwing their weight around

Date Posted: April 15 2005

Union investment money is doing the talking - and in some cases, the walking - as organized labor is moving into a renewed strategy of using pension dollars to win work for members, improve their standing, and further union political goals.

The union campaign has moved into numerous arenas. Significantly, unions are putting their own houses in order, seeking to consolidate financial and insurance services offered to members (see related article). Labor is also moving to influence or get friendly directors nominated to corporate boards. And brokerage houses that openly support privatization of Social Security assets are being put on notice that unions will pull their money if such support continues.

Labor's financial clout is considerable. According to Business Week, there is $2.6 trillion in U.S. public employees' pension funds, and there are another $400 billion-plus in multi-employer pension funds, which cover groups like building trades unions.

The renewed activism by union pension fund managers is drawing howls of protest from the business community and the editorial page of the Wall Street Journal.

On March 31, under the headline "Pension Fund Blackmail," the Journal wrote in its lead editorial, "The result is what one observer has termed 'the new politics of capital' in which liberal activists attempt to turn entire corporations into lobbyists for their social and political goals, their campaigns all neatly disguised as 'shareholder activism.'"

For example, the Journal noted that the pension fund manager for California state union workers, directing some $180 billion in assets, used its investment in Safeway to demand that the company soften its stance against union workers on strike against the grocer.

Another example: last year, a New York state pension fund manager wrote a letter to the Sinclair Broadcasting Group, suggesting that airing a controversial documentary on John Kerry's Vietnam war record could hurt shareholder value. The pension fund held shares of Sinclair - which ultimately agreed not to air the show.

On March 31, unionists picketed corporate offices - notably those of stockbroker Charles Schwab & Co. - targeting those firms that joined Bush's pro-privatization for Social Security coalition.

Labor's protests over the conflicts of interest inherent in brokers' support for Social Security privatization, sent two financial services companies, Edward Jones & Co. and Waddell & Reed, "scurrying out of a coalition supporting reform," said the Journal.

Schwab is targeted, the AFL-CIO said, because its officials have been outspoken in speaking and financing the pro-Bush coalition. The federation also launched a new website, www.wallstreetgreed.org, spotlighting 28 financial firms and their ties to the pro-Bush privatization coalition. The conservative University of Chicago Business School calculates brokers would earn $934 billion from privatization.

"Working families are putting financial firms on notice: They will not allow firms that handle their savings to promote a scheme that will put their hard-earned money at risk," AFL-CIO President John J. Sweeney said.

According to a University of Notre Dame Higgins Labor Research Center study, "unions may only represent 9% of the private sector labor force, but they submitted 28% of all shareholder resolutions in the 2002 proxy season and 18% in 2003 - far more than any other institutional investor. Through their pension funds, unions influence nearly one quarter of all equities and one half of bonds in the U.S. economy." The study said the success of a union-backed mutual fund is coincident with classical trade union strategies to improve the working lives of their members."

Through proxy votes and other pressure, unions are seeking lower executive salaries, are acting as watchdogs on foreign investments and have managed to pull investments from companies that have been accused of fiscal fraud. By applying pressure to corporate boards, unions argue that their pension funds can bring balance to an out-of-whack power structure in a world that's dominated by corporations.

Corporate America is not taking the fight sitting down. A few years after taking a low profile after the highly publicized corporate malfeasance at Enron and WorldCom, companies are now coming out of their shell. Among their arguments against this type of union activism: pension fund administrators become more adverse to taking risks and are doing their investors a disservice by chasing pro-union causes, instead of chasing higher investment returns. No doubt corporate pressure will be brought on the Republican Congress to find a way to outlaw such union activism.

'It's just clearly a pendulum that has swung too far," said David Hirschmann, senior vice president of the U.S. Chamber of Commerce.

The pendulum has started to swing. Late last year, the Securities and Exchange Commission reversed course and ruled that Walt Disney Co. could bar from its proxy ballot a union-backed initiative that would make it easier for shareholders to nominate corporate board members.

Richard Ferlauto, director of pension and benefit policy for the public union group AFSCME, told the AP that he expects state pension funds will eventually win the right to nominate corporate board members. "That's an issue that corporate America doesn't want to see happen and the push back is around that," he said.