Organized labor is a bedrock of populism, but this week, an important labor leader endorsed the JetBlue-Spirit Airlines merger. So how do unions think about corporate combinations?
Just a few days ago, two events occurred that were seemingly unrelated. In fact the juxtaposition holds a deep lesson for American business.
One was the appalling saga of David Dao, the passenger who was forcibly removed from a United Airlines flight from Chicago to Louisville. That one went viral around the globe.
The other was a largely unremarked gathering in Denver of some 1,700 people, attendees at the National Center for Employee Ownership’s annual conference. Most came from companies that are partly or wholly owned by the people who work there.
The connection? United was once a poster child for this kind of employee ownership, at least in the eyes of the media. When the experiment failed and the airline went bankrupt, it became a convenient reference for some people’s belief that employee ownership “can’t work.”
United’s employee stock ownership plan, or ESOP, began in 1995 with a grand bargain. The airline’s pilots and machinists gave up nearly $5 billion in prospective wages and benefits. In return they got 55% of the company’s shares. That year, the stock outperformed the S&P 500 index by 67%. Shareholder value increased by more than $4 billion.
Some of the outstanding performance could be traced to a new attitude among employees. Grievances fell 74%, sick time 17%. “Everyone from gate agents to mechanics gained new authority to address customer complaints without consulting their supervisors,” the Chicago Tribune reported in a comprehensive retrospective published in 2003.
But the ESOP was born amidst conflict. The flight attendants’ union never supported it, saying that its members couldn’t afford the wage givebacks. Factions in the other two unions also opposed it, as did many in the executive suites. After a brief first-year honeymoon period, management did virtually nothing to help employees understand the business of which they were now owners, or to encourage a culture of ownership. A newly installed chief HR officer declared that he was “not enthusiastic” about the whole idea.
Unsurprisingly, the company soon reverted to the toxic us-against-them labor environment that had plagued it for years. The struggle culminated in a ferocious slowdown staged by United’s pilots in the summer of 2000. They taxied at a crawl. They refused to work overtime. On-time performance, which hit 81% during the first ESOP year, dropped to 40%. Passenger traffic fell off a cliff. The pilots as a group still owned some 25 percent of the airline, but never mind: as one reporter wrote, “they were sabotaging their own company.” The tragedies of September 11, 2001, drove the nails into United’s coffin: the company filed for bankruptcy in 2002, wiping out the value of the equity and ending the ESOP. Though United has recently been profitable, it has never overcome its reputation as the worst of the legacy airlines, to be avoided by passengers whenever possible.
Now: compare that sad story with the experience of companies that have made employee ownership work.
Shawn Eastham, for example, attended the Denver NCEO conference, where he described his company’s 24 years of consecutive sales growth. Eastham is president of Polyguard Products, a Texas-based manufacturer of coatings and moisture barriers that is 100% employee owned.
And Sandra Reid was there representing employee-owned Davey Tree Expert Company. Davey, too, has grown steadily and in 2016 recorded sales of $845 million, with a healthy bottom line.
The largest employee-owned company in the United States is Publix, the Florida-based supermarket chain, with $34 billion in sales and 190,000 employees. Publix consistently wins awards as a great place to work and shop while turning in solid financial performance.
What’s the difference between successful employee-owned companies like these and failures like United? One difference is that United’s plan involved those big wage concessions, which left a bad taste in a lot of mouths. By contrast, most successful ESOP companies distribute stock at no cost to employees.
Moreover, nearly all the research on employee-owned companies points in one direction: if a company doesn’t have participative management structures, if it doesn’t help employees learn to think and act like owners, putting stock into their hands doesn’t make much difference. NCEO founder Corey Rosen and coauthor Michael Quarrey originally made this point 30 years ago in Harvard Business Review—plenty of time for United to have learned it.
There are many different elements involved in creating an ownership culture, but one big one is this: owners understand the business. They know what “winning” means. They can make decisions on the spot with the best interests of the company in mind. If that means going off script, they go off script.
