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Unions

According to a 2022 Gallup survey, 71% of Americans approve of unions versus 64% before the pandemic, following a constant rise since 2009. The current level is at its highest since 1965, the year President Johnson signed the Social Security Act into law, declaring war on poverty as part of his Great Society program. It is not an isolated poll: Pew Research established this year that 58% of Americans see the decline in unionization as bad for the country and workers.


With a playlist including Factory Man by Bruce Springsteen, Working Class Hero by John Lennon, and The Magnificent Seven by The Clash heard louder and louder in the background, it is no surprise that unions have just had a banner year, as per Bloomberg Law statistics. Workers want a bigger voice, and they are emboldened by the vox populi. These trends could reverse a decades-long trajectory in the U.S. and other OECD nations.


What had become a side due diligence question when assessing the attractiveness of an asset in many countries could become much more material to investment decision-making, including in conjunction with M&A and IPO transactions. How is your relationship with workers and the unions?


The impact of a unionized workforce on profitability has been thoroughly investigated over the years. While unions demonstrably achieve a wage ‘premium’ for their members (equivalent to a tax on labor from a firm’s perspective), there is contradicting evidence about their impact on productivity. A comprehensive paper entitled Unions, Collective Bargaining and Firm Performance (2020) reviews decades of research on this matter.


Starting with the negative stance, unions attempt to establish a monopolistic body distorting the wage structure and leading to a misallocating of resources. They interfere with sound and efficient human resources practices, including rewarding, promoting, hiring, firing, and training. Unions also obstruct innovation and investments. Finally, union strikes are the most obvious demonstration of their detrimental impact on a firm’s output.


The positive view on unions argues that they foster gains in labor productivity. This perspective obtained a boost from a 1984 book by two economists entitled What Do Unions do? By providing a collective voice to workers, the communication between workers and management improves, potentially leading to a less adversarial relationship. Firms are then able to monitor discontent in the workplace and limit costly employee turnover. While their impact on output is not disputed, strikes have a shock effect inducing executive teams to change work practices drastically, thereby creating more sustainable and efficient work processes.


Both views may be true. But, when combined, the net result shows that unions have been historically detrimental to corporate profitability, based on extensive academic research.


Given this backdrop, executive teams who read the signs of the times may find value in building strong industrial relations with employees as part of an advanced stakeholders model.


A proactive engagement with workers might counter the rise of organized workforces and create long-term value for investors and other stakeholders… including workers.

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