Committee on Workers' Capital

Shared Prosperity: The Investor Case for Freedom of Association and Collective Bargaining

Tamara Herman — 2022-11-29T15:59:00Z

This brief explains why respect for the fundamental labour rights of collective bargaining and freedom of association is important to investors.

For information on the PRI in Person Side event, click here.

When workers come together in a trade union, they can effect meaningful changes in their compensation and working conditions, bringing valuable benefits to themselves and their companies and contributing to broader societal goals of economic growth, income and wealth equality, equity and inclusion. As these benefits and contributions are of interest to investors, this brief outlines how they can meet their responsibilities to protect workers' fundamental labour rights.

Read the full report here

cwc_foa_cb_report.pdf

Read the Executive Summary here

cwc_foa_cb_report_executive_summary.pdf

Opinion: Debates in Australia about superannuation funds raising labour practices at BHP are 15 years behind

Tamara Herman — 2019-04-09T17:40:03Z

On March 3, Australian Treasurer Josh Frydenberg wrote a letter to the national prudential authority about the Australian Council of Trade Unions' request that superannuation funds engage mining giant BHP on a pressing labour issue.

"In disregard for the law, militant unions are acting like big brother”, he wrote, “brazenly pushing their industrial relations agenda to pressure superannuation funds to use their influence over company management and boards."

The superannuation funds to which Mr. Frydenberg is referring are comprised of workers' deferred wages. The funds are governed by boards of directors whose trustee members are appointed, separately, by the unions and employers who back the superannuation fund. The trustees' responsibilities to their beneficiaries are enshrined in trust law, which obliges them to act in the best interests of fund members.

This, according to Frydenberg, is the issue: union-appointed superannuation trustees' requests that their funds engage with BHP is, according to the treasurer, a contravention of their fiduciary duty to make investment decisions in the best interest of beneficiaries.

The assumption behind Frydenberg's argument is that incorporating environmental, social and governance (ESG) considerations into investment decision-making is not in the best interest of beneficiaries. This viewpoint of fiduciary duty, however is inconsistent with the most recent academic research, which demonstrates that ESG issues are in fact material and therefore relevant considerations for investors.

Among these is a review of 2,000 academic studies from the University of Hamburg and Deutsche Asset Management indicating a positive correlation between ESG strategies and strong financial performance and an Arabesque Asset Management and Oxford University study that revealed that 88% of research indicates that strong ESG practices result in better operational performances for companies.

Frydenberg's argument is also at odds with the latest legal opinions on fiduciary duty and ESG considerations that have emerged from leading international law firms. For example, Freshfields Bruckhaus Deringer was commissioned by the United Nations Environment Programme Finance Initiative to write a report on the legal framework surrounding institutional investment and environmental, social and governance considerations. The Freshfields report concluded that these issues can be material to a company's performance and their consideration is therefore “clearly permissible and is arguably required.”

In the wake of Freshfields, the UN established the Principles for Responsible Investment (PRI), a global network of investors committed to implementing six principles related to the incorporation of ESG into investments. It now has 2,300 signatories, which include essentially every large asset manager and pension fund in the world, with around $80 trillion in assets under management in total. The 141 Australian signatories include AustralianSuper, HESTA Super Fund and UniSuper. Meanwhile, a growing number of jurisdictions across the world have developed regulations and codes requiring institutional investors to embed ESG considerations into their decision-making processes.

In other words, responsible investment is no longer on the periphery.

There are, however, challenges. Though the growth in responsible investment globally along with emerging academic evidence demonstrates that the conceptions of materiality and fiduciary duty are shifting, national regulations in many jurisdictions have not kept pace sufficiently. Investors are now seeking clarity from national regulators on the consideration of ESG issues as part of their fiduciary duty obligations. For example, a report produced by the PRI on Australia recommended that the Australian Prudential Regulation Authority (APRA) clarify to superannuation funds that ESG issues are material to risk and return analysis and that stewardship expectations be formalized in a stewardship code.

Let's return to Frydenberg's argument that superannuation funds engaging a company on a labour issue is a contravention of its legal obligations to beneficiaries. Specifically, in Australia, Section 62 of the Superannuation Industry (Supervision) Act requires the fund to be maintained solely for the provision of benefits for each member of the fund on retirement (known as the ‘sole purpose test').

The request put to superannuation funds by ACTU was that they assess BHP's ESG performance and investment risk profile against the funds' investment policies – many of which include ESG or sustainability standards and engage the company accordingly.

The issue of concern was BHP's decision to remove two locally-crewed ships, where 70 workers and their families benefited from decent work conditions protected by collective agreements, with Flight-of-Convenience ships where crews receive wages as low as $2 per hour, as documented in a 2016 Parliament of Australia report.