That was the one thing that United’s employees in the David Dao incident seemed unable to do. They followed the airline’s policies to the letter, right up to the disgraceful end. Nobody stopped to ask whether they were doing the right thing for the business, let alone for their own consciences. They weren’t thinking like owners.
What a shame. Things didn’t need to be that way. With better intentions and smarter management, United might today be an ESOP company in which people really did think and act as if they owned the place. Who knows? They might even have sent a few representatives to that inspiring Denver conference.
Back when AAI was just getting started Bert Foer and I went to see a group of people at the AFL-CIO to try to get them to make a contribution. We said that they cared most about jobs that would be lost through mergers, while we cared most about the higher prices that often resulted from mergers. We said that while our priorities would not always be identical, our views on mergers should be identical most of the time, so they should give us a contribution. They responded that they liked it when mergers led to monopolies because then they could get higher wages. So of course they did not make AAI a contribution. I wonder how much of labor's sometimes pro-merger attitude today is a cynical hope they'll get a share of the resulting monopoly profits?
When a union seeks an industry combination in order to support its members, it becomes clear to me that unions cannot be counted on for support with the antimonopoly movement in general. The interests of the union are in its members, a critical but narrow interest. Indeed, a union could become powerful as an appendage to a huge commercial firm that does bad things to the rest of us. As such, the unions’ position(s) on monopolies interests me, but their positions are dispositive of nothing.
1. So-called right-to-work laws in more than two dozen states allow workers in union-represented workplaces to opt out of the union, and not pay union dues. At the same time, such workers are still covered under the wage and benefits provisions of the union contract. The PRO Act would allow unions to override such laws and collect dues from those who opt out, in order to cover the cost of collective bargaining and administration of the contract.
2. Employer interference and influence in union elections would be forbidden. Company-sponsored meetings — with mandatory attendance — are often used to lobby against a union organizing drive. Such meetings would be illegal. Additionally, employees would be able to cast a ballot in union organizing elections at a location away from company property.
3. Often, even successful union organizing drives fail to result in an agreement on a first contract between labor and management. The PRO Act would remedy that by allowing newly certified unions to seek arbitration and mediation to settle such impasses in negotiations.
4. The law would prevent an employer from using its employee's immigration status against them when determining the terms of their employment.
5. It would establish monetary penalties for companies and executives that violate workers' rights. Corporate directors and other officers of the company could also be held liable."
It strikes me again and again that wage increases proposed by business are pretty much always a one-off deal (assuming they happen at all). Particularly at the current pace of inflation, a 10% increase isn't likely to be an "increase" for very long.
I would think any truly good-faith offer would have to be graded over a period of years, or even tied to inflation . . . but I don't see much discussion of that, particularly not from union leaders advocating deals like this. But as you rightly point out, they don't have much of a bargaining position.
Matt, I work in the oil and gas industry and I do not understand how ESG is not a clear antitrust violation. When I talk to commercial bankers about getting projects funded, they all check with their higher-ups, and now, way more than when I started in the industry, their bosses tell them they are bound by ESG guidelines. These guidelines are being forced onto banks and other capital providers by Vanguard and Blackrock, which control a large share of every company in America. There is a strong appetite among management teams at majors and small E&Ps to get financing for new projects but capital, especially on the oilfield services side, is hard to come by. If one financial company bought a share in every airline and said "no one can order more planes from now on" that would clearly be seen as collusion and should be prosecuted as such. Yet, ESG is essentially doing the same thing to the fossil fuel industry and there is no scrutiny. Is there potential for a successful antitrust action on this front? Thanks.
Esg is a collective response to the harms of corporate power. That is not anti trust. That is the commons being safeguarded for the sake of the planet and the people.
Unfortunately, it seems like the PRO does not rollback onerous provisions in the Labor Management Relations Act of 1947, most commonly referred to the Taft–Hartley Act.
