The story of Consolidated Freightways' three-year fight with the International Brotherhood of Teamsters
In the fall of 1992, Maryla Boonstoppel, vice president for investor relations and corporate secretary at Consolidated Freightways, one of America's largest trucking companies, received a mysterious letter. It was a shareholder proposal asking the firm to contact the shareholder's representative at a 202 area code - Washington DC.
At first, Boonstoppel thought the letter had been sponsored by shareholder activists United Shareholders of America. However, when she called the number, the telephone was answered by an individual who gave only a name. It took almost two weeks of sleuthing before the pieces suddenly fell together and Boonstoppel discovered she was calling the headquarters of the International Brotherhood of Teamsters.
For Palo Alto, California-based Consolidated, it was the first ripple of an impending tidal wave of union involvement in corporate governance issues. Just as IROs and corporate secretaries were breathing a sigh of relief at the apparent scaling back of confrontational proxy campaigns by activist investors like CalPERS, the unions, endowed with their formidable organisational and communications talents, have entered the fray. Last year, unions, their members and pension funds filed over 60 governance resolutions - making unions the leading institutional sponsors of proposals.
That trend shows no signs of slowing, and has sparked a sometimes acrimonious debate, with companies arguing that the unions have ulterior motives for backing governance proposals. 'Unions like to say they are moving into this area on the grounds of corporate performance,' says Boonstoppel. 'But they are absolutely not. They are concerned strictly with labour issues and want to boost their collective bargaining power by putting pressure on managements on as many fronts as they can.'
Last year, during the longest strike in US trucking history, the union put up proposals at the three largest trucking companies involved. There were three separate proposals at Consolidated: to get rid of the staggered board; to invoke confidential voting; and to lower the super majority needed to change board structure. With the help of Georgeson on the proxy solicitation side, management soundly defeated the union. A week later, the contract was settled and the strike over.
This year, the Teamsters continued to play the proxy card, submitting - and losing - a proposal on staggered boards. The union planned to bring proposals to a vote at about ten other companies, including one at Albertsons, to declassify the board; at AMR and BankAmerica, to redeem shareholder rights plans; and, at Minnesota Mining and Manufacturing, to switch its state of incorporation from Delaware. Teamsters employees also sponsored proposals again at the other two big trucking companies; and negotiated with Phillip Morris,where they won a redemption of a poison pill, and with ITT about splitting chairman and CEO roles.
The Teamsters is America's largest trade union, with over 1.4 mn members, but it is not the only one to venture into corporate governance. In all, over a dozen took part in the proxy process last year; this year the International Union of Operating Engineers joined the Teamsters in its proposal to declassify Consolidated's board; and the United Brotherhood of Carpenters and Joiners of America has also been prominent in submitting governance proposals.
One factor underlying this surge in labour activism is the growth over the last decade in the value of union employee pension plans. At the same time, unions are facing dwindling memberships, partly because of corporate restructuring and the related reduction in company payrolls. Patrick McGurn of Washington-based Investor Responsibility Research Center believes the recent increase in activism is a product of these two factors. 'Unions are realising they must take advantage of what they have got,' he says. 'Consequently, the pension weapon has been elevated on their list of options.'
To begin with, management attacked union activity on legitimacy grounds. Consolidated has waged an active campaign with the SEC and 'traditional' institutional shareholders, arguing that union proposals are part of a broader initiative. In 1993 the SEC rebuffed the company's request for 'no action' letters allowing it to omit shareholder proposals on the basis that the union had a hidden agenda. However, the following year, when Consolidated had three proposals from the same three individuals, the SEC agreed that these were effectively all from the same proponent and ruled that only one proposal could be submitted.
This year, the unions seem to have the upper hand with the SEC. Companies which successfully argued for 'no action' letters in the past on the grounds that proposals represented 'personal grievances', have failed this year. And management claims that unions are the masterminds behind nominal sponsors, as Consolidated successfully argued last year, have fallen on deaf SEC ears this time around.
