In my post about the SEC's recent vote to deny shareholders proxy access for director nominations, I included an excerpt from Dealbreaker which bears repeating in light of the predictable reaction that the SEC's rule will hurt "investors." Here, again, is the money quote:
The funds and unions favor proxy access rights not because they have an altruistic urge to help shareholders in general or out of a metaphysical attachment to democracy. They supported it because they believed it would give them a leg up in negotiations with management and corporate boards. Ordinary shareholders can breath a little easier that this attempted power grab has failed.
This is a common canard about the unions, but is it true?
Well, coincidentally the Harvard Blog recently noted a paper by Ahwini Agrawal, Corporate Governance Objectives of Labor Union Shareholders. The paper interestingly exploited a natural experiment in corporate voting that occurred after the AFL-CIO split in 2005 and several member unions formed the Change To Win coalition. According to the abstract,
after the breakup: AFL-CIO affiliated shareholders become significantly more supportive of director nominees once the AFL-CIO no longer represents workers at a given firm. Mutual funds and non-AFL-CIO labor union pension funds do not exhibit the same changes in voting behavior. This difference suggests that labor relations affect the voting patterns of some union shareholders. I also find that AFL-CIO funds are more likely to vote against directors of firms in which there is greater frequency of plant-level conflict between labor unions and management during collective bargaining and union member recruiting. The sensitivity of director votes to union conflict, however, decreases significantly at firms in which employees disaffiliate from the AFL-CIO. This evidence indicates that AFL-CIO affiliated shareholders vote against directors partly to support workers rather than increase shareholder value alone.
As the paper notes, it illuminates
policy discussions concerning potential governance reforms. One contentious issue currently facing the SEC is whether shareholders should be given greater powers over corporate affairs through increased access to annual director election ballots (see Bebchuk (2005), Harris and Raviv (2007), and Bainbridge (2006) for further discussion).
The answer the paper suggests is: Yes, if the objective of the securities laws is to maintain the viability of labor unions.
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