I also think per-unit bargaining in and of itself is disastrous, and ought to be repealed, and supervisors ought not to be excluded by statue. The PRO act doesn't go nearly far enough. The penalties for refusal to negotiate a first contract ought to be more severe as well, perhaps a threat of nationalization.
It is pretty apparent that lobbying unions is now the defacto method for monopolists to force their anticompetitive mergers through. We saw it with MSFT/ATVI, Jet Blue and apparently Kroger and Albertsons.
At this point it may be seriously worth considering how trustworthy these unions are? What is stopping their power structure from being lobbied by Big Business just like how Big Business made it its M.O. to capture regulators, judges and politicians.
I think this piece adds a possible explanation but it may be optimisitc: the story of unions thinking this is their only way to securing better worker rights. In fact it makes no sense to me or to anyone who knows basic market knowledge. A temporary, legally non binding and presumably time based contract is meaningless compared to permanent consolidation?
Count how many times large companies have been broken up? Now count how many times union contracts/agreements have been terminated/squashed?
Promoting corporate consolidation is the very antithesis of worker rights. It doesn't matter how many letters you write or contracts you sign, and feebly attempt to enforce. There is only one power corporations succumb to and that is economic power. If the FTC/DOJ cannot even attempt to reliably enforce law given rights, under what delusion does the CWA think it can enforce its contracts in US courts/litigation?
In my opinion, this is blatant corruption. Did the workers in the union vote to okay this lobbying message? Highly doubt it. A recent GDC survey showed 44% of devs were against the MSFT/ATVI merger, vs 17% for it. A complete opposite sentiment to these apparent unions who are actively lobbying regulators to let this deal go through.
We are witnessing the desperation of Big Business when they can no longer corrupt and capture regulators like Christine Wilson. The new capture is now union leaders/management.
If Sara Nelson's union organizes the merged airline, she might expect that her union has increased leverage. But practically it only would mean that if the market for flight attendants remains brisk.
"Generally speaking unions are run by people who are suspicious of corporate power, but in a hostile environment with little leverage to engage in collective bargaining, it’s difficult to turn down tangible benefits for broader ideological reasons."
It's not ideological, it's pragmatic. Unions need to be responsive to changing economies etc. and a one time trade off in favor of better conditions that reduces competition among employers ultimately diminishes the union's ability to adjust their demands to the needs of the time.
Examples: in the recent rail workers' conflict, even though they were getting a raise, the meal compensation remained at $12 a day despite inflation, so they were losing money; also, sick leave wasn't a problem when there was flexibility and they could choose shifts but the railroads shrank staff and that flexibility and time off was lost; or, a city creates new incentives to draw film production to the area but the union places gaffers according to old rules favoring seniority instead of film vs theater lighting skills, so visiting productions bring their own crew instead of hiring local.
Those examples assume the one time sweet deal turns sour and not that the big corporation with the favorable deal isn't gobbled up in turn by a bigger financial entity, eliminating jobs and deals, per usual.
If you are taking requests I'd love a primer on where the theoretical lines in the sand would be for breaking up a monopoly versus nationalization. Where can one go to learn a balanced history of the good and bad around nationalization efforts as well as the most iconic monopoly breakups?
I've started it but haven gotten away form it. What I've taken from it so far is mostly restricted to the struggle for the Federal government to challenge and breakup industrial power as aggregated on Mellon and Alcoa and Big Oil. I can't think of nationalization being a major them thus far. All that is coming to mind is mentions of how government did take over parts of industry for the war and it worked to some degree.
Can unions negotiate profit sharing through % ownership of shares by the union itself, or is that illegal?
Yes.. this can be done. In the 90's, United employees ended up owning 55% of the company in exchange for wage concessions.
Thank you! I am looking into this:
1) https://archive.ph/C9hBx
2) https://archive.ph/1JW0c
3) From Forbes:
United's Troubles Could Have Been Avoided
Bill Fotsch and John Case
Former Contributor
Apr 17, 2017,08:54am EDT
Just a few days ago, two events occurred that were seemingly unrelated. In fact the juxtaposition holds a deep lesson for American business.
