Opportunistic Proposals by Union Shareholders

Abstract

Shareholder proposals are increasingly important tools for corporate reformers, yet courts, policy makers, and scholars are concerned that proposals may be used "opportunistically" as bargaining chips by activists to extract side payments from management. This paper investigates whether labor unions use proposals opportunistically to influence contract negotiations. Our empirical strategy relies on the observation that proposals have higher bargaining-chip value in contract expiration years, when a new contract must be negotiated. We find that in contract expiration years compared to nonexpiration years, unions increase their proposal rate by one-fifth, particularly proposals concerning executive compensation, while nonunion shareholders do not increase their proposal rate in expiration years. Union proposals made during expiration years are less likely to be supported by other shareholders or a leading proxy advisor; the market reacts negatively to union proposals in expiration years; and withdrawn union proposals are accompanied with higher wage settlements.

Keywords: Corporate governance, shareholder proposals, unions, proxy access

JEL Classification: G30, K22, J51, G34, K31 J52