Union’s Call for Editorial Staff Ouster Raises Ownership Questions

by allaboutgeorge (flickr)

Last week, I posted a summary of a LERA presentation on the benefits of private equity firms using labor pension funds to invest in struggling businesses. 

One of the upshots discussed at the lunch was that the pension funds had greater control over the use of their investments. 

Instead of just being a faceless, unimportant investor, the fund’s money would be used to direct an individual business’s trajectory, making it a win-win for the union.  The pension money grows, and the investment advances the agenda of the union.

At least one union is stretching the limits of that theory. 

Earlier this month, the Beverly-Hills-based private equity group Platinum Equity bought the struggling San Diego Union-Tribune for an undisclosed amount.  Usually, what happens after that is that the private firm just reorganizes or breaks up the company, and then sells it for a profit, which satisfies its investors. 

In this case, though, the Los Angeles Police and Fire Pension System has upwards of $30 million invested in Platinum, and one of the unions contributing to that pension fund, the Los Angeles Police Protective League, wants a little more for its money than double-digit ROI .  From the San Diego News Network:

[T]he union that represents Los Angeles police officers is demanding the ouster of the newspaper’s editorial page staff….

In a letter to Platinum Equity Chief Executive Tom Gores, Los Angeles Police Protective League President Paul M. Weber said the Los Angeles Police and Fire Pension system is now a Union-Tribune part-owner because of its $30 million investment in Platinum.

The union is complaining about editorials in the Union-Tribune that have repeatedly criticized the amount of money going into San Diego’s public employee pension plans.  The union says that it’s investment makes it part owner of the paper, and therefore the editorials are out of line, and the staff should be replaced.

How exactly one contributor of one investor of the company that eventually bought the newspaper becomes part owner is sort of lost on me.  And, apparently, on Platinum:

In a recent interview with the Union-Tribune, a Platinum executive indicated that the union was wasting its time because Platinum has no editorial agenda.

But the union does make one interesting point.  This idea of “control” is a selling point for the private equity funds.  The news story has the following quote from the union’s letter to Platinum:

“When you went to pension funds seeking their investment dollars, you promised to invest that money for the benefit of those funds and their members…  One way you can fulfil that promise is to dismiss the Editorial Staff of the San Diego Union-Tribune.”

In this case, of course, the argument is meaningless because the union isn’t the investor, the pension fund is.  But if a pension fund decided to get militant, who would be the final decisionmaker?  The private equity fund, for sure.  That’s why we separate funds from their beneficiaries – so fiduciaries can focus on the greater financial good, without getting bogged down in principle and moral directives. 

But that makes the private equity funds’ “control” selling point a fallacy from the start, right?

EEOC Issues Opinion Letter Holding Health Risk Assessment Violates ADA

The Equal Employment Opportunity Commission recently opined that “an employer violated the Americans with Disabilities Act when it required employees to undertake a health risk assessment (“HRA”) as a condition of participating in the employer’s group health plan.” The case the EEOC based its informal opinion letter on involved a county that had implemented an HRA which included answering a short health-related questionnaire, taking a blood pressure test, and providing blood for use in a blood panel screen. Employees declining to participate in the program (and members of their families) were ineligible for coverage under the employer’s self-funded health plan.

The EEOC, in forming their opinion, distinguished between disability-related inquiries and medical examinations that are job-related and consistent with business necessity and voluntary wellness programs:

[O]nce employment begins, an employer may make disability-related inquiries and require medical examinations only if they are job-related and consistent with business necessity. The EEOC determined that requiring all employees to take this HRA that includes disability-related inquiries and medical examinations as a prerequisite for obtaining group health coverage does not appear to be job-related and consistent with business necessity, and therefore it would violate the ADA. …

 

A wellness program is considered voluntary only if employees are not required to participate and are not penalized for non-participation. With regard to the HRA, an employee’s decision not to participate resulted in the loss of the opportunity to obtain health coverage through the employer’s plan. Thus, even if the HRA could be considered part of such a wellness program, the program would not be voluntary because individuals who do not participate in the assessment are denied a benefit (i.e., they are penalized for non-participation).

 

AIG, Allstate & the UAW: the Great Contract Debate

[Ed. Note:  I have been looking for a way to channel my vitriol over the news that AIG wants to pay the guys who could arguably be blamed for the entire global economic meltdown $225 million in structured bonuses, and I'm hoping to do it through this post.  That said, don't fault me if I start yelling. ]

I love David Greising.   The Chicago Tribune and NPR business contributor seems to understand everything business, especially the stuff I don’t.  This morning, he took on AIG’s bailout apologist CEO, Edward Liddy, for going soft on derivatives execs after canning 6000 Allstate employees a few years ago, employment contracts be damned.  

Why, Greising asks, after pushing Allstate into a handful of class action lawsuits (two by the EEOC, even – that takes work) because he ignored the axed employees’ contracts, has the man brought in by the Bush Administration to clean up AIG dropped the broom?

Given his own history, Liddy’s explanation that his “hands are tied” because of the derivative department’s executive agreements is sad.  Can you imagine the media tsunami that would follow a class-action lawsuit on behalf of AIG derivatives executives for their bonuses?  It’s not even their salaries, it’s their #%*$@* bonuses!  …  [cough] sorry. 

Honestly, it’s like Wall Street and K Street are having a “who can sound more hollow” contest. 

Greising also points out that other ailing corporations, including Motorola and Continental Airlines, have worked out deals with their executives for pay cuts, bonus paybacks and the like.

And then there’s the big wrench in Liddy’s explanation – the United Auto Workers.  They, too, had a contract.  A few, actually.  But nobody – not the government, the union or the automakers asking for tax money ever questioned whether it could be renegotiated.

And that’s as it should be.

So what’s different about AIG?  How is it that, in the face of a furious public, following one of the biggest collective renegotiations in history, and with a proven executioner at the helm, this company can’t get out of paying millions in bonuses?

Is there a double standard among contracts for workers and contracts for executives?  Probably.  But Greising’s article proves that that can’t answer the whole question.  Honestly, I think the real problem here is a denial of workplace realities. 

When the auto industry was getting bailed out, one of the biggest arguments against giving them the money was that it would create a false sense of stability.  The employees and executives of the Big 3 needed to understand the dire straits they were in, and government infusions would keep that from happening. 

The same is clearly true at AIG.  Employees and executives alike simply don’t understand how close to the edge they are.  They want to pay bonuses to “retain talent”?  Talent? 

The department created confusing securitized investments that didn’t work.  Now it’s months away from being wound down, and they’re still paying to retain talent?  This is a group of people who need to feel their livelihoods are in jeopardy.  That’s why the UAW renegotiated their deals.  That’s why Motorola execs adjusted theirs, too. 

Employment contracts are only as good as the companies that agree to them.  Perhaps if AIG were suddenly small enough to fail (potentially, at least), its employees would find it in their hearts to discuss their compensation structures.