Review of The Rise of the Working-Class Shareholder


Published March 11th, 2019 - 03.11.1978


Last Monday the Labor and Employment Action Project (LEAP) at Harvard Law School hosted David Webber, professor at Boston University School of Law, for a discussion of his book The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon. In difficult times for the labor movement, Webber offers some reason for hope. While union density has declined sharply from over one-third of the U.S. workforce at its peak to just ten percent today, worker pension funds have experienced tremendous growth. Today, these funds amount to somewhere between $3 and $6 trillion, invested across the economy. In the book, Webber chronicles how a handful of strategic labor activists have been able to harness the shareholder power of “labor’s capital” to fight for corporate accountability and the interests of working people.

Webber begins by spotlighting the shareholder revolt that followed the 2003-04 strike of grocery workers at Safeway. After CEO Steven Burd made a series of unwise acquisitions that troubled the company’s finances, Burd shifted the burden to workers by slashing wages and benefits. 59,000 employees, members of the United Food and Commercial Workers, responded by going on strike. The strike resulted in only a few wins for workers, but worker advocates had another line of attack. CalPERS, the largest public pension fund in the United States, and other large Safeway shareholders tried to remove Burd and his allies from the board, citing Burd’s poor performance and his cozy relationship with board members. Safeway reacted by dismissing three board members, though Burd ultimately remained as CEO. Through the threat of shareholder activism, worker pension funds were able to hold Safeway accountable in a way that would have been impossible for individual shareholders, who lacked the knowledge or centralized resources to mount a real challenge.

Springboarding from the Safeway example, the book details a number of ways in which pension activists have fought to ensure healthy corporate governance at the companies they invest in. Following the D.C. Circuit’s rejection of the SEC’s proxy access rule, which had allowed long-term shareholders to nominate their own board candidates on the standard corporate ballot, funds have sponsored and passed proxy access proposals company by company with incredible success. They have also won disclosure of CEO-worker pay ratios, waged fights to destagger corporate boards, and pushed for the adoption of majority voting in director elections. In these ways, pension fund activists have represented the interests of all long-term shareholders by ensuring that corporations are managed with their interests in mind.

The book also discusses how pension funds have the potential to use their shareholder power to preserve and expand quality, primarily union jobs. The funds, Webber suggests, can withhold investment when employee savings would be used to invest workers out of their own employment. To illustrate the need for such activism, he cites the example of Massachusetts public school custodians whose retirement funds were invested by a statewide trust in Aramark, a private company that then underbid the union for the school custodial contract and offered workers the chance to keep their jobs if they accepted a 56 percent pay cut. He also argues that the funds can insist upon the hiring of contractors who pay fair wages and benefits before investing, which can result in more opportunities for union contractors.

After explaining why pension activism is a tool that labor should utilize, Webber sounds the alarm about threats directed at the movement’s potential to wield its capital. First, he explains how well-heeled conservative activists like the Koch brothers have exploited a purported pension “crisis”—whose existence is contested—to force state and local governments to move their workers from centrally managed defined-benefit plans to individual defined-contribution plans like 401(k)s. Decentralization in the name of pension “reform” curtails the potential for activism because workers with individual plans have to overcome the same collective action problem faced by all other individual shareholders. Second, Webber argues that the Janus decision depriving public sector unions of agency fees could diminish pension fund activism in the long term in part because unions will have fewer resources to invest in defending pensions from attack.

Finally, he asserts that a restrictive view of fiduciary duty under ERISA and analogous state laws can create legal barriers to much of the activism he describes in the book. The laws regulating pension funds require that trustees discharge their duties for the exclusive benefit of plan participants and their beneficiaries. Webber argues against the prevailing “returns-only” view of fiduciary duty, under which the only investment strategy possible is one that maximizes the plan’s return on investment. If a private company threatens the jobs of unionized public sector workers invested in the plan, a fund’s decision not to invest in that company would still be in the interest of participants and beneficiaries, even if that action resulted in a lower return. Webber asserts that this approach benefits not only the workers whose jobs are saved, but also the plan itself by preserving participants and thus contributions. If the returns-only view continues to triumph, pension fund activism could be curtailed.

Webber calls on the left to put aside its discomfort with wielding capital to advance its agenda, recognizing that the right sees pension fund activism as a source of power for the left that it will soon quash if the left does not defend it. While shareholder activism need not be limited to the pursuit of progressive causes, large public pension funds are concentrated in and administered by blue states and cities where the public sector and its workers are valued. Webber urges unions to continue to devote resources to capital stewardship programs as a crucial weapon in the movement’s arsenal.

The book makes a powerful case for how centrally managed pension funds can be an important tool for the public good. Unlike individual shareholders with little time or power to stand up to corporate malpractice and unlike other large shareholders like mutual funds afraid to challenge corporations because of their business relationships, pension funds have the size, resources, and independence to fight for corporate accountability.

Webber’s argument that exercising shareholder power can also benefit organized labor itself is compelling but requires further testing. Investment policies that prevent the privatization of public services can slow the hemorrhaging of union jobs, a band-aid but not a lifeline for the movement. Webber’s more aspirational idea that fund activism can generate quality jobs has shown potential to bear fruit, most notably in the New York City pension funds’ adoption of a Responsible Contractor Policy encouraging contractors to pay fair wages and benefits and to stay neutral if employees organize unions. Another recent example is an investment by the Union Labor Life Insurance Company, founded by Samuel Gompers, in the rebuilding of Terminal One at New York City’s JFK Airport, creating 8,000 union jobs. Still, the full reach of these policies, and whether they can substantially increase union numbers, remains to be seen.

Webber’s call for a less restrictive view of fiduciary duty also raises questions. He acknowledges that an investment strategy that avoids the elimination of union jobs benefits not just those particular workers, but the overall plan by maintaining contributors. Nonetheless, at some point plan fiduciaries will encounter real trade-offs between job preservation and investment return, and it may be unclear where to draw the lines.

Without more concrete evidence, Webber’s case that pension fund activism can have a salutary effect on corporate governance is more persuasive than his argument that it can resuscitate organized labor. The Safeway example is illustrative: fund activists were able to hold certain board members accountable, but it is hard to discern how workers ended up better off. For this reason, cash-strapped unions making difficult budget choices post-Janus may not be persuaded to continue funding capital stewardship. Certainly, there is an urgent need to invest in fundamentals. But for a labor movement in crisis, no strategy should be off the table.

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