Workers Always Lose, Even in Rescue Operations

By Dave Lindorff

What’s wrong with this picture: Four groups invest in a company. One group puts in a 55% investment, a second puts in a 20-35% investment, a third puts in an 8% investment and a fourth goes in for 2%. The group putting in the 20-35% stake gets three seats on the company’s nine-member board of directors, which will be appointing the new company’s management team. The group investing 8% gets four board members, and the group investing 2% gets 1 seat. Finally, the group that will hold the majority stake in the company, 55% of the shares, gets…the one remaining seat on the board.

Why would anyone buy a majority stake in the company and accept only a 1/9 representation on the board, and thus virtually no say in the selection of management or in management decisions?

The answer is that that particular shareholder is the unionized workforce of the company—in this case Chrysler Corp. One seat is all the workers were offered in the Obama Administration-brokered deal.

Under the plan worked out by the White House, Chrysler management, Fiat and the company’s lenders, Fiat, the Italian automaker, will take a stake of somewhere between 20-35% of the bankrupt American automaker, getting a third of the board for its efforts. The US government, which has provided and will continue to provide billions of dollars in loans and guarantees to underwrite the rescue plan, will get an 8% ownership but an outsized four members on the board in return, and Canada, for just a 2% stake, will also get one seat on the board.

Logically, Chrysler workers, who will be covering half of the company’s $10 billion obligation for retiree health care (putting their own future health care at risk should the venture fail), and who have agreed to significant cuts in wages, benefits and work rules that had been negotiated over years of struggle, should clearly be getting five of the seats on the board and the right to name the company’s new management team, but that would smack of socialism, apparently.

Imagine workers actually being in charge! Preposterous, right?

Of course, if you step back a minute and think about it, it was corporate managers, put in place by boards of directors who represent the elite of the Wall Street investment crowd, who have run most American companies, and indeed the whole US economy, into a ditch. These supposedly smart folks with their fancy MBAs and PhDs and law degrees have outsourced jobs, pillaged the environment, destroyed communities, piled on debt, failed to modernize and invest in R&D, laid off highly skilled workers in favor of lower paid, less skilled workers, poisoned and injured their own workforces, made stupid acquisitions motivated by a desire to aggrandize more power or more market share, rather than to achieve real synergies, and have pilfered corporate resources to boost their own undeserved obscene levels of compensation.

How, on reflection, could a worker-run company—and I mean a real worker-run company where the board is in the hands of the workers, and the workers chose and hire and fire the managers—do any worse than what we’ve seen over the last decade?

There is an irony here. Corporate lobbyists have been battling against the Employee Free Choice Act, a labor law reform bill in Congress which would eliminate the need for workers to go through a supervised secret-ballot election in order to win representation of a union at their workplace, substituting the requirement that organizers simply obtain signed cards calling for a union from a majority of the workers at a workplace. The corporate argument against this reform is that it violates the “sanctity” of “one person, one vote”.

And yet, here we have not only a much larger number of people—the 27,000 unionized workers at Chrysler—but also the holders of a much greater number of shares than everyone else combined, getting only a tiny fraction of the vote. That glaring inequity doesn’t seem to bother the corporate elite and their elected servants in Washington one bit. And it’s actually even worse than it looks on its face. Chrysler’s unionized workers don’t even have a direct vote to control their own shares, which are actually controlled by a trust fund headed by a group of “independent” trustees not chosen by the workers. (“Independent” means “not controlled by the workers.”)

Chances are, if Chrysler were really placed in the hands of its workers, it would be a great success. Workers, after all, need to think long term. Their key motivation is to have a company that will provide them with jobs and wages until retirement, and with a decent, secure retirement pension for the rest of their lives. That is exactly the kind of motivation that we should have in our companies, and in our corporate management suites.

It is not what we have right now.

As a long-time business journalist, I can tell you that you would have to search long and hard to find a management in American business that is thinking even five years ahead. One or two years would be more common, and plenty are focused on the short end of that span.

A genuinely worker-run Chrysler would not be putting golden parachutes in the contracts it offers to new top managers, nor would it be giving them annual performance bonuses. It would not be paying those managers 50-200 times what an assembly-line worker makes. It would not be making gas-guzzling SUVs and high-end sports cars. Instead of trying for quick sales of high-priced vehicles aimed at boosting earnings for the next quarter, it would be designing and making cars that Americans need, and that would propel the company’s sales and earnings for decades to come.

Actually, we’ve been here before. When Chrysler almost went belly up the last time, back in the economic crisis of 1979, it was rescued with a $1.5-billion government loan. At that time, the workers, then three times more numerous, also took pay cuts and benefit cuts, and in return were given a seat on the corporate board, held by then UAW President Douglas Fraser (who died last year at 91), but no real say in management. Fraser’s appointment—the first ever of a union executive or representative to a corporate board—was seen as a shocking development, but he was never more than a token. The company’s management, headed by Lee Iacocca, proceeded to ignore the 1973 gas crisis and its early warning about the need for energy-efficient cars, which were in any event fueling the import surge of cars from Japan and elsewhere, and went off in the direction of short-term gain, building vans and trucks, and paving the way for Chrysler’s next crisis in the 1990s, when it ended up being taken over for a song by the private equity group Cerberus, then by Germany’s Daimler, finally ending with the current near-death experience.