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Workers find ally on Wall Street

By ROBYN E. BLUMNER
Published May 15, 2005

Where is the new voice of the American worker? Could it be coming from Wall Street?

For average wage earners in the United States, the beginning of the 21st century has been an exercise in running hard just to stay put. Despite productivity gains, wages have been stagnant for all but the highest compensated, and a larger share of health care costs, retirement risks and the national tax burden has been hoisted onto their narrow shoulders. The promise of getting ahead every year is about as remote as an honest presidential campaign.

At the same time, there is almost no one left in a position of power to speak for workers or act on their behalf. Union membership continues its 40-year slide - now down to 7.9 percent in the private sector. The Democratic Party - the traditional ally of labor - has lost its grip on power in the White House, Congress and a large percentage of the nation's statehouses. And regulatory bodies such as the National Labor Relations Board are more interested in finding their inner Legree than in standing for workers' rights.

But there is one bright spot in all this gloom, and that is the power wielded by the trustees of huge pension funds who believe it is part of their fiduciary duty to invest in companies that take the long view and treat their workers as assets. Since the scandals involving Enron, WorldCom and other now-famous corporate cheats, pension trustees have become bolder in demanding governance reforms and other changes at the companies in which they invest.

Nationally, public-employee pension funds control $2.3-trillion. An added $400-billion is in pension funds managed by unions. Obviously, political issues must not override sound investment decisions, but part of the calculation for investors should be the correlation between a company's long-range economic prospects and its treatment of workers and the environment. There is financial risk in being a polluter or treating workers as dispensable cogs, and reform-minded pension fund managers are beginning to make investments with this in mind.

"Our retirement security is at stake when companies are mismanaged," said Brandon Rees, a research analyst for the AFL-CIO Office of Investment. "Part of a sustainable company is regulatory compliance, respecting labor and environmental laws and creating value by partnering with employees rather than taking a more destructive approach."

One way for investors to encourage the creation of sustainable corporate value is to stop genuflecting - the way so much of Wall Street does - when there are short-term stock gains. Such spikes in stock price can have little relationship to a company's fundamentals.

Take the poster child for downsizing, Al Dunlap. When "Chainsaw Al" took over Sunbeam Corp. in 1996 and started shedding its work force, the company's stock price jumped. But it was short-lived. Dunlap didn't add value to the company, he gouged it, and Sunbeam has been limping along ever since.

For those interested in this nascent trend, pension boards in New York and California are the ones to watch. Phil Angelides, California's treasurer, who sits on the board of the California Public Employees' Retirement System and the state's teachers' pension system (and is planning to run for governor in 2006), talks about his "double bottom line" goals. He advocates investing in ways that create wealth and a better society. His message for the investment community is that corporate executives who would relocate offshore to avoid taxes, disregard environmental laws or exploit their workers would also enrich themselves to the detriment of shareholders.

The New York City Employees' Retirement System has been pushing 21 American companies, including Wal-Mart and Home Depot, to refuse to do business with suppliers that don't abide by international labor standards. That would mean limiting business dealings with manufacturers who fail to give their workers the right to join unions. And public pension funds in California and New York are steering investments away from companies that privatize formerly public-sector jobs.

All this is hopeful. Corporate America may be deaf to its employees, but the combined pension money of those workers has bullhorn potential. As we have seen with the demise of United Airlines' pension plan, the era of defined-benefit pensions is coming to a fast close. There may be only a short window for workers to use their collective financial clout to make changes in the running of large companies.

Right now, this seems like the only game in which workers still have a player on the board.

[Last modified May 15, 2005, 01:21:24]