Adding a union guy to GM’s board


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When General Motors holds its annual meeting on June 10, one of its director nominees will stand out from the cast of retired CEOs and accounting professors who typically work on corporate boards. GM announced Friday that it is nominating Joe Ashton, a vice president of the United Auto Workers, to be a director for the embattled company. If elected, he will become the first union representative to have ever served on GM's board.

Ashton, who joined the UAW in 1969, has held several leadership roles for the union and has been its chief GM negotiator. He was selected by the UAW Retiree Medical Benefits Trust, which owns about 140 million GM shares and is currently the company's largest shareholder. The trust gained the right to designate someone as a director, which the board can then vet and approve, as a result of the 2009 stockholders agreement that came out of the company's bankruptcy.

Naming a union representative to a corporate board of directors is unusual not just for General Motors. Experts on corporate governance say it's highly atypical for any U.S. publicly traded company.

"We’re talking about a tiny, tiny fraction of American firms that have ever done that," says Michael Useem, a management professor at Wharton and co-author of the recent book Boards that Lead.

That's because in the United States, corporate boards operate under a theory of "shareholder primacy," which holds that the board has a fiduciary duty to put the interests of shareholders first. If board members are representatives of a union, the concern is that they could have a conflict of interest between what is best for employees and what is best for shareholders.

Generally, if a company puts a union representative on a board, says corporate governance expert Charles Elson, "it puts them into a very different position where they could be forced to choose loyalties." How will they vote if management believes a plant closure or round of layoffs is essential for long-term shareholder value?

Or as Pace University business professor John Alan James puts it: "Why would you want a fox in the henhouse?"

In some countries in Europe — such as Germany, Austria and Switzerland — they're not just wanted, they're required. In these countries, companies follow a stakeholder model of governance that includes two boards instead of one. One controls the management of the firm; the other acts in a supervisory capacity and is legally required to include employee representatives. This board, which is about half composed of employees, has control over things such as approving strategy and audited financial statements, says David Larcker, the director of the Corporate Governance Research Program at the Stanford Graduate School of Business. "It's an explicit extra check," he says. "They have a not inconsiderable impact on decision making." 

Yet even though union representation is rare in America, it has happened before. UAW leader Douglas Fraser was nominated to Chrysler's board in 1980 by Lee Iacocca after his critical role in lobbying for legislation that provided the federally guaranteed loans that let Chrysler avert bankruptcy. He served on the board for four years, and is remembered for both protecting employee interests as well as extracting needed concessions from them. In his 2008 obituary, the New York Times wrote that in addition to a deal at Chrysler that cut workers' wages by $3 an hour, he also agreed to deals at GM and Ford Motor that froze wages and cost-of-living raises temporarily.

How Ashton would balance that tug between his long history as a union leader and his responsibilities as a corporate director remains to be seen. GM spokesman Dave Roman said in an interview that Ashton will resign from the UAW in June and will have to adhere to all of the corporate governance guidelines to which the company's directors are subject.

"Our board felt confident in accepting [the trust's] designate in Joe and what he can bring to the board," Roman said. "They wouldn't have accepted if they didn't think he would uphold all the requirements." In a press release, GM chairman Tim Solso said Ashton brings "his deep understanding how labor strategy can contribute to a company’s success."

That could very well be an asset for GM in more ways than one. Certainly, Solso will need to work hard to bring Ashton into the flow of the boardroom, says Wharton's Useem, and make sure he's comfortable enough that he can help influence his fellow directors rather than play the role of outsider.

If that happens, Ashton could have an impact not only on how the company addresses labor issues, but how it thinks about employees and its customer base at large.

"One of the great debates of our era now is rising income inequality, the disappearance of the middle class, and the flattening of blue collar wages," Useem says. "Every leader ought to be concerned about this. Having someone in the room who is very informed could be very helpful — not just in being forceful about wages, but in what people are thinking about when they're working on the front lines of a company."

Read also:

Boards don't know their next CEOs

Alan Mulally's last great act at Ford

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Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.
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