For that reason, Boonstoppel took her senior management on the road: Don Moffitt, president and CEO, Eb Schmoller, senior VP and general counsel, and Hank Schmitt, VP corporate and government affairs, all set out to rally the support of institutional investors. The first year of union-related proposals, few public pension funds bought the company's arguments. 'They just didn't believe us when we said this was not about governance but about labour relations issues,' says Boonstoppel.
However, the $6.7 bn Wisconsin State Investment Fund - Consolidated's largest shareholder - did accept that the Teamsters were abusing the proxy process this year. Consolidated negotiated with Wisconsin to sunset its poison pill a year earlier than originally scheduled. 'We were able to modify the pill in such a way that Wisconsin could tolerate it,' says Boonstoppel. 'On that basis, Wisconsin agreed to abstain from voting on the poison pill.' And without its support, the Teamsters were forced to withdraw their proposal at the eleventh hour.
However, the Council of Institutional Investors presented Boonstoppel with an additional challenge. Executive director at the council Sarah Teslick condemned SEC's attitude, querying why unions should be held to a different standard from other entities. As a result, the SEC is now putting a heavy burden of proof on companies to substantiate 'impure motives' charges.
Teslick also wrote to the SEC asking it to look into how proxies were voted at various annual meetings, citing the 1994 Consolidated meeting as an example. Boonstoppel saw red, and fired off a sharply-worded letter to Teslick complaining that CII was being 'used'. 'There was absolutely nothing questionable about our meeting,' declares Boonstoppel. 'No company likes to have its name waved in front of the SEC.'
But Boonstoppel's letter may have triggered the arrival of the International Union of Operating Engineers at the Consolidated proxy front this year, with its proposal to modify staggered boards. 'As legitimate owners of our stock in one of their pension plans, and because the company didn't have any labour issues on the agenda, I was willing to talk with them and find out why we were being targeted,' says Boonstoppel. 'Our financial performance has been good over the last four years. They said they thought the letter I wrote indicated Consolidated was a bad corporate citizen. But they never called me to get facts.'
Nor has the Department of Labor been swayed by the arguments of companies targeted by organised labour. 'They appear to be blind to the coincidence that the Teamsters Union has not yet filed a proxy proposal at a single company where it does not have a labour issue,' notes Boonstoppel.
On a wider front, Boonstoppel, who was in the chair at Niri for the year to March, is calling for a revision of public funds' voting guidelines. 'Once the labour issues driving these proxy contests are exposed, it is a question of public funds and corporations better defining voting policies to give them discretion where proponents have ulterior motives,' says Boonstoppel. 'Pension funds and other institutional investors have adopted black and white standards for corporate governance. But, not all companies need the same rules to govern themselves by.'
'If a company isn't performing well, you can start questioning things like whether the structure protects management too much,' Boonstoppel continues. 'The Teamsters have been clever in picking plain vanilla issues that the public funds, because of their strict voting guidelines, would have to support. Activism of the CalPERS variety began when companies were performing poorly, not simply because the chairman happened also to be the CEO. What we are seeing from the unions today is a sham.'
John Wilcox, president of Georgeson & Co, agrees that the union agenda for the proxy system is hard to pinpoint. 'It seems they are doing little more than harassing corporations,' says Wilcox. 'They are not going after poorly-performing companies per se, and the types of proposals they sponsor, such as de-staggering the board, are pretty standard. They solicit proxies on that basis and end up with a predictably high percentage of the vote.'
However, Wilcox thinks the unions are deluded if they expect to achieve solidarity with other shareholders on labour issues. 'When it comes to collective bargaining, shareholders are likely to be adversaries of labour because shareholders are owners, not workers,' he says. 'In the end, unions are generally seen as gadflies - using the annual meeting to attract attention to their own pet social or political issue.'
For Consolidated, communicating the company's case to individual shareholders has been a touchy matter. 'We offended some Teamsters shareholders by challenging the proposals,' admits Boonstoppel. 'But others could see what was going on.' In many cases, Boonstoppel believes labour unions are using the proxy to force management to agree to unionisation of the workforce. All Big Three trucking companies have non-unionised operations which the unions like to have in their fold. 'That's not in the best interest of shareholders,' says Boonstoppel. 'Work rules are such that you need the flexibility to get the job done.'
