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Can Wall Street and labor unions learn to get along?

Date: April 15, 2022

By Nicole Goodkind, CNN Business

Wall Street and private businesses have funneled millions of dollars into anti-union tactics and lobbying, and they've gotten what they wanted: Union membership has been on a steady decline in the United States for the past four decades.

Now, employees are stepping up their efforts to unionize, most prominently at Amazon and Starbucks. And a tightening labor market has emphasized the importance of low attrition rates and high employee satisfaction. That has left some institutional investors questioning whether unions are as bad for shareholders as corporate executives claim they are.
"Since the 1980s, management's perspective was that unions are the devil," said Harry Katz, professor of collective bargaining at Cornell University's School of Industrial & Labor Relations. "There is a belief that management has private property rights to control what occurs in the workplace, and that unions are an outside third party. This adversarial ideology is deeply rooted in the ideology of management."
    A recent Economic Policy Institute analysis found that private-sector employers spend nearly $340 million per year hiring advisers to prevent employees from organizing.

    These efforts have paid off for corporations. In 1983, about 20% of employees belonged to a union; by 2021 that number had dropped to just over 10%, according to data from the United States Bureau of Labor Statistics. The low rates of unionization come at a time when 68% of Americans approve of labor unions, the highest level since 1965, according to Gallup.

    Forward-thinking investors have long considered the E, for environment, in ESG when evaluating a company's future viability. Now, they're looking closely at the S, for social, when deciding where to put their money.

    In his annual letter to investors, BlackRock CEO Larry Fink wrote that "workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees — actions that will help them achieve greater profits for their shareholders."
    Managing people effectively has become increasingly important, said Jonas Kron, chief advocacy officer at Trillium Asset Management. To do that, companies need to listen. "Workers need to have a voice and, and I think that's a big part of where the recent focus on worker organizing has come from," he said.
    Trillium is leading a coalition of more than 75 investors representing at least $1.2 billion in Starbucks stock. They want the company to adopt a global policy of neutrality toward attempts by its workers to organize, and to work with employees who vote to unionize to reach "fair and timely" contracts.
    In 2021, another group of investors that held more than $20 billion in Amazon shares urged the company to let investors work to organize "without fear of reprisal, intimidation, or harassment."
    The Amazon Labor Union has said it wants to raise wages to a minimum of $29 an hour, up from an average hourly starting pay of $18. That change could increase the company's operating expenses this year by $203 million, according to Morgan Stanley, or just about 0.05% of the total in 2021.
    Wall Street isn't suddenly "waking up and putting union stickers all over themselves," said Kron. They're recognizing that in the United States, the landscape is tilted heavily in favor of management and that the playing field is not even.
    Reputation is one of Starbucks' greatest assets, said Kron. Gaining an anti-union reputation poses a financial risk to investors.
    Starbucks and Amazon face high turnover, said Katz, and when unions and companies work well together, "organizational performance can lead to outcomes that may well involve higher benefits, costs and wage costs, but could well provide compensating advantages to the organization."
    Most studies of the effect of unions on stock prices show there's little reason for investors to worry. There may be a drop in the first 15 months after unionization as wages rise, but the process ultimately decreases risks. That's because companies that unionize tend to spend more on their employees and less on riskier ventures. They are also tend to be more transparent about their investments.
    Employees at 54 Starbucks stores in 19 states are pursuing union elections, according to organizers, and earlier this month more than 8,300 workers at the only Amazon fulfillment center in New York City voted to unionize.
    "We don't believe a union is necessary at Starbucks," said Reggie Borges, director of corporate communications at Starbucks.

    "Having a third party gets in the way and slows the process of investing in our people."
    "I think they're smarter than that," said Cornell's Katz. "These companies pretend their own employees are outsiders and invaders. [CEO Howard Shultz] needs to wake up and spend more time trying to forge a positive relationship with his workers."

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