Poor labour practices and the high levels of precarious work associated with low wages can generate risk for investors and costs for communities. A US National Commission investigation into BP Deepwater Horizon oil spill, for example, which cost the company $65 billion in legal and clean-up costs, found that cost-saving measures related to employees contributed to BP's inability to manage risk and safety. These included inadequate attention to employee qualifications and training, as well as insufficient communications between personnel in the supply chain.

In the fallout of the BP disaster, the Rotman International Journal of Pension Management published an article on the role that long-term institutional investors can play in preventing “surprises.” Among them is their role in encouraging boards to ensure that ESG standards are at the core of company operations in areas such as supply chain management and relations with workers.

Given the losses BP shareholders faced in the wake of the disaster, it could easily be argued that investor engagement on ESG practices related to labour in the supply change would have been in the interests of the members of pension funds invested in the company. And – in the case of BHP in Australia – it is perfectly reasonable to expect investors to engage on social issues, as part of their fiduciary duty, based on sound assumptions and within a rigorous process.

Tamara Herman is Senior Program Officer at the Global Unions' Committee on Workers' Capital.

Photo by md jehan| Unsplash

UAW files charges against TESLA on behalf of terminated workers

Tamara Herman — 2017-12-20T03:17:54Z

[UAW NEWS RELEASE]: The International Union, UAW filed unfair labor practice (ULP) charges against Tesla, Inc. yesterday afternoon at the National Labor Relations Board's Oakland office. The filing, which is attached, lays out six charges, including intimidating and harassing employees, terminating a group of employees to discourage protected concerted activity, disciplining employees for wearing items with the Union's logo, terminating and/or disciplining employees in retaliation for participating in protected concerted activities, and more.

Tesla, which recently fired hundreds of employees for ‘performance issues,' swept up many pro-union employees in the terminations. Several pro-union employees have come forward with copies of their performance reports, which show no areas of concern.

Sports Direct Shareholders Resolution

Tamara Herman — 2017-12-02T06:37:00Z

The Trade Union Share Owners (TUSO - UK) has written a letter regarding a vote to take place at the upcoming Sports Direct International PLC AGM on December 13 2017. Sports Direct PLC is listed on FTSE 250 equity index.

CWC participants are encouraged to VOTE AGAINST Resolution 1 to approve the extension of the guaranteed minimum value for eligible employees participating in the Company's share schemes to Karen Byers and Sean Nevitt and VOTE AGAINST Resolution 2 to approve a proposed payment to John Ashley.

WHY INVESTORS SHOULD VOTE AGAINST THE RESOLUTIONS

Resolution 1: Extension of guaranteed minimum value for eligible employees participating in the Company's Executive Bonus Share Scheme to Karen Byers and Sean Nevitt

Rewarding executives while other shareholders are penalized when share prices fall below the minimum contradicts the rationale for equity as an incentive and contravenes widely accepted corporate governance good practice. Furthermore, the company has made inadequate progress addressing low pay and back-payments owed to its workforce due to the non-payment of the National Minimum Wage are outstanding. As such, the measure proposed in this resolution exposes the company to further reputational risk.

Resolution 2: Payment to John Ashley

Neither Sports Direct nor the legal firm RPC, which has represented John and Mike Ashley in the past, provide sufficient evidence or detail explaining why Sports Direct owes £11 million to John Ashley (founder and majority share owner Mike Ashley's brother). A review by an independent individual or organization would be required in order to secure shareholders' confidence in making such a substantial payment for past work. This resolution is indicative of a need for a clear and transparent corporate governance practice at the company.

These resolutions, viewed in relation to the company's approach to workforce pay, will further damage workforce morale and present additional risks to the company's reputation

KEY WORKFORCE PAY ISSUES

Sports Direct workers are paid significantly below the Real Living Wage of £8.75 per hour. The company refuses to meet with Unite the Union to discuss a pay claim that proposes the real living wage for its workforce.

Thousands of warehouse workers received a total of approximately £1m in back pay after a Guardian investigation revealed the company was paying below the National Minimum Wage. However, many agency workers at Sport Directs warehouse in Shirebrook have still not received the back pay they are owed.

In summary, resolutions guaranteeing a minimum value for the share scheme for two individuals and a payment of £11m for another provides no reassurance to shareholders that Sports Direct is addressing its well-documented weak employment practices and corporate governance failures.

The CWC recommends its participants VOTE AGAINST resolutions 1 and 2 in order to address concerns related to management and employment practices and corporate governance at Sports Direct.

Please click here to read the full letter to shareholders from TUSO.