The Shareholder View
Since the 1991 inauguration of Ron Carey as president, the Teamsters has emerged as one of the leading shareholder activist unions. In November 1992, it adopted a resolution specifically backing such action: 'Joint trusteeship of pension plans, employee stock ownership and use of proxy and stakeholder processes are important ways in which workers can protect and promote long-term financial security.'
In 1993, the Union created a department to conduct 'strategic' campaigns. Bart Naylor, financial initiatives coordinator for the Teamsters and former head of investigations for the US Senate Banking Committee under Senator Robert Proxmeyer, first came to corporate governance while working to tame some of the excesses of merger-mania. He spoke to Investor Relations about the motives behind the Teamster agenda.
IR: How do you convince shareholders that using proxies is not a union pressure tactic to win concessions on other fronts?
BN: We have 7,000 contracts with managements and almost 1.5 mn members. At any given time, it is unavoidable that some have a beef with the boss. But any shareholder could at any given time have a beef with a company in which he is invested. We bring to the table a special interest, but it is also a common interest with other shareholders and it is that which we pursue. Our resolutions don't ask that we get paid more money. We are obliged to serve our retirees who depend on the long-term health of companies their funds invest in. Our working members have an equal stake in the health of their companies.
IR: What has spurred Teamster interest in corporate governance?
BN: President Carey established this office in the hope Teamsters would become activists as we are sizeable owners of corporate America. The union has about $48 bn in pension assets, and many members hold stock through ESOPs or their own portfolios.
One of the first negotiations Carey entered was during the bargaining to save NorthWest Airlines. Eventually, 20,000 Teamster flight attendants received a sizeable chunk of NorthWest stock and we have a Teamsters slot on the board. Carey calculated that if stock is becoming an increasing part of our compensation, we had better make the most of it. Let's not just sit and collect dividends. As employee shareholders, we have a stake in this company and should exercise all the rights we enjoy to promote the company's health. We can see when the boss is screwing up a lot faster than the average shareholder - often faster than a professional analyst.
IR: What governance issues will Teamsters concentrate on?
BN: Anything that gets in the way of management's accountability to shareholders. We want companies to move their incorporation from the State of Delaware, where management often enjoys relative insulation from shareholders, to their home state. Following Delaware's lead, many states have joined a race to the bottom in terms of accountability standards. If we can get shareholders animated about the poor condition of state laws, we may spark a race in the other direction.
IR: What's on the agenda this year?
BN: At the start of the season, Teamster funds or individuals brought over 15 proxy issues to the table. We are down to about ten now. Either the company adopted the essence of our proposals or, as with ITT, while it has not said it will separate the chairman and CEO, we have been impressed with its good faith and have started fruitful negotiations. We withdrew the ITT resolutions this year and hopefully more productive things will continue to happen. The company's stock price has zoomed some 20 per cent since we filed the resolution. We still believe that separating the chairman and CEO is good for any company, including the healthiest, but frankly, a major argument was taken away from us.
That cannot be said for our campaign to split the CEO and chairman position at Borg-Warner, a Chicago security guard firm taken private in a leveraged buy-out by Merrill Lynch in 1987. Two years ago it went public again at $18 a share. The stock is now in the $6.50 range and the company is on credit watch. Clearly, management needs an independent chairperson setting the agenda.
Perhaps one of our greatest successes was this March, when we succeeded in getting a poison pill redemption at Philip Morris. We've been after Philip Morris for three straight years and were slowly inching toward the 50 per cent mark at the proxy vote. Management decided instead to redeem the pill, paying shareholders $8 mn to do so.
IR: How do you get the message out?
BN: The lion's share of institutional solicitation is done in-house, although we engaged George Garland last year on the strength of his experience and relationships. We also mail through ADP. On the individual shareholder side, distribution can be rather innovative. Sometimes, we use 'truck-mail' where SEC-approved material goes to truck stops and gets handed out at Elsie's diner. Then the guys make phone calls or talk over the CB radio. Interestingly enough, we have to file our CB radio script with the SEC, which shows how times have changed, and the seriousness with which the Teamsters view their investments.