The 1980s saw the development of a New Industrial Relations model, featuring a number of experiments in cooperation between unions and managers at levels ranging from shop floor to strategic decision-making. One of the more important goals that unions worked for and have continued to seek has been union representation on corporate boards of directors. Larry Hunter, associate professor of management at The Wharton School, has extensively studied this particular union goal and has found that results over the past decade have been mixed. Unions have not backed away from seeking board representation, but they are examining whether other goals ought to have a higher priority.
In a paper titled “Can Strategic Participation be Institutionalized: Union Representation on American Corporate Boards,” which has been published in the Industrial and Labor Relations Review, Hunter argues that union directors face an inherent conflict from the moment they are elected to the board: Do they represent employee or shareholder interests? Directors have a fiduciary responsibility to look after the interests of the shareholders. When those interests conflict with the interest of employees, the union-directors often find themselves caught between the proverbial rock and hard place.
Hunter has found that while unions may select as candidates for directors those individuals who would represent the particular union’s interests, the institutional environment surrounding board service works against the emergence of interest representation. The strategic choices of unions were more likely to leave undisturbed the board’s traditional function as a vehicle for overseeing shareholders’ investment.
Hunter’s original study involved interviews with 25 union-nominated directors on the board of 24 different firms. Hunter’s analysis involved three stages:
- He examined the extent to which union leaders’ choices in establishing board schemes were influenced by those leaders’ attitudes, by union strategies, and by industry specific collective bargaining structures.
- He investigated how those choices, in turn, affected the structure of board representation plans and their personal characteristics of directors.
- He discussed the sorts of structures and characteristics that seem to have increased the likelihood that directors (a) effectively represented employees’ interest in the boardroom, and (b) improved the quality of managerial business decisions.
The very idea of electing a director from the union membership is problematic. Worker-directors are perceived by the workers as having been elected to act as labor advocates. This increases the likelihood that workers would encourage the election of activists to the board, a result that neither management nor other board members are likely to find attractive. The traditional boardroom director’s role is one which in theory discourages all forms of interest representation.
Hunter has found that union directors typically view themselves as outside directors, but they tend to separate themselves from other outside directors. They believe that they address issues with a level of commitment and interest that top managers were unaccustomed to hearing from other outside directors. They saw themselves as bringing a different perspective, as well as representing a specific constituency.
Union representation on the board has many different benefits. For example, directors often have access to a greater level of information, which leads to a higher level of trust among union members knowing that they have more open access to information through the union-director. And union directors can bring to the board a wealth of knowledge about the company and industry, a trait often not shared by other outside directors.
Hunter found, however, that with very few exceptions, the boardroom did not become what the unions hoped for: a vehicle for truly joint governance. Directors were constrained by the institutional norms of boardrooms and the legal constraints surrounding their roles as fiduciaries. Hunter identified particular conditions that did enable directors to realize some of the potential of board representation.
- Personal attributes of the directors: more influential directors had experience in the firm or industry and made a substantial commitment of time and energy to serve the board, the company, and the union.
- Investment by the union in a significant share of the firm provided credibility that the union directors were concerned with shareholder interests.
- Active union development of the director’s skills to bolster their knowledge to assure that they can add value to boardroom discussions.
- Having more than one union director to share the workload and increase the impact.