CORPORATE GREED DRIVES BAD FAITH UNION NEGOTIATIONS

Corporate greed drives a range of bad behaviors including bad faith negotiations with workers’ unions. The quite profitable New York Times dragged out negotiations with its newsroom union for over two years before giving them modest raises that hardly keep up with inflation. Companies are frequently uncooperative in contract negotiations after workers have voted to form a new union. Typically, it takes over a year for a first contract to be signed and, in some cases, no contract is ever signed.

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You’ve probably heard about recent successful votes by workers to establish unions, including at an Amazon warehouse and hundreds of Starbucks stores. There was a 53% increase in the number of unionization votes in 2022 over 2021, and this trend is continuing. All told, 200,000 workers voted to unionize in 2022.

The successful votes to unionize are the good news for the workers. The bad news is that it typically takes more than a year after the successful vote to sign the first contract, and, in some cases, no contract is ever signed. In a study of 391 first-time union contracts signed in 2005 – 2022, the average time from the successful vote to unionize to the signing of the first contract was 465 days; in the last three years of this period, it was over 500 days. A separate study of 226 successful unionization votes in 2018 found that 63% had no contract one year later and that 43% had no contract two years later. In 2009, a study of over 1,000 successful unionization votes found that 52% had no contract one year later, 37% had no contract two years later, and 30% had no contract three years later. [1]

These delays in signing a contract indicate bad faith in employers’ negotiating and are troublesome for multiple reasons. First, if a contract isn’t signed within a year, the employer can challenge the validity of the union. Second, a delay in signing a contract tends to harm workers’ morale and their commitment to the union. The energy from the successful drive to vote for a union tends to dissipate and employee turnover tends to dilute the pool of workers committed to the union.

Labor laws are tilted in the favor of employers to begin with, but employers often also use illegal tactics to delay contract negotiations. Although both parties are required by law to bargain in good faith, there is no enforcement mechanism. Furthermore, there is no requirement to engage in mediation or binding arbitration if negotiations have not produced a contract.

Employers also drag their feet in negotiating new union contracts when one expires. A recent example is the New York Times (NYT), which dragged out contract negotiations for over two years after its newsroom union’s contract expired on March 30, 2021. The NYT engaged a high-powered law firm, Proskauer Rose, to guide its negotiations. It took seven months to respond to the union’s initial wage proposal and then five months to respond to the union’s counterproposal. In the meantime, the union employees worked for two years without a contract and without any increase in pay while inflation cut deeply into the value of their incomes. [2]

After 21 months of negotiation, the NYT and the union were roughly $15 million apart in their positions on aggregate annual wage costs. However, the NYT was not budging, so the workers held a one-day strike in December 2022. To put this in some perspective, the NYT had an average operating profit of $215 million in each year from 2020 to 2022. In 2022, it announced it would buy back $150 million of its own stock during the year. It has also increased the dividends it pays to shareholders by 83% from $0.82 per share in 2020 to a projected $1.50 in 2023. In 2021, compensation for the CEO was $5.75 million (a 32% increase) and $3.6 million for the publisher (a 49% increase). Clearly, the NYT is not a corporation that can’t afford to pay a few million dollars more to its employees, who are recognized around the world as top-notch.

Ultimately, after over two years of negotiating and workers going without any pay increase, the union and the NYT reached a five-year deal on May 23, 2023. The workers got a 7% bonus based on their 2020 wages instead of any retroactive wage increase for the two years they worked without a contract. They got an immediate increase of between 10.6% and 12.5% on their 2020 wages, their only raise over a three-year period, as well as future raises of 3.25% in 2024 and 3.0% in 2025. This was a long, hard-fought battle with a very profitable corporation where negotiations finally produced a contract in which the workers’ pay may not even be keeping up with inflation. [3]

