Corporate governance reformers hope that giving shareholders more voting rights will improve firm performance, but critics argue that some shareholders, such as labor unions and public pensions, will use their rights to advance private interests. This paper finds that labor unions use shareholder proposals “opportunistically” to influence contract negotiations. We show theoretically that shareholder proposals can be used as bargaining chips to extract side payments from management. Our empirical strategy is based on the observation that proposals have a higher than normal value for unions in contract expiration years, when a new contract must be negotiated. We find that during contract expiration years, unions increase their proposal rate by one-quarter (and by two-thirds during contentious negotiations); nonunion shareholders do not increase their proposal rate in expiration years. Unions are much more likely than other shareholders to make proposals concerning executive compensation, especially during expiration years. Opportunistic union proposals are associated with better wage outcomes for union workers. Union proposals primarily originate from their general funds, not the larger Taft-Hartley pension funds, which have legal barriers to activism. Overall, the evidence suggests a potential downside to enhanced shareholder rights. Joint with John G. Matsusaka, and Irene Yi.
Click here to read the paper.