ESG investors press companies for fairer labor policies

Shareholder activism finds synergy with Democratic legislative efforts

Michigan Rep. Andy Levin, a former union organizer, believes the U.S. pro-labor movement is having a resurgence.   (Tom Williams/CQ Roll Call file photo)
Michigan Rep. Andy Levin, a former union organizer, believes the U.S. pro-labor movement is having a resurgence. (Tom Williams/CQ Roll Call file photo)
Posted July 29, 2021 at 7:00am

Labor-management relations are drawing the attention of environmental, social and governance investors, who are urging companies toward more transparency on topics such as executive-to-worker compensation ratios, racial and gender pay disparities, and the treatment of all workers.  

This mounting shareholder pressure for fairer workplace policies may soon converge with legislation passed by the House and pending in the Senate that would affirm labor rights, with some experts saying the outside pressure and legislation might be necessary to ensure workers have adequate power at the bargaining table.

“It’s long overdue,” Leo Strine Jr., former chief justice of the Delaware Supreme Court, said in an interview with CQ Roll Call. Strine, now in private practice at Wachtell, Lipton, Rosen & Katz in New York, has closely tracked labor issues in corporate governance for a generation.

Companies that pay low wages or send their workforces offshore externalize long-term costs on to the markets and taxpayers, he said. These moves don’t grow the economy, instead they just shift costs while taxpayers, workers and creditors often are left to “pick up the wreckage,” Strine said.

“Ordinary Americans invest in the whole economy, not just one company,” he said, noting that almost everyone’s main stake in the economy is through a job, particularly low-wage and middle-class earners. When we lift those workers, they will spend and invest, and it will broaden the whole economy, he said.

Although essential workers carried the nation through the COVID-19 pandemic and brought renewed attention to labor issues in the process, they still receive comparatively low wages and minimal benefits and face unequal dynamics when dealing with management, observers say.

The source of the problem isn’t globalization. It’s the change in “gain sharing,” according to Strine. Most of the productivity gains over the last decades went to shareholders instead of workers, he said. “Part of the role of policymakers is to set the framework for fair competition,” he said.

House Democrats passed a bill in March, with the support of five Republicans, that would affirm worker rights to organize, collectively bargain and strike. It remains pending before the Senate Health, Education, Labor and Pensions Committee.

Rep. Andy Levin, D-Mich., worked as a union organizer prior to joining Congress. He voted in favor of the House bill and believes there is a pro-labor movement resurging in the country.

“This was true before the pandemic, and it is apparent now more than ever that working people need to stand in solidarity to fight for their voice and agency in the workplace,” Levin said in an email. “This sense of unity is now extending to shareholders, especially younger ones who want to ensure that their investments match their values regarding workers’ rights, climate change, diversity and other vital issues. We lawmakers need to support these efforts.”

Shareholders focused on ESG issues might help maintain the pressure on companies while waiting on lawmakers in Washington to catch up, according to Heidi Welsh, executive director of the Sustainable Investments Institute.

“There’s still a gap between this business imperative and the politics in Washington,” Welsh said in an interview. “Investors already know these issues can impact the bottom line.”

Workforce proposals

This year’s proxy voting season, which wrapped up this month, saw a slight dip in the number of workforce proposals related to fair pay and conditions. Instead, there was a greater focus on diversity and inclusion policies in the wake of the 2020 murder of George Floyd by a Minneapolis police officer that prompted a renewed national conversation on race, according to the Proxy Preview report, which Welsh co-authors.

Among these, nine proposals on workforce diversity passed with majority support this year. A measure calling for more details on diversity efforts at Union Pacific gained 81 percent support. At IBM, management and 94 percent of shareholders supported a similar resolution.

Additional workforce-related measures earned majority support this year at Goldman Sachs Group and solar panel maker Sunrun. Resolutions passed for those companies to disclose their use of arbitration clauses, which can be used to keep claims, like sexual harassment or discrimination, out of court and to hide a pattern of misdeeds.

Tesla shareholders will vote in September on a resolution about its arbitration agreements with employees. Chipotle Mexican Grill shareholders also backed arbitration disclosure in 2020.

“Companies’ use of concealment clauses, including nondisparagement and nondisclosure clauses, are equally concerning,” Meredith Benton, workplace equity program manager for the shareholder activist group As You Sow, said in an interview.

The latest push for more transparency around the handling of employee legal disputes and settlements originated in the #MeToo and Black Lives Matter movements, she said.

Investors don’t like anything that conceals risk, but some of these confidential agreements are “a total black box,” Benton said. Without more disclosure from companies, it’s difficult to tell how often they are used and how much risk is involved with the company.

Concealment clauses could, for instance, obscure a pattern of misconduct in a company, perhaps shielding it from reputational harm and class action suits, but also covering up and further enabling a toxic culture that underlies it.

Investors want to know more about these risks, Benton said.

The trade union AFL-CIO supports the House-passed bill and credited ESG investors for recognizing the relationship between a company’s labor practices and its long-term growth.

“Responsible investors understand the importance of respecting the rights of working people to come together into unions,” Liz Shuler, AFL-CIO secretary-treasurer, said in an emailed statement. “If we are going to have sustainable economic growth, we need to restore balance to our economy between runaway CEO pay and stagnating worker wages.”

President Joe Biden issued an executive order this month that instructed the Federal Trade Commission to explore limits on the use of noncompetition agreements, which can limit job mobility and depress wage levels, according to the White House.

Biden’s order directed the FTC to look into easing any barriers to work, such as licensing requirements that vary from state to state. It also asked the FTC and the Justice Department to shore up antitrust guidance to ensure companies can’t collude to suppress wages.

The order included 72 initiatives by a dozen federal agencies, all aimed at promoting competition in labor markets, but also in the agriculture, health care, technology and transportation sectors. Biden tied the move to his support for the pro-labor bill in the Senate. 

“Unions are critical to empowering workers to bargain with their employers for better jobs and to creating an economy that works for everyone,” the order said.