The Protecting the Right to Organize (PRO) Act in Congress would address the problem of employers delaying contract negotiations. It would require an employer to start good faith negotiations within 10 days of a vote for a union or the end of a contract. If a contract is not agreed to within 90 days, either side could request federal mediation. If mediation fails to produce a contract in 30 days, binding arbitration would take place and put a two-year contract in place. [4]

I urge you to contact your U.S. Representative and Senators to ask them to support the PRO Act to ensure that union contracts are negotiated in a reasonable timeframe. You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] McNicholas, C., Poydock, M., & Schmitt, J., 5/1/23, “Workers are winning union elections, but it can take years to get their first contract,” Economic Policy Institute (https://www.epi.org/publication/union-first-contract-fact-sheet/)

[2] Greenhouse, S., 12/15/22, “What’s wrong at the Times,” The American Prospect (https://prospect.org/labor/new-york-times-union-contract-strike/)

[3] Robertson, K., 5/23/23, “The Times reaches a contract deal with newsroom union,” The New York Times

[4] McNicholas, C., Poydock, M., & Schmitt, J., 5/1/23, see above

CORPORATE BAD BEHAVIOR IS COMMONPLACE

Corporate greed drives a range of bad behaviors including the cheating of customers. Here are two examples: Wells Fargo and Citizens Banks have both recently paid settlements related to schemes that cheated customers. In addition, they, particularly Wells Fargo, have a history of illegal behaviors. Corporate bad behavior is frequent, varied, and often repetitive, i.e., commonplace, making it clear that corporations view paying penalties for bad behavior as simply an acceptable cost of doing business. If we want to stop corporate bad behavior, there must be more enforcement with greater penalties

(Note: If you find my posts too much to read on occasion, please just read the bolded portions. They present the key points I’m making.)

Wells Fargo Bank has a long-running record of bad behavior. Most recently, it agreed to pay $1 billion to settle a class-action lawsuit. The suit was brought by shareholders who accused Wells Fargo of making false statements about its progress in implementing reforms in response to its 2016 fraudulent accounts scandal. As a result, when the truth about the failures of its reforms became public, the value of its stock took a dive. [1]

As you may remember, in 2016, Wells Fargo acknowledged opening millions of unauthorized accounts for customers. It fired over 5,000 employees who had opened the fraudulent accounts in order to keep their jobs or earn bonuses. Based on the fraudulent accounts, some customers were charged overdraft fees and some had their credit scores damaged. Wells Fargo’s CEO ultimately lost his job and another senior executive is being prosecuted. The Federal Reserve imposed a series of consent orders on Wells Fargo in 2018 requiring it to remedy its corporate governance and penalizing the company in multiple ways.

Between 2018 and 2020, Wells Fargo touted its progress on complying with the remedial consent orders in public statements and regulatory reports. In reality, it was failing to implement meaningful reforms, failing to develop adequate remediation plans, and failing to meet remediation deadlines.

Overall, since 2000, Wells Fargo has paid penalties of almost $26 billion for 236 offenses of a variety of kinds. [2]

Citizens Bank recently agreed to pay a $9 million penalty in response to a Consumer Financial Protection Bureau lawsuit over violations of consumer protection laws covering credit card customers. Over a five-year period, Citizens Bank made roughly 25,000 of its credit card customers who filed disputes or fraud claims jump through onerous and illegal hoops. In many cases, it failed to return the full amount due to customers and failed to communicate with customers in a timely fashion. It required some customers to file notarized fraud affidavits and some to agree to appear as a witness in court in order to pursue their complaints. Their complaints were automatically dismissed if they could not or refused to comply. Under the terms of the settlement, Citizens Bank, which had discontinued use of the fraud affidavits, agreed not reinstitute their use. [3]

Overall, since 2000, Citizens Bank has paid penalties of almost $150 million for 17 offenses of a variety of kinds. [4]

These, of course, are just examples of corporate bad behavior, which is frequent, varied, and often repetitive, i.e., commonplace. If you need any convincing of this, I encourage you to explore the Violation Tracker database compiled by Good Jobs First. Just put in the name of any corporation and see how many offenses they’ve had since 2000 and how much they’ve paid in penalties. This makes it clear that corporations view paying penalties for bad behavior as simply an acceptable cost of doing business.

