Union pension funds exercise clout

People Before Profits

DETROIT (PAI) — 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.

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.

Significantly, unions are putting their own houses in order, seeking to consolidate financial and insurance services offered to members. Labor is also moving to influence or get friendly directors nominated to corporate boards and advance other corporate accountability reforms.

Labor’s financial clout is considerable. Business Week reported 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, along with their allies in politics.

On March 31, under the headline “Pension Fund Blackmail,” the Journal’s lead editorial said: “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 the pension fund manager for California state union workers (CalPERS), directing some $180 billion in assets, used its investment in Safeway to demand it soften its stance against union workers forced to strike the grocer over its demands for health care cost-shifting and cuts.

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.

And on March 31 and afterwards, unionists picketed corporate offices — notably those of stockbroker Charles Schwab & Co. — targeting firms that joined Bush’s 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 Bush, said the Journal.

The AFL-CIO targeted Schwab, one of the nation’s largest brokerages, because Schwab officials have been outspoken in speaking for and financing the pro-Bush coalition. The federation also launched a new website, www.wallstreetgreed.org, spotlighting 28 financial firms’ ties to the pro-Bush 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 percent of the private sector labor force, but they submitted 28 percent of all shareholder resolutions in the 2002 proxy season and 18 percent 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 also seek lower executive salaries, act as watchdogs on foreign investments and have managed to pull investments from companies accused of fiscal fraud.

No doubt corporate pressure will be brought on the Republican Congress to find a way to outlaw such union activism. Right-wing House Education and the Workforce Committee Chairman John Boehner (R-Ohio) and a colleague demanded the Labor Department probe unions’ role in lobbying the investment firms in the Social Security fight. The two claimed such pressure could violate the fiduciary responsibility of union pension fund trustees.

And in response to CalPERS’ activism, Republican Gov. Arnold Schwarzenegger tried to change public employee pensions there to the equivalent of 401(k) accounts. And he named new board members who forced out CalPERS’ activist top manager.

Marty Mulcahy is managing editor at The Building Tradesman.