Las Vegas
AFL-CIO Executive Council statement
Since the collapse of Enron and WorldCom, America’s workers and their benefit funds have experienced firsthand the consequences of failures in corporate governance for our retirement security, our health care and our jobs. With each passing year, fewer workers have pensions or adequate health care while executive compensation continues to explode, as documented on the AFL-CIO’s Executive PayWatch website. In the past year, we have seen scandalous examples of stock options abuses at hundreds of companies and runaway executive pay and exit packages.
Runaway executive pay is the most flagrant example of the growing inequality in American society. We read of Wall Street executives receiving tens of millions of dollars in bonuses and ordering $15,000 bottles of wine—an amount larger than a year’s worth of work at the minimum wage. At Pfizer and Home Depot, failed executives left with exit packages exceeding $200 million each.
Excessive executive pay increasingly allows CEOs to gain political influence, in some cases funding political campaigns from their own personal resources. For example, Massey Energy CEO Don Blankenship—who in 2005 alone received $28.8 million in total compensation—spent more than $6 million over the past three years on state elections in an effort to defeat pro-worker candidates and ballot initiatives, according to published reports. America's working families today live in a society in which the wealthy and very wealthy increasingly control political power.
Meanwhile, our nation goes further into debt. In military hospitals without the money to provide proper care, our wounded soldiers suffer¾in many instances from wounds received due to lack of proper equipment. And 18 months after Hurricanes Katrina and Rita struck the Gulf Coast, more than 100,000 people still are unable to return home because the government lacks the resources to act.
These developments are not unrelated to the increased power of short-term investors in the capital markets. Today, hedge funds control more than $1.5 trillion and are subject to almost no oversight, even though much of the money invested in hedge funds comes from workers’ pension funds. The international labor movement has become increasingly focused on the combination of hedge funds and private equity funds driving what John Monks, head of the European Trade Union Congress, calls the “financialization” of whole economies. As a result of court decisions and the weakening of ERISA protections by the last Republican Congress, workers’ pension assets invested in hedge funds today are less well protected than they ever have been.
Workers and their pension funds are the leading voices in our capital markets for reining in executive pay, holding corporate boards accountable to shareholders, improving our accounting and auditing systems, and fighting to keep companies and investment managers focused on the long-term goal of creating value for investors and all Americans. Union-affiliated investors now account for a majority of shareholder proposals, addressing such issues as stock option abuse, corporate political contributions, the independence of compensation consultants, the election of company directors (requiring a majority vote) and, for the first time this year, the right of long-term investors to nominate their own directors to corporate boards. The AFL-CIO and our affiliates have worked closely with the regulatory agencies on a bipartisan basis to ensure that workers’ interests as investors are protected through both thoughtful regulation and enforcement.
Although the case for continued reform has never been stronger, powerful corporate interests have been working to attack the investor protections we already have. Their efforts are funded by individuals such as the disgraced former CEO of AIG, Hank Greenberg, and Wilbur Ross, the CEO of the company that owns the infamous Sago coal mine. Through reports by ideological groups, they seek to lower our system of investor protections to the point that companies controlled by the Chinese government can feel safe selling their stock to U.S. investors. They seek to subsidize the jobs of investment bankers by putting at risk the retirement security of millions of America’s workers.
In response, the AFL-CIO believes increased accountability and responsibility must be required of our corporations and our capital markets. We call upon the new Congress to begin comprehensive hearings on the continuing failures of our corporate governance and capital market regulation systems. These hearings should address (1) executive pay excesses and the apparent widespread and flagrant legal violations involved in the stock options scandals; (2) the impact of the growth of hedge funds and private equity on the health of our capital markets and our economy overall; (3) the effect that corporate America’s retreat from providing pensions has on our system of corporate finance; and (4) the relationship of our increasingly regressive tax system to the explosion in executive pay, our growing budget deficit, and our inability to fund basic governmental obligations.
We call upon Congress and the independent regulatory agencies charged to protect investors to reject calls to weaken investor protections. Our system of investor protection is our competitive advantage in the world capital markets, attracting the foreign capital we require to fund our out-of-control trade deficit.
We call upon Congress to restore full ERISA coverage of hedge funds and to give the Securities and Exchange Commission the clear power to regulate hedge funds as it regulates other forms of money management.
We call upon Congress and the Securities and Exchange Commission to give long-term investors the tools they need to ensure that corporate and mutual fund boards are composed of and led by independent directors ready to hold management accountable to the long-term best interests of public corporations. These tools include the ability of investors to have a voice on executive pay, the requirement that corporate directors have the affirmative support of a majority of the shareholders before they can be elected to a board (majority vote), and a viable method for long-term investors to nominate psychologically independent directors to corporate boards (proxy access).