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Unions' PR campaign backfires
By SARA FRITZ, Times Washington Bureau Chief
WASHINGTON -- When Enron collapsed last year, causing workers to lose their jobs and retirement savings, AFL-CIO president John Sweeney saw it as a rare opportunity for organized labor to dramatize the value of unions. That was the inspiration for PayWatch, an AFL-CIO public relations campaign designed to increase the membership and political influence of unions by highlighting how some corporate executives were profiting at the expense of workers. "At Enron," said a PayWatch promotion, "the board of directors failed in their oversight duty -- perhaps because some of them had conflicts of interest. The board of directors should be free of conflicts of interest." The point Sweeney tried to make was that unionized workers would have been protected against the corrupt executives of Enron, Global Crossing and WorldCom, who unloaded their shares at high prices knowing the workers' stock would soon be worthless. The PayWatch campaign backfired, however, when federal investigators began looking into allegations that a number of union presidents were engaged in Enron-style stock manipulations of their own. Last week, Sweeney and two other union presidents resigned from the board of ULLICO, a union-supported insurance and investment company, to protest an apparent coverup of an insider stock deal. Recriminations could even lead to a breakup of the 13-million member AFL-CIO. The controversy has also played into the antiunion bias of the Bush administration, which has been aggressive in investigating union corruption. ULLICO is the subject of inquiries by a federal grand jury, the Labor Department and the Securities and Exchange Commission. Marvin Kosters, director of economic policy at the American Enterprise Institute, a conservative think tank, calls it "a little poetic justice" for those labor leaders who claim to be the workers' friend while condemning wrongdoing by corporate executives. Kosters says the ULLICO controversy, which the Washington Times describes as "Big Labor's Enron," has undermined the purpose of PayWatch. Several union officials, who declined to be identified by name, said that the unions no longer feel comfortable making an example of greedy corporate executives and that Sweeney "has lowered his voice" on the subject. That was apparent Oct. 19, when the AFL-CIO made barely a ripple in the news media with its "national day of action" including rallies and news conferences focusing on corporate governance in 100 cities. ULLICO, parent of the 77-year-old Union Labor Life Insurance Co., acts as investor for many union pension funds around the country. Union presidents sit on the board of the organization, which revalues its stock price once a year. In December 1999, shortly before ULLICO's total value was expected to jump as a result of the firm's ownership of Global Crossing stock, ULLICO chief executive Robert Georgine offered board members a last-minute opportunity to buy ULLICO shares at the lower price of $53.95 each. Those who took advantage of the deal were Georgine; Douglas McCarron, president of the carpenters union; Martin Maddaioni, president of the plumbers union; Morton Bahr, president of the Communications Workers of America; and Jack West, who headed the ironworkers union. Two weeks later, ULLICO's share price was increased to $146, as anticipated, and the board members were holding shares worth nearly three times the price they paid. By March 2000, however, Global Crossing stock had plummeted and everyone knew that would also bring down ULLICO's share price. So ULLICO then paid $146 a share to buy back more than 200,000 shares owned by the directors, giving them a profit of about $100 a share. None of the union leaders involved in the deal are willing to discuss it, and ULLICO officers are intent on maintaining the secrecy of a 70-page internal report written by former Illinois Gov. Jim Thompson, a Washington lawyer. Whether or not the ULLICO stock deal is found to be illegal, experts say, there is no question that Georgine and the four union presidents benefited personally at the expense of the workers whose pension funds are invested in ULLICO. "It might be legal but it certainly is improper," said Kosters, who suggested the ULLICO deal is perhaps more comparable to Martha Stewart's insider trading than to the Enron collapse. Doyle Niemann, a former ULLICO press spokesman, emphasized that unlike Enron, ULLICO did not collapse financially as a result of the self-dealing of some board members. "There is an apparent conflict of interest," Niemann said. "It's sort of small potatoes compared to Enron, where they raped the corporation for the benefit of the officers." It was not until Georgine acted to keep Thompson's report out of the hands of board members, union pensioners and federal investigators that Sweeney balked. "I cannot adequately fulfill both my obligation in ULLICO and to the labor movement under these circumstances," the AFL-CIO chief told Georgine in his resignation letter. Frank Hanley, president of the International Union of Operating Engineers, and Linda Chavez-Thompson, AFL-CIO executive vice president, resigned from the ULLICO board along with Sweeney. None of them had participated in the stock deal, but that did not exempt them from criticism. "While it's encouraging to see John Sweeney now expressing outrage about the actions of the ULLICO board of directors, where was his outrage when the insider trading originally took place?" Stefan Gleason, vice president of the National Right to Work Foundation, asked in a statement. "As a member of the board, Sweeney ratified the insider stock plan that enabled top union officials to make significant personal profits at the expense of workers and union pension funds invested in ULLICO." The foundation opposes union representation of workers. Gleason said efforts by the ULLICO board to keep the report private suggest "the criminal wrongdoing by top union presidents may have been more pervasive than originally suspected." It's possible the administration will bring charges against the ULLICO board members who made a profit, even though McCarron is known to be President Bush's favorite union leader. McCarron has assisted the political campaigns of both the president and his brother, Florida Gov. Jeb Bush. McCarron recently announced he planned to return his nearly $300,000 windfall from ULLICO. In the past two years, the administration has established a impressive record of convictions of union officials. That is why West is no longer president of the ironworkers. He pleaded guilty to embezzlement charges last month. Nor is Georgine a newcomer to controversy. Until last year, he collected a salary from ULLICO as well as a salary from the AFL-CIO, where he was the head of the building trades division. Although ULLICO refuses to disclose his current salary, insiders say it is $1-million a year. After he left the AFL-CIO, where he had a plane for his own use, ULLICO also purchased a plane. Niemann acknowledged that Georgine, a workaholic, enjoys many perks. But he added: "It wasn't a Jack Welch situation," a reference to the retired General Electric Co. chairman and chief executive; the SEC is investigating his lucrative perks. Like most building trades officials, Niemann noted, Georgine views unions as a business, not a social movement, and thus he had no qualms about accepting the same benefits as a corporate executive. The industrial and service workers tend to pattern their unions on social movements; the building trades operate on a business model. Historically there has always been corruption in both the unions and the executive suite. Kosters of the American Enterprise Institute said the mistake that Sweeney made was to suggest that union leaders were more trustworthy than the CEOs. "There is a lot of finger-pointing in our system," Kosters said. "When you call attention to what happened at Enron, you are inviting the conclusion that all big business leaders are bad. That is not true. And when you look at corruption in unions you are saying, therefore, all labor leaders are corrupt. That's not true either, but that is what's being suggested."
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