CWC November 2017 Newsletter

Tamara Herman — 2017-11-27T08:00:00Z

In this edition of the CWC's newsletter:

The CWC Conference
Portrait d'administrateur/Trustee Profile: Philippe Soubirous
Woolworths shareholder resolutions (Australia)
CWC in the news: Fees in the investment chain
News and notes from CWC participants: Updates on capital stewardship in Australia, France, and the US
Key consultations: European Commission Public consultation on institutional investors and asset managers' duties regarding sustainability
Important reads: SHARE's Trustee Guidance on Decent Work, Benchmark Responsible Investment by Funds in the Netherlands

SHARE and the CWC have moved to a new office. Please note that our new address is Unit 510 – 1155 Robson Street, Vancouver, BC V6E 1B5

Read the full newsletter here

cwc_november_2017_news_bulletin.pdf

A Class of Precarity: Why worker misclassification matters for investors

Tamara Herman — 2017-10-03T08:46:00Z

When U.S. truck driver Edgardo Villatoro received his paycheck in November 2015 from XPO Logistics Inc., his gross pay was $2,054.05. The number on his paycheck, however, was $337.26. The remainder of his earnings went to expenses such as fuel, insurance, parking, maintenance and administrative fees.

XPO is a transportation and logistics service provider with 1,425 operations in 34 countries. Because Villatoro is considered an independent contractor by XPO, he assumes costs and risks that a company would pay if he were classified as an employee. Yet Villatoro's situation is one example of millions of workers worldwide who are caught up in the controversy over misclassification, which can result in employees shouldering expenses that should, by law, be paid by their employers.

Misclassification occurs when workers are considered contractors but do not have autonomy from the companies that pay them. At times unintentional and at times deliberate, employer misclassification of employees as independent contractors is one of the most prevalent – and contested – forms of precarious work. Often considered a North American phenomenon, workers and governments alike are now challenging misclassification in Europe, Australia, New Zealand and parts of Asia.

Misclassified workers face a loss of social security benefits and workplace protections, including the right to join a union, bargain collectively and – in some cases – earn a minimum wage. Commonly associated with the rise of the “gig economy” and its drive to reduce labour costs, misclassification occurs across many sectors and companies, from small startups to established multinationals.

Increasingly, however, companies that rely on misclassified workers have encountered trouble – trouble that matters to investors. On one hand, governments grappling with billions of dollars in lost tax revenue and increased social service provision costs have turned to courts and regulators. On the other hand, a growing number of workers have filed individual and class action lawsuits, often resulting in significant financial penalties for companies.

Many high-profile misclassification lawsuits have targeted online platform economy companies, such as service marketplace startup Homejoy or Uber, whose string of lawsuits across the globe are estimated to have cost the company $161.913 USD million. Yet misclassification lawsuits have also hit more traditional companies. These includeFedEx's $240 USD million misclassification settlement, as well as pending lawsuits against Google and Amazon. XPO Logistics – the company that Edgardo Villatoro drives trucks for – is facing at least 10 pending class action misclassification lawsuits in the U.S. seeking back pay and damages. In Spain, XPO truck driver Jesus Abad went on a hunger strike to protest misclassification.[1]

For investors, the reasons misclassification matter extend beyond the financial and legal risks specific companies face. It has broader implications for whole portfolios and for the ability to build sustainable, productive and inclusive economies over the long-term. A growing number of studies suggest that the increasing use of precarious employment practices by companies may be a contributing factor to growing income inequality, which in turn, contributes to systemic risk and weak economic growth.

The OECD, for example, found in a 2015 report that an increase in the number of households that depend on precarious employment has contributed to high overall rates of inequality, which hamper long-term economic growth and limit investment opportunities in OECD countries. The International Monetary Fund (IMF), for its part, concluded that increases in the income share of the top 20 percent is associated with declining GDP growth over the medium term. Meanwhile, researchfrom institutions that include the IMF, the Economic Policy Institute and the Center for Economic and Policy Research indicates a relationship between decreasing union density and growing inequality.

It is increasingly recognised that managing assets in the long-term necessitates thinking beyond materiality at the company level and a consideration of systemic risk factors, such as social and political stability. And while accounting for many of these macro issues in investment-chain decision-making is hardly a simple task, some forward-thinking initiatives, such as the Investment Integration Project, have started linking issues such as workers' rights with a system-level approach to investment.

For its part, the Committee on Workers' Capital (CWC), an international network connecting trade unions and worker-nominated pension trustees on responsible investment issues, is joining the Teamsters in generating support for a shareholder proposalat XPO at its AGM in May 2017. Recognising that how companies manage their human capital has a profound impact on long-term shareholder value, the proposal asks XPO to issue an annual sustainability report that includes information on the company's approach to its workforce. For more information on the proposal and campaign, please contact Tamara Herman at the CWC or Louis Malizia at the Teamsters.