One was the appalling saga of David Dao, the passenger who was forcibly removed from a United Airlines flight from Chicago to Louisville. That one went viral around the globe.
The other was a largely unremarked gathering in Denver of some 1,700 people, attendees at the National Center for Employee Ownership’s annual conference. Most came from companies that are partly or wholly owned by the people who work there.
The connection? United was once a poster child for this kind of employee ownership, at least in the eyes of the media. When the experiment failed and the airline went bankrupt, it became a convenient reference for some people’s belief that employee ownership “can’t work.”
United’s employee stock ownership plan, or ESOP, began in 1995 with a grand bargain. The airline’s pilots and machinists gave up nearly $5 billion in prospective wages and benefits. In return they got 55% of the company’s shares. That year, the stock outperformed the S&P 500 index by 67%. Shareholder value increased by more than $4 billion.
Some of the outstanding performance could be traced to a new attitude among employees. Grievances fell 74%, sick time 17%. “Everyone from gate agents to mechanics gained new authority to address customer complaints without consulting their supervisors,” the Chicago Tribune reported in a comprehensive retrospective published in 2003.
But the ESOP was born amidst conflict. The flight attendants’ union never supported it, saying that its members couldn’t afford the wage givebacks. Factions in the other two unions also opposed it, as did many in the executive suites. After a brief first-year honeymoon period, management did virtually nothing to help employees understand the business of which they were now owners, or to encourage a culture of ownership. A newly installed chief HR officer declared that he was “not enthusiastic” about the whole idea.
Unsurprisingly, the company soon reverted to the toxic us-against-them labor environment that had plagued it for years. The struggle culminated in a ferocious slowdown staged by United’s pilots in the summer of 2000. They taxied at a crawl. They refused to work overtime. On-time performance, which hit 81% during the first ESOP year, dropped to 40%. Passenger traffic fell off a cliff. The pilots as a group still owned some 25 percent of the airline, but never mind: as one reporter wrote, “they were sabotaging their own company.” The tragedies of September 11, 2001, drove the nails into United’s coffin: the company filed for bankruptcy in 2002, wiping out the value of the equity and ending the ESOP. Though United has recently been profitable, it has never overcome its reputation as the worst of the legacy airlines, to be avoided by passengers whenever possible.
Now: compare that sad story with the experience of companies that have made employee ownership work.
Shawn Eastham, for example, attended the Denver NCEO conference, where he described his company’s 24 years of consecutive sales growth. Eastham is president of Polyguard Products, a Texas-based manufacturer of coatings and moisture barriers that is 100% employee owned.
And Sandra Reid was there representing employee-owned Davey Tree Expert Company. Davey, too, has grown steadily and in 2016 recorded sales of $845 million, with a healthy bottom line.
The largest employee-owned company in the United States is Publix, the Florida-based supermarket chain, with $34 billion in sales and 190,000 employees. Publix consistently wins awards as a great place to work and shop while turning in solid financial performance.
What’s the difference between successful employee-owned companies like these and failures like United? One difference is that United’s plan involved those big wage concessions, which left a bad taste in a lot of mouths. By contrast, most successful ESOP companies distribute stock at no cost to employees.
Moreover, nearly all the research on employee-owned companies points in one direction: if a company doesn’t have participative management structures, if it doesn’t help employees learn to think and act like owners, putting stock into their hands doesn’t make much difference. NCEO founder Corey Rosen and coauthor Michael Quarrey originally made this point 30 years ago in Harvard Business Review—plenty of time for United to have learned it.
There are many different elements involved in creating an ownership culture, but one big one is this: owners understand the business. They know what “winning” means. They can make decisions on the spot with the best interests of the company in mind. If that means going off script, they go off script.