Therefore, if we want to stop corporate bad behavior, there must be more enforcement with greater penalties. More on this in a future post.

[1] Gregg, A., 5/17/23, “Wells Fargo agrees to $1b shareholder settlement,” The Boston Globe from the Washington Post

[2] https://violationtracker.goodjobsfirst.org/parent/wells-fargo

[3] Murphy, S. P., 5/24/23, “Citizens Bank agrees to pay $9 million after suit on behalf of some customers,” The Boston Globe

[4] https://violationtracker.goodjobsfirst.org/parent/citizens-financial-group

STOCK BUYBACKS ARE HARMFUL AND SHOULD BE ILLEGAL AGAIN

The billions of dollars that corporate executives are spending to buy back their own companies’ stocks reduces safety for workers, consumers, and the public. Until 1982, stock buybacks were illegal. Making them legal has led to a dramatic change in corporate executives’ behavior. They now aggressively maximize profits and returns to stockholders, including themselves, while responsibilities to other stakeholders are left behind.

(Note: If you find my posts too much to read on occasion, please just read the bolded portions. They present the key points I’m making.)

My previous post discussed, in the aggregate, the aggressive profit maximization behavior by corporate executives and their use of stock buybacks and high dividends to maximize the returns to shareholders, including themselves. It documented the occurrence of such behavior, the reasons it’s occurring, and what it reflects in terms of the goals and ideology of corporate executives, i.e., that maximizing returns for shareholders (including themselves) is all that matters. This post will focus on the impacts at individual corporations and on-the-ground. These impacts include reduced safety and economic security for workers, as well as reduced safety for consumers and the public.

One part of aggressively maximizing profits is aggressively reducing costs, which can mean that corners get cut on quality and safety. For example, in 2012, Boeing rolled out what appeared to be the very successful and profitable 737 Max passenger jet. However, at the time, Boeing was engaged in a major drive to increase profits and returns to shareholders through big stock buybacks (tens of billions of dollars) and generous dividends. In 2018 and 2019, two of the 737 Max jets crashed, killing 346 people. It turned out that the crashes were due to the same malfunction in the autopilot system. The investigations of the 737 Max crashes strongly suggest that Boeing executives’ drive to increase profits and returns to shareholders led to management decisions that cut corners on safety and were a major – if not the major – contributor to the crashes. [1]

Norfolk Southern Railroad, whose train derailed and crashed in East Palestine, OH, with disastrous results, and whose trains have derailed elsewhere as well, has used cash from profits to buy back stock instead of investing in employees and infrastructure that would have made their trains safer. (See previous posts here and here for more detail on Norfolk Southern and the railroad industry’s profit maximization.) Nike bought back stock while cutting the poverty-level wages of Asian workers. Pharmaceutical corporations buy back stock instead of investing in research and development. Nonetheless, they claim high drug prices are needed to fund the development of new drugs. [2]

The U.S. response to the Covid pandemic was hampered by corporations whose executives had engaged in profit maximization strategies that undermined the availability of ventilators and high-quality masks, among other things needed to combat the corona virus. [3]

As became painfully clear during the pandemic, corporate executives, in order to cut payroll costs and aggressively maximize profits, had created fragile supply lines dependent on other countries and international shipping. They had also reduced inventories and production capacity to absolute minimums to reduce costs, leaving their companies without the capacity to respond to disruptions in supply chains or spikes in demand and need for their products. So, for example, baby formula manufacturers did not have the inventory or capacity to fill the gap when one of them (that had cut corners on quality controls) had to pull its tainted products off the market.

Although stock buybacks are only one piece of these problems, they are a blatant and significant one that can be relatively easily addressed by dramatically reducing or banning them.

