WSJ: The New Labor Activism (union funds accounted for more shareholder proposals)

http://online.wsj.com/article/SB120105026345108353.html?mod=googlenews_wsj

By EUGENE SCALIA
January 23, 2008; Page A24

As public companies sift through shareholder proposals in preparation for their annual meetings, a recent Labor Department action could indicate stepped-up scrutiny of one of the most activist investor groups -- labor-union pension funds.

By conventional measures, unions are in sharp decline: They represented 38% of the private sector workforce in 1956, but only 7.5% today. In an odd twist, though, labor unions are in a sense among our most influential business owners as a result of the billions of dollars invested in public companies by union pension funds.

In 2006, union funds accounted for more shareholder proposals than any other group of investors. Unions have been articulate voices in recent debates over executive compensation, "shareholder access" to the company proxy in director elections, and other governance issues. In the words of AFL-CIO Secretary-Treasurer Richard Trumka, unions have learned to "organize our money essentially the way we organize workers."

Critically, however, "union pension funds" do not belong to unions. The funds are managed by trustees -- half appointed by the union and half by the companies that contribute to the fund pursuant to their collective-bargaining agreements. Under the federal employee benefits law (ERISA), which is administered by the Department of Labor, these trustees are to act "solely in the interest of the plan's participants and beneficiaries, and for the exclusive purpose of paying benefits and defraying reasonable administrative expenses," as the Department reiterated in an advisory opinion last month.

The Labor Department letter addressed a reported AFL-CIO plan to promote shareholder proposals that press companies to offer more generous employee health-care benefits, and that would require companies to disclose political contributions so shareholders could see if support was being given to candidates who don't share labor's views on health care.

Before undertaking "to monitor or influence the management of corporations," the department said, fiduciaries "must first take into account the cost of such action and the role of the investment in the plan's portfolio, and cannot act unless they conclude that the action is reasonably likely to enhance the value of the plan's investments."

FULL story at link.