That was the one thing that United’s employees in the David Dao incident seemed unable to do. They followed the airline’s policies to the letter, right up to the disgraceful end. Nobody stopped to ask whether they were doing the right thing for the business, let alone for their own consciences. They weren’t thinking like owners.
What a shame. Things didn’t need to be that way. With better intentions and smarter management, United might today be an ESOP company in which people really did think and act as if they owned the place. Who knows? They might even have sent a few representatives to that inspiring Denver conference.
Back when AAI was just getting started Bert Foer and I went to see a group of people at the AFL-CIO to try to get them to make a contribution. We said that they cared most about jobs that would be lost through mergers, while we cared most about the higher prices that often resulted from mergers. We said that while our priorities would not always be identical, our views on mergers should be identical most of the time, so they should give us a contribution. They responded that they liked it when mergers led to monopolies because then they could get higher wages. So of course they did not make AAI a contribution. I wonder how much of labor's sometimes pro-merger attitude today is a cynical hope they'll get a share of the resulting monopoly profits?
I think they believed in the 1980s, wrongly, that mergers led to higher wages. Most union officials today know that is not true.
When a union seeks an industry combination in order to support its members, it becomes clear to me that unions cannot be counted on for support with the antimonopoly movement in general. The interests of the union are in its members, a critical but narrow interest. Indeed, a union could become powerful as an appendage to a huge commercial firm that does bad things to the rest of us. As such, the unions’ position(s) on monopolies interests me, but their positions are dispositive of nothing.
So per NPR, here's what the PRO actual proposes:
"Here are five provisions in the PRO Act:
1. So-called right-to-work laws in more than two dozen states allow workers in union-represented workplaces to opt out of the union, and not pay union dues. At the same time, such workers are still covered under the wage and benefits provisions of the union contract. The PRO Act would allow unions to override such laws and collect dues from those who opt out, in order to cover the cost of collective bargaining and administration of the contract.
2. Employer interference and influence in union elections would be forbidden. Company-sponsored meetings — with mandatory attendance — are often used to lobby against a union organizing drive. Such meetings would be illegal. Additionally, employees would be able to cast a ballot in union organizing elections at a location away from company property.
3. Often, even successful union organizing drives fail to result in an agreement on a first contract between labor and management. The PRO Act would remedy that by allowing newly certified unions to seek arbitration and mediation to settle such impasses in negotiations.
4. The law would prevent an employer from using its employee's immigration status against them when determining the terms of their employment.
5. It would establish monetary penalties for companies and executives that violate workers' rights. Corporate directors and other officers of the company could also be held liable."
https://www.npr.org/2021/03/09/975259434/house-democrats-pass-bill-that-would-protect-worker-organizing-efforts
It strikes me again and again that wage increases proposed by business are pretty much always a one-off deal (assuming they happen at all). Particularly at the current pace of inflation, a 10% increase isn't likely to be an "increase" for very long.
I would think any truly good-faith offer would have to be graded over a period of years, or even tied to inflation . . . but I don't see much discussion of that, particularly not from union leaders advocating deals like this. But as you rightly point out, they don't have much of a bargaining position.
Matt, I work in the oil and gas industry and I do not understand how ESG is not a clear antitrust violation. When I talk to commercial bankers about getting projects funded, they all check with their higher-ups, and now, way more than when I started in the industry, their bosses tell them they are bound by ESG guidelines. These guidelines are being forced onto banks and other capital providers by Vanguard and Blackrock, which control a large share of every company in America. There is a strong appetite among management teams at majors and small E&Ps to get financing for new projects but capital, especially on the oilfield services side, is hard to come by. If one financial company bought a share in every airline and said "no one can order more planes from now on" that would clearly be seen as collusion and should be prosecuted as such. Yet, ESG is essentially doing the same thing to the fossil fuel industry and there is no scrutiny. Is there potential for a successful antitrust action on this front? Thanks.
Esg is a collective response to the harms of corporate power. That is not anti trust. That is the commons being safeguarded for the sake of the planet and the people.