The Biden administration has been taking steps to discourage stock buybacks. The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Trump prohibited corporations from using federal financial aid to buy back stock, but because cash is fungible, it had little effect. The Biden administration, as part of the 2022 Inflation Reduction Act, implemented a 1% tax on buybacks. However, corporations are treating this as a cost of doing business and are continuing to buy back shares. [4] Biden called for raising the tax to 4% in his State of the Union speech, but even this or a higher tax is likely to have little effect because of the huge size of the economic benefits to big shareholders, including executives.

The only thing that will really stop stock buybacks and the harms they cause is to ban them again. Recently, three House Democrats (Representatives Garcia [IL], Khanna [CA], and Van Hoyle [OR]) filed a bill, the Reward Work Act, that would ban stock buybacks. A version of this bill was filed in the Senate back in 2018 by Senators Baldwin (WI), Warren (MA), Schatz (HI), Gillibrand (NY), and Sanders (VT). [5]

I urge you to contact President Biden and your U.S. Representative and Senators to ask them to ban stock buybacks and to take other steps to incentivize corporate executives to be more responsive to stakeholders other than shareholders. You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414. You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1] Lazonick, W., & Sakinc, M. E., 5/31/19, “Make passengers safer? Boeing just made shareholders richer,” The American Prospect (https://prospect.org/environment/make-passengers-safer-boeing-just-made-shareholders-richer./)

[2] Lazonick, W., 6/25/18, “The curse of stock buybacks,” The American Prospect (https://prospect.org/power/curse-stock-buybacks/)

[3] Lazonick, W., & Hopkins, M., 7/27/20, “The $5.3 trillion question behind America’s COVID-19 failure,” The American Prospect (https://prospect.org/coronavirus/americas-covid-19-failure-corporate-stock-buybacks/)

[4] Kuttner, R., 5/17/23, “How Wall Street feeds itself,” The American Prospect blog (https://prospect.org/blogs-and-newsletters/tap/2023-05-17-how-wall-street-feeds-itself/)

[5] Meyerson, H., 5/25/23, “The bill that would stop buybacks,” The American Prospect blog (https://prospect.org/blogs-and-newsletters/tap/2023-05-25-bill-that-would-stop-buybacks/

STOCK BUYBACKS ARE UNPRODUCTIVE, SELF-ENRICHING, MARKET MANIPULATION

The billions of dollars that corporate executives are spending to buy back their own companies’ stocks have significant effects on the economy, on stock prices and stock markets, and on economic inequality. Stock buybacks, which benefit large stockholders, including corporate executives, set a new record in 2022. Until 1982, stock buybacks were illegal. Making them legal has led to a dramatic change in corporate executives’ behavior. Instead of retaining and reinvesting profits in their corporations, they are distributing them to shareholders, including themselves. They are also aggressively cutting (aka “downsizing”) costs to maximize profits.

(Note: If you find my posts too much to read on occasion, please just read the bolded portions. They present the key points I’m making.)

The billions of dollars that corporate executives are spending to buy back their own companies’ stocks have significant effects on the economy, on stock prices and stock markets, and on economic inequality. These buybacks use up corporate cash that therefore CANNOT be used to pay employees, to expand production or service delivery, to invest in research and development, nor to improve productivity and efficiency.

Stock buybacks set a new record in 2022. The world’s 1,200 largest corporations spent a total of $1.3 trillion (an average over $1 billion each) buying back their own stock. Buybacks reduce the number of the corporation’s shares that are available on the stock market, thus increasing the value and price of the shares that remain on the market.

