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The Threat to Corporate America from Union Shareholders

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Proxy access is supposed to make corporate governance more democratic. But evidence from recent shareholder proposals suggests something very different is happening—labor unions are gaining more power.

Labor unions and their pension funds introduced 38 percent of all shareholder proposals coming to a vote at Fortune 100 companies, according to ProxyMonitor.org. The two most frequent shareholder sponsors of proposals related to executive compensation are the American Federation of State, County and Municipal Employees (AFSCME), with 23 proposals, and the AFL-CIO, with 12.

At first glance, it is surprising that unions sponsor so many executive-compensation related shareholder proposals. This is not a “labor” issue in any normal sense of things.

The reason why unions are so interested in having a say on executive pay is so that they can force concessions on other issues out of management.

“Given corporate management’s tendency to negotiate with sponsors of shareholder proposals—and sensitivity to compensation issues—the particular focus paid by organized labor to executive compensation buttresses the claim that unions are leveraging the shareholder-proposal process to advance agendas which may be at odds with the interests of other investors,” ProxyMonitor explains.

In other words, management is likely to cut deals with labor along the lines of: "we’ll raise your pay if you raise ours." Outside shareholders lose out, as corporate resources are drained by this kind of dealmaking.

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