[1] 2016, December 5. He demands his rights: An independent (contractor) in the region on hunger strike and willing to finish it as a corpse. EDCM/Efe.
https://share.ca/a-class-of-precarity-why-worker-misclassification-matters-for-investors/

*This blog was published on the SHARE website

CWC July 2017 Newsletter

Tamara Herman — 2017-07-12T02:08:00Z

In this edition of the CWC's newsletter:

The CWC Conference
Trustee Profile of Sharon Hendricks, vice-chair of the California State Teacher's Retirement System in English, en français, en español
Archer Capital
CWC at the Trustee Leadership Forum
News and notes from CWC participants: Updates on capital stewardship in Australia, France, the Netherlands, the United States
Important reads: Renewable energy investor briefing: Managing risks & responsibilities for impacts on local communities, Who's responsible? Pension funds and respect for workers' right, Clarification on OECD Guidelines Raises Expectations of Canadian Institutional Investors

Read the full newsletter here

cwc_july_news_bulletin.pdf

ESG Magazine: Workers' capital unite!

Tamara Herman — 2016-09-01T08:29:00Z

The CWC was featured in the September 2016 issue of ESG Magazine.

Global trades unions are stepping up efforts to link workers and fiduciaries to an investment chain that serves society. Read Workers' capital unite! by registering for ESG Magazine and turning to the September 2016 issue or click on the attached PDF.

esg_issue_05_36_cwc_article.pdf

Roadmap on Responsible Tax Practices by Pension Funds

Hugues Letourneau — 2015-11-09T07:34:00Z

The Global Unions Committee on Workers' Capital (CWC) has released a roadmap on how tax evasion and corporate tax planning risks can be integrated in responsible investment practices. The CWC roadmap follows on a Global Union Call for Responsible Tax Practices signed by 45 trade union bodies from 19 countries a year ago.

Sharan Burrow, General Secretary of the International Trade Union Confederation (ITUC), which created the CWC in 1999, said “The G20, meeting in Antalya last week, made a firm commitment to implement the Action Plan by the OECD on Base Erosion and Profit Shifting (BEPS). The emerging international consensus to curb aggressive tax planning by global corporations is welcome. But to be effective, it needs to be supported in the financial markets and by shareholders in particular, including the USD23tr worth pension fund industry where unions and their trustees have a voice in fund governance. This is where the CWC roadmap comes in”.

The investor brief outlines key aspects of the tax evasion and aggressive tax planning policy debate and why they matter for investors – including the outcome of the G20/OECD action Plan on Base Erosion and Profit Shifting. The roadmap identifies a selection of corporate governance indicators to look for when engaging with the management of invested companies or when preparing the annual general meeting of shareholders.

The roadmap is part of a series of thematic investor briefs to help union pension trustees address key elements of responsible investment practices in the boardroom discussion of pension funds.

2015-11-cwc_investor_brief-tax_evasion_avoidance.pdf

Investing in Decent Work: Risks in the Qatari Construction Sector

Hugues Letourneau — 2014-08-09T06:51:00Z

This briefing paper focuses on the theme of migrant workers' rights in the Qatari construction sector and the associated risks and responsibilities for multinational construction companies along with their investors.

Overview:

1) The lack of attention to labour rights in the Qatari construction sector is associated with clear operational, reputational and regulatory risks for companies and investors. Companies are expected to honour the OECD Guidelines for Multinational Enterprises which recognize the right of workers to establish or join trade unions but Qatari law restricts migrant workers from forming or joining a trade union. Multinationals operating in Qatar – and their investors to whom the Guidelines also apply – should consider practical approaches such as establishing joint worker-employer health and safety committees.

2) A review of relevant policy and academic research points to a positive relationship between human capital management and financial performance at the firm level. The Kafala (sponsorship) system through which workers are employed in the Qatari construction sector is a barrier to optimum human capital management.

3) Investors are exposed to the Kafala system in Qatar through equity holdings in multinational construction companies, private equity investments and corporate debt holdings. It is estimated that more than 40% of the world's top 250 international contractors are actively participating in projects in Qatar, have an office in the country or are actively pursuing opportunities there. Out of these companies, a significant number are headquartered in OECD countries and are publicly-listed companies with widely held ownership.

4) There is a breadth of evidence pointing to labour rights violations in the context of mega sporting events (MSEs). Qatari infrastructure projects are no exception.

Investor Risks:

The paper's findings are significant for investors that are committed to integrating human capital management factors within their investment decision-making frameworks. The paper also lays out a framework for pension trustees interested in addressing this issue, as is relevant to their pension fund's investments.

2015-01-decent_work-qatar-eng-web.pdf