The stock price increases generated by stock buybacks benefit large shareholders, who include corporate executives. One half of stocks are owned by the wealthiest 1% of Americans and the wealthiest 10% own 90% of stocks. Corporate executives are large shareholders because they receive large portions of their compensation as shares or stock options. In addition, a significant portion of their compensation is often determined by the performance of the stock’s price. Therefore, these executives are doubly rewarded if the price of their corporation’s stock goes up. Clearly, the decision to buy back stock presents a huge conflict of interest for corporate executives because it’s a use of corporate funds that results in substantial self-enrichment. [1]

Almost 80% of U.S. corporations have conducted stock buybacks, while only 45% of corporations headquartered elsewhere have. Corporations often borrow money to buy back stock – a kind of speculation that adds no value to the economy but enriches large shareholders.

Until 1982, stock buybacks were illegal; they were banned because they were considered market manipulation. President Reagan’s Securities and Exchange Commission (SEC) changed market regulations to allow them. It took a while, but before long corporate executives realized that this was a gold mine for self-enrichment, given the large amounts of company stock they owned. By the ten years from 2003 to 2012, they were spending 54% of profits ($2.4 trillion) on stock buybacks and another 37% of profits on dividends to shareholders.

All told, from 2003 to 2012, corporate executives used 91% of profits to enrich shareholders, including themselves. This behavior continues to today. This distribution of profits leaves little for employees, research and development, and other investments in their corporations. (These data are for the 449 corporations of the S&P 500 index whose shares were publicly traded on a stock market over that 10-year period.) [2]

This spending on buybacks and dividends represented a dramatic change in corporate executives’ use of cash from profits. Prior to 1982, much of profits was retained and reinvested in innovation, infrastructure, and employees. Since 1982, profits have been increasingly distributed to shareholders while the number of employees and their compensation, as well as other costs, have been aggressively reduced or downsized.

The focus of corporate executives has shifted from value creation to value extraction. [3] The 2017 cut in the corporate tax rate from 35% to 21% was supposed to give corporations more cash to use to create jobs, but instead they’ve used it for stock buybacks and dividends.

The retention and reinvestment of profits of the 1940s through the early 1980s was essential to the success of the U.S. economy, the growth of the middle class, the reduction of economic inequality, and America’s leadership in the global economy. These positive trends have been reversed by the “distribute-and-downsize” ideology that is now prevalent among corporate executives, having increasingly taken hold since 1982. [4]

This ideology is focused on extracting value from corporations for shareholders through profit distribution and through profit maximization by aggressive cost cutting, including downsizing the workforce. It reflects the ascendance of the economic and corporate ideology that maximizing returns for shareholders is the only goal for corporate executives; that it’s literally all that matters. This is a self-serving ideology for wealthy economic elites, including corporate executives.

This ideology overturned the previous (and perhaps resurgent) ideology that corporate decision-making should include responsibilities to serve a broad set of stakeholders including employees, customers, communities in which the corporation operates, and ultimately the overall society in which the corporation exists. These stakeholders have contributed knowledge, skills, and education; infrastructure such as roads, utilities, and public safety services; and a stable legal and societal environment in which to sell goods and services.

My next post will highlight some specific examples of the effects of prioritizing returns for shareholders over all other stakeholders. It will also identify efforts to reduce stock buybacks and move corporate decision-making back toward an ideology of value creation through the retention and reinvestment of a bigger share of profits, as well as of responsibilities to stakeholders other than shareholders.

[1] Kuttner, R., 5/17/23, “How Wall Street feeds itself,” The American Prospect blog (https://prospect.org/blogs-and-newsletters/tap/2023-05-17-how-wall-street-feeds-itself/)

[2] Meyerson, H., 5/25/23, “The bill that would stop buybacks,” The American Prospect blog (https://prospect.org/blogs-and-newsletters/tap/2023-05-25-bill-that-would-stop-buybacks/

[3] Lazonick, W., & Sakinc, M. E., 5/31/19, “Make passengers safer? Boeing just made shareholders richer,” The American Prospect (https://prospect.org/environment/make-passengers-safer-boeing-just-made-shareholders-richer./)

[4] Lazonick, W., 6/25/18, “The curse of stock buybacks,” The American Prospect (https://prospect.org/power/curse-stock-buybacks/)