from Third Quarter 2009
Corporate Board Member
by Craig Mellow
Union representatives on boards haven’t been the Trotskyite disaster that many had feared. That’s good news for anyone wondering what might happen at Chrysler and General Motors should they be obliged to seat directors nominated by pension funds run by the United Auto Workers (UAW). Board members from both sides of the great management-labor divide have come to see merit in one another’s traditional positions. But make no mistake, sparks can fly on issues ranging from CEO pay to mergers and acquisitions, not to mention job security and benefits.
At least that’s the experience of the dozen or so companies that have had “union” directors imposed on them over the past 30 years, usually as a trade-off for wage and benefit concessions or, as at Chrysler and GM, for debts owed to workers after a Chapter 11 reorganization. Some of those companies, among them Bethlehem Steel and Northwest Airlines, vanished as independent concerns. Others, like U.S. Steel and Goodyear, came back from the brink and were solidly profitable until the current recession. “Without support from the United Steelworkers, U.S. Steel would not have made the transition from one of the least to one of the most efficient companies in the industry,” says Ray Marshall, 80, a U.S. secretary of Labor under President Jimmy Carter who was nominated by the steelworkers to the board of USX Corp., U.S. Steel’s parent company, in the 1990s. Even at companies that were gobbled up in mergers, directors representing unions did save some union jobs under the new owners. Mill hands are still union members and work at union-negotiated wages at a number of plants acquired by ArcelorMittal, a global steelmaker, for example.
Some traditional board members have been pleasantly surprised by the experience of working with union nominees. “I was initially skeptical about how this would play out,” says longtime director Alfred Osborne, 64, a senior associate dean at UCLA’s Anderson Business School and lead director of Kaiser Aluminum, where the United Steelworkers (USW) has the right to nominate four out of 10 board members. “But I’ve found the union nominees to be like all other directors in stepping up to their fiduciary responsibility.”
Disagreements between the two types of directors have sometimes flared, however, usually behind the scenes but occasionally in public, over a range of strategic issues. The union directors have won some fights and lost others. Thomas Kochan, 61, a professor at the Sloan School of Management who from 1988 to 1993 served on two trucking-company boards at the behest of the International Brotherhood of Teamsters, recalls how he and another union nominee blocked the acquisition of one of those companies because they feared the prospective owner would downsize too fiercely. “This was a group that had a terrible reputation,” he says. “We thought they would strip all the company’s assets and liquidate it, thereby losing all the jobs. It was a classic case where the long-term interests of company stakeholders conflicted with what might have made a short-term profit for shareholders.” The trucker eventually combined with somebody the union directors found more congenial, and for a similar price. In contrast, the board of employee-owned United Airlines, which included representatives of the pilots’, machinists’, and flight attendants’ unions, was often paralyzed by internal spats, a big factor in the carrier’s 2002 bankruptcy.
Continued...