Opportunistic Proposals by Union Shareholders

Abstract

Effective corporate governance requires mechanisms that allow shareholders to influence corporate decisions. This paper investigates the use of shareholder proposals, an increasingly prominent governance mechanism, by labor unions. Activist union pension funds are subject to cross-pressures: they wish to increase fund returns to help beneficiaries but also to aid current union workers. We show theoretically that shareholder proposals can be used as bargaining chips in contract negotiations. Empirically, we use variation in the expiration of collective bargaining agreements to identify exogenous changes in the value of making proposals. We find that during contract negotiation years, unions increase the number of proposals they make by about one-quarter (and by about two-thirds during contentious negotiations), and change the subject of proposals to focus on matters personally costly to managers. We do not find similar changes in proposal behavior by nonunion shareholders. Opportunistic union proposals are also associated with better wage agreements for the union. The evidence suggests that some union proposals are intended to influence collective bargaining outcomes rather than maximize shareholder value, and that increasing proposal rights will not necessarily help shareholders at large if some shareholders use those rights to advance their private interests.

Why Do Managers Fight Shareholder Proposals? Evidence from No-Action Letter Decisions

“…Recent court opinions and some scholarly evidence suggest that certain types of shareholders are more likely to bring proposals that advance their narrow interests rather than overall firm value. Labor unions and public pensions have been singled out (Romano, 1993(Romano, , 2001Schwab and Thomas, 1998;Matsusaka et al, 2016). We do not find evidence that the announcement return depended on the type of proponent, whether classified broadly as individuals versus organizations, or classified in a more fine-grained way that differentiates SRI funds, non-SRI funds, labor unions, public pensions, and religious groups.…”

“…Following Dodd-Frank, the SEC modified rule 14a-8(i)(8) to allow proxy access proposals. Another example is the Delaware Supreme Court's CA, Inc. v. AFSCME Employees Pension Plan decision in 2008 that allowed shareholder proposals to alter a company's bylaws concerning decision making processes and procedures.4 Seen from this perspective, shareholder proposals are at best a distraction to managers, and at worst harmful: proxy advisory firms may be so ill-informed that they advise shareholders to support proposals that are not in their interest(Larcker and Tayan, 2011;Larcker et al, 2015); and certain shareholders might use proposals as bargaining chips to induce managers to allocate corporate resources for the benefit of the proponent at a cost to shareholders at large(Matsusaka et al, 2016).Matsusaka and Ozbas (forthcoming) develop a model that captures these various issues.…”

Risky business: Do disclosure and shareholder approval of corporate political contributions affect firm performance?

“…Recent empirical work lends credence to this argument. Matsusaka et al (2017) show that labor unions use their shareholder proposal rights as bargaining chips during contract talks. Min and You (n.d.) find that groups like public pension funds, religious groups, and funds focused on corporate social responsibility tend to target corporations run by Republican-leaning companies.…”

Non‐financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance*

“…Their numbers have now been swelled by share‐owning NGOs and unions (Matsusaka et al . ), as well as an increasing number of institutional investors for whom divestment is an unattractive option (BlackRock ). Because this particular process of shareholder–management interaction is arguably the focus of environmental and social shareholder activism (Lydenberg ), it is well worth examining its outcomes.…”