Unfortunately, it seems like the PRO does not rollback onerous provisions in the Labor Management Relations Act of 1947, most commonly referred to the Taft–Hartley Act.
I also think per-unit bargaining in and of itself is disastrous, and ought to be repealed, and supervisors ought not to be excluded by statue. The PRO act doesn't go nearly far enough. The penalties for refusal to negotiate a first contract ought to be more severe as well, perhaps a threat of nationalization.
It is pretty apparent that lobbying unions is now the defacto method for monopolists to force their anticompetitive mergers through. We saw it with MSFT/ATVI, Jet Blue and apparently Kroger and Albertsons.
At this point it may be seriously worth considering how trustworthy these unions are? What is stopping their power structure from being lobbied by Big Business just like how Big Business made it its M.O. to capture regulators, judges and politicians.
I think this piece adds a possible explanation but it may be optimisitc: the story of unions thinking this is their only way to securing better worker rights. In fact it makes no sense to me or to anyone who knows basic market knowledge. A temporary, legally non binding and presumably time based contract is meaningless compared to permanent consolidation?
Count how many times large companies have been broken up? Now count how many times union contracts/agreements have been terminated/squashed?
Promoting corporate consolidation is the very antithesis of worker rights. It doesn't matter how many letters you write or contracts you sign, and feebly attempt to enforce. There is only one power corporations succumb to and that is economic power. If the FTC/DOJ cannot even attempt to reliably enforce law given rights, under what delusion does the CWA think it can enforce its contracts in US courts/litigation?
In my opinion, this is blatant corruption. Did the workers in the union vote to okay this lobbying message? Highly doubt it. A recent GDC survey showed 44% of devs were against the MSFT/ATVI merger, vs 17% for it. A complete opposite sentiment to these apparent unions who are actively lobbying regulators to let this deal go through.
We are witnessing the desperation of Big Business when they can no longer corrupt and capture regulators like Christine Wilson. The new capture is now union leaders/management.
If Sara Nelson's union organizes the merged airline, she might expect that her union has increased leverage. But practically it only would mean that if the market for flight attendants remains brisk.
"Generally speaking unions are run by people who are suspicious of corporate power, but in a hostile environment with little leverage to engage in collective bargaining, it’s difficult to turn down tangible benefits for broader ideological reasons."
It's not ideological, it's pragmatic. Unions need to be responsive to changing economies etc. and a one time trade off in favor of better conditions that reduces competition among employers ultimately diminishes the union's ability to adjust their demands to the needs of the time.
Examples: in the recent rail workers' conflict, even though they were getting a raise, the meal compensation remained at $12 a day despite inflation, so they were losing money; also, sick leave wasn't a problem when there was flexibility and they could choose shifts but the railroads shrank staff and that flexibility and time off was lost; or, a city creates new incentives to draw film production to the area but the union places gaffers according to old rules favoring seniority instead of film vs theater lighting skills, so visiting productions bring their own crew instead of hiring local.
Those examples assume the one time sweet deal turns sour and not that the big corporation with the favorable deal isn't gobbled up in turn by a bigger financial entity, eliminating jobs and deals, per usual.
I know I should read the article before commenting, but in the words of a woman whose work I admire, “what the actual fuck?!?”
If you are taking requests I'd love a primer on where the theoretical lines in the sand would be for breaking up a monopoly versus nationalization. Where can one go to learn a balanced history of the good and bad around nationalization efforts as well as the most iconic monopoly breakups?
If you haven't read it already, I suspect Matt's book "Goliath" might actually have a lot of what you're looking for ;)
I've started it but haven gotten away form it. What I've taken from it so far is mostly restricted to the struggle for the Federal government to challenge and breakup industrial power as aggregated on Mellon and Alcoa and Big Oil. I can't think of nationalization being a major them thus far. All that is coming to mind is mentions of how government did take over parts of industry for the war and it worked to some degree.