New book

How unions transformed the power of capital into power for workers


November 11, 2021

The 1970s and 1980s marked a disaster for the U.S. labor movement. Gone was nearly one out of three members in the private sector, once the heart of organized labor. Today unions represent six percent of corporate employees, the same as in 1929.

Facing slow extinction, leaders of large unions and their federations sought to rebuild. It led to prolonged membership campaigns like Justice for Janitors and the creation of an organizing-oriented union federation, Change to Win. There was experimentation with new tactics, one of which was the leveraging of union pension assets to restore labor’s power.

My new book, Labor in the Age of Finance: Pensions, Politics, and Corporations, examines the financial turn. It came on the heels of a shareholder revolt led by public pension plans from blue states and cities, the vanguard being the giant California Public Employees’ Retirement System (CalPERS). Whereas once most stock was directly owned by households, post-1980 financialization transferred ownership to a relatively small group of institutional investors, including pension funds.

Activist investors like CalPERS demanded that companies prioritize their interests, what’s known as shareholder primacy. It brought major changes in corporate policies: CEO compensation tied to stock performance, lower barriers to hostile takeovers, and ever-larger amounts paid to investors as dividends and share buybacks.

In the 1990s, labor’s pension funds began submitting their own shareholder proposals and filing investor lawsuits. It happened at companies where unions had collateral interests in organizing or had objectives that transcended the workplace, such as forcing companies to reveal their political contributions. If a proposal received votes from more than forty percent of shareholders, it tarnished the company’s reputation and, sometimes, eroded resistance to unionization. Topics that the law kept off the bargaining table, such as takeovers and executive pay, could be addressed when unions acted as shareholders.

By the 2000s, a remarkable change had occurred: union pension funds submitted a bigger number of shareholder proposals than any other type of institutional investor.

To succeed, labor needed allies. Of necessity, this meant endorsing the tenets of shareholder primacy. Some Asian and European labor leaders found this odd. But if you’re down and nearly out, the ends could be made to justify the means.

Labor’s signature issue was CEO compensation. During the 2000s there were multiple scandals involving executive pay—epitomized by Enron and WorldCom—that made it easier to mobilize shareholders. Union investors pressed companies to grant shareholders the right to hold advisory votes on executive compensation (“say on pay”), alleging that lofty executive pay was the result of a rigged system. CEOs made out like bandits—in fact sometimes they were bandits—while worker’s wages flatlined. The issue drove a wedge between workers and employers while addressing income inequality.

Another target was corporate directors who’d failed to prevent executives from enriching themselves unlawfully. Union pension funds sought the right to submit nominations for corporate directors (proxy access). Businesses launched a counterattack, charging that proxy access was labor’s secret plan to hijack company boards.

On several occasions, shareholder activism served as a prelude to regulation, as when say on pay and proxy access became part of the Dodd-Frank Act. The AFL-CIO and others worked behind the scenes as the act was hammered out. It was the first time in over a century that the U.S. labor movement immersed itself in financial regulation.

The financial turn wasn’t heroic. Rank-and-file members rarely participated, which led to complaints that the financial turn reinforced a top-down approach to organizing. Pursuing worker interests through shareholder activism led to strange bedfellows and messy compromises. While unions and their pension funds never directly embraced shareholder primacy, their actions lent an imprimatur of legitimacy.

Labor was slow to criticize the ever-increasing portion of corporate funds paid to investors. Pension funds were beneficiaries of these payouts, a potential conflict between pensioned union members, especially in government, and private-sector nonunion workers. Of the $34 trillion of shareholder wealth created during the past thirty years, half was a reallocation from worker pay to investors. When discussing inequality, labor preferred to highlight CEO pay, a populist issue that also encouraged organizing. But what CEOs received was a pittance as compared to shareholders.

Occupy Wall Street’s focus on the top one percent supported a more expansive, class-based, conception of inequality. The top included not only CEOs but inheritors, business owners, and partners of private equity and hedge funds. The top one percent currently owns over half of all stock, either directly or through intermediaries like mutual funds. Shareholder primacy contributed to inequality and still does.

The financial turn has waned during the past decade. Union investors offer fewer shareholder proposals, and labor plays a smaller role in shaping corporate governance. One reason is the declining success rate of major organizing campaigns, whose tactics often include financial activism. There also is greater pessimism about labor’s prospects for rebuilding in the private sector. Recently, the AFL-CIO reduced by two-thirds the share of its budget devoted to organizing. The Service Employees International Union (SEIU)—the union most committed to aggressive organizing–has made similar cuts. The decreases happened right before Covid struck.

The recent uptick in worker militance may lead to large-scale membership campaigns. If it does, there is still in place an infrastructure to support financial activism. It includes union staff with MBAs and pension-trustee networks. There are partnerships with overseas pension funds and with investors concerned about climate change. But because labor’s political power is greater than its organizing power, there also will be legislative efforts to support organizing, as with the PRO Act.

Labor unions became alchemists during the age of finance, transforming the power of money into power for workers. The financial turn bolstered membership, brought a measure of corporate accountability, and drew labor into new realms such as financial regulation.

Corporations have always been riven by conflict. Executives, owners, and workers jockey for wealth in a war of all against all. For more than forty years, the winners have been executives and owners, sometimes both, sometimes only one of them. Workers usually have lost. If they are to gain a fair share, they will need help from unions, and unions will need help wherever they can find it.

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Sanford M. Jacoby. 2021. Labor in the Age of Finance: Pensions, Politics, and Corporate Governance from Deindustrialization to Dodd-Frank. Princeton University Press.

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