Corporate Law Advocacy to Advance Workers’ Rights

April 15, 2013
Guest Post

by Alicia Plerhoples, Associate Professor of Law, Georgetown University Law Center

I recently had the privilege of participating in a meeting of some leading and well-respected labor attorneys and scholars. Many questions were posed. With the decline of participation in labor unions, gutting of workers’ rights through “Right to Work” state legislation, and attempts to dismantle the National Labor Relations Board, what other legal mechanisms can be employed for the benefit of workers? Specifically, how can corporate laws facilitate workers’ rights? We also deliberated many possible advocacy avenues under corporate law including the following:  

Reframe the argument against Citizens United and align workers with shareholders against unchecked corporate boards and management. Citizens United v. FEC recognized free speech rights under the First Amendment for corporations, including labor unions. While some advocate that labor unions take advantage of Citizens United through increased campaign activity and spending, labor unions face an uphill battle against anti-worker groups financed by better-funded corporate interests and wealthy individuals. Rolling back Citizens United is currently part of a larger worker rights’ plan, and one way to execute that plan (and garner a broader base of support) is to align workers’ interests with shareholder interests.

The Supreme Court got Citizens United wrong by brushing aside an important corporate constituency -- shareholders. Retired Justice John Paul Stevens’ dissenting opinion was correct to argue that the majority opinion ignored the rights of shareholders. When corporations are allowed to spend unlimited treasury funds on “electioneering communications,” the corporate board chooses all aspects of the political donations -- which political groups to donate to, the timing of such donations, and whether to donate at all. Shareholders are effectively forced to contribute their money to political issues, even those that they oppose. When a shareholder invests in a corporation -- and realize that anyone in the United States whoever wants to retire must invest in corporations, whether directly or through mutual funds -- the shareholder is doing so for one purpose: to make money.

Citizens United allows corporate board or manager to divert shareholders’ investments for other purposes that the shareholder never intended. Although some diversion was permissible under corporate law before Citizens United if couched in terms of the “best interest of the corporation” or “shareholder wealth maximization,” broadening such diversion in its own right based on First Amendment free speech principles, and not based on shareholders’ interests, is a classic agency problem. Although a bit more nuanced, it’s equivalent to sending your kid to the store to buy milk, and him returning with both milk and candy. When you inquire where the candy came from, he cleverly responds that he just had to buy the candy in order to buy the milk -- indeed, his endeavor would have failed but for buying the candy because he needed the extra boost of energy to bike home! Regrettably, director and manager legal accountability to shareholders is laughable due to the business judgment rule and safe harbor statutes. Still, there may be some spectacular situations in which shareholders should consider bringing a derivative action against wanton boards willing to subsume corporate interests for political power unrelated to the interest of the corporation and rising to the level of corporate waste. One can imagine a series of cases that attacks corporate spending on “electioneering communications” based not on First Amendment principles but on breach of fiduciary duty.

Negotiate detailed corporate governance policies for worker rights’ protection. As corporate governance “best practice,” most companies have Codes of Conduct (or Codes of Ethics) that define the ethical standards by which the business will operate. A Code of Conduct typically includes standards central to workers’ rights such as: “prohibitions of child labor, forced labor and discrimination based on race, religion, or ethnic origin; requirements for workplace health and safety; provisions on wages, usually based on local minimum wage legislation or prevailing wages in the local industry; provisions limiting working hours, including mandatory overtime, in accordance with local laws; and support for the freedom of association and the right to organize and engage in collective bargaining.”

Regrettably, even corporations with Codes of Conduct violate them (e.g., Apple’s use of child labor in China). And a Code of Conduct is not enforceable by workers, although shareholders could bring a derivative suit against the corporation for violation of the Code under the In Re Caremark duty to monitor (the likelihood of success is low, but could bring media attention and negative publicity to a particular anti-worker issue). Perhaps more fruitful, unions and workers can and should negotiate with employers over the specific language and effect of the company’s Code of Conduct. Codes vary in their standards, but a pro-worker Code of Conduct should:

1) be transparent (i.e. distributed to all company stakeholders, including employees, customers, vendors, suppliers, contractors, creditors, and investors);

2) apply to all company stakeholders, including contractors throughout the company’s supply chain;

3) include specific language regarding the labor laws that the company will follow and when jurisdictions differ, the laws of jurisdictions that set the higher labor standards should be followed;

4) require regular formal training around the standards set forth in the Code to the companies’ various stakeholders;

5) establish a senior manager or Compliance Officer to regularly and formally document and monitor business operations (and operations of contractors throughout the company’s supply chain) to ensure compliance with the Code; additionally, the Compliance Officer must also have authority to enforce the Code, and recommend discipline to the Board for those not in compliance; and

6) require regular reporting of Code compliance (or lack of compliance), within the company’s social impact reports, or elsewhere if the company does not produce such reports.

James Brudney, Professor of Law at Fordham University School of Law, has written about possible private rights of actions to enforce Codes of Conduct by workers, consumers, and investors here.

Pursue corporate law reform and align with the social enterprise movement.Social enterprise lacks a single definition, but it is the transformative movement that has entrepreneurs and corporations wanting to both “do well and do good.” The benefit corporation is a new corporate form that requires the corporation to adopt a general public benefit in consideration of all the corporation’s stakeholders -- i.e., not just shareholders, but also workers and the environment. The benefit corporation has been adopted by twelve states, and in most states has received bipartisan support. It is currently being considered in Delaware, the state corporate law leader. Despite the small trend towards social enterprise and “stakeholder governance,” the movement seems to engage environmental and philanthropic concerns far more than worker concerns. For example, social impact reports of companies tend to highlight environmentally friendly business operations like recycling, low water usage, and carbon-neutral footprints. These reports also highlight corporate giving to charitable causes. Rarely do they discuss the livelihoods of their own workers. The worker voice is absent from social impact reports, or if the worker voice is included, it is only to highlight some minimal effort to engage and support workers -- like paying a minimum wage -- which only legitimizes a subpar standard. Unions and worker rights groups should challenge prioritization of other stakeholders by engaging with those who claim to support corporate law reforms to “make business better.” The worker voice needs to be inserted into the social enterprise movement, promotion of the benefit corporation statute, and into social impact reporting.