It is no secret that organized labor as well as union and state-controlled pension funds strongly supported the passage of the landmark Dodd-Frank financial reform bill. Few, however, have focused on what unions stand to gain now that the law is a reality. The answer may be much more than the business community bargained for.
Many of Dodd-Frank’s new rules and regulations are ready-made to be exploited by unions seeking to place sympathetic directors on corporate boards and, ultimately, organize the rank-and-file employees of targeted companies. Institutional shareholders - such as unions and pension funds - will be given more power under Dodd-Frank, and they are preparing to use it. State pension funds such as the California Public Employees’ Retirement System (CalPERS) already are lining up potential board candidates for inclusion in proxy materials. And the likely passage of securities exchange rules barring brokers from voting company shares held by private citizens who fail to read or return their proxy materials could cost management a previously dependable block of votes in shareholder elections. Mutual funds also likely will be counseled by independent proxy advisory services to vote in favor of outside candidates.
The implications of this are obvious. The combination of mutual funds voting what are likely to be union-friendly recommendations from their independent proxy advisers and the inability of brokers to vote uninstructed shares in favor of management does not leave a tidal wave of management votes. Now, getting out the vote from private-citizen shareholders will be much more critical to success, not to mention potentially more costly. It clearly is not a question of whether big unions and pension funds will be able to place their candidates on corporate boards, but when and how many.
Unions such as the Service Employees International Union (SEIU) are also capitalizing on Dodd-Frank’s stiff new employee-whistleblower protections. SEIU has announced a major watchdog effort to help front-line bank workers report their employers for violating new rules relating to the sale of harmful financial products. The union claims this effort is necessary to help the newly created Consumer Financial Protection Bureau (CFPB) “protect families from predatory, harmful and illegal banking policies and products.” One can easily imagine the SEIU using an adverse CFPB finding against a major U.S. bank as fodder for a corporate pressure campaign designed to force the bank into allowing its employees to become union members. Several Wall Street firms right now are the targets of such campaigns.
The gathering storm is clear to see. Dodd-Frank simultaneously has made it easier for unions to nominate director candidates and harder for management to oppose their efforts. The bill also has made it easier for employees to report perceived abuses in the business practices of financial institutions. This has set up the potential for more litigation against employers who take action against employees for making frivolous reports, which in turn provides more ammunition for unions to rail against alleged employer abuses. All the while, unions are reaching out directly to rank-and-file employees, positioning themselves as potential advocates and, more important, reaching out to their representatives. Using Dodd-Frank to disguise themselves as present-day Robin Hoods against corporate America, unions will gain greater influence in the boardroom as well as new members in the financial industry and otherwise. Unions are playing both ends against management caught in the middle - and relying on Dodd-Frank to do it.
Kurt G. Larkin is a lawyer in the labor and employment practice at Hunton & Williams LLP in Richmond.