Unions take equity stakes in employers’ businesses

Companies trade equity for pensions, benefit concessions

The last few months have seen a flurry of stock transfers to unions: Chrysler and General Motors and, now, Air Canada. But this is not the first time that the unions have exchanged stock for concessions; that happened the last time Air Canada was in trouble, in 2003. The unions sold their options in 2004 when the airline exited bankruptcy.

The common denominator here seems to be that companies are willing to use shares to sweeten a deal only when the shares are approaching worthless. Severe financial difficulty is the common thread that links most cases of union ownership of employers.

This is not small-scale ownership of company stock by individual employees. These cases are large-scale transfers of blocks of stock to unions. And unions are not practically organized to deal with equity stakes or theoretically prepared to act as owners of capitalist enterprises.

The poster boy for union ownership is Algoma Steel. The company turned around, but the union later sold the shares.

So never fear, unions are not becoming capitalists. The auto shares and the airline shares will be used to fund pensions and benefits.

When assessing the benefits of employee ownership, union and nonunion, it is important to distinguish individual and group ownership. Research seems to suggest that individual ownership is always a good thing for the company: it makes the employee more interested and more productive. And it rewards him or her for that. Though union ownership may have those employer benefits, the reward is tenuous and indirect, and may be eclipsed by other considerations.

And unions are going to be ambivalent about their new role. Do they temper their demands to allow the value of the investment to increase or do they continue to confront the company in support of their members’ direct interests? It may not be a coincidence that union members behave like owners when the future of their jobs and pensions are at stake or that unions dispose of equity stakes as soon as the crisis has passed and labour relations return to normal.

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