Committee on Workers' Capital

Trustee Brief: Uber Technologies Inc. (NYSE:UBER)

Tamara Herman — 2019-05-07T20:50:48Z

This brief summarizes some key considerations and risks associated with a potential investment in Uber. It includes steps trustees can take and questions you can bring forward to your boards, consultants, managers and staff.

Please note that this brief was published on May 7, 2019.

PDF version of the CWC Trustee Brief on Uber is available here.

Your fund may be considering an investment in Uber Technologies, Inc. (“Uber”), which has filed its Initial Public Offering prospectus and is expected to list its shares on the New York Stock Exchange in May 2019. With its IPO roadshow in full swing, Uber is approaching institutional investors, possibly including your pension fund and/or its managers. As a fiduciary, you may have some questions about whether investing in Uber is in the best interests of the members of your fund.

Uber's business model has profound implications for workers – both in and beyond the sectors it impacts directly. Uber's IPO is set to be the third largest in US tech IPO history after Facebook and Alibaba. Its flotation and subsequent stock performance will determine whether Uber's modus operandi of relying on a vast workforce of independent contractors towards whom it has no responsibilities with regards to wage and hour laws, employee benefits and social security contributions is a successful business model.

This brief summarizes some key considerations and risks associated with a potential investment in Uber. At the end of the brief you will find steps you can take and questions you can bring forward to your boards, consultants, managers and staff. Please note that this brief is for informational purposes only, and is not intended to provide and should not be relied on for investment, legal, tax or accounting advice. Trustees should consult their own advisors and investment professionals to evaluate the merits and risks of any investment.

Can Uber be profitable while upholding fundamental principles and rights of workers?

Official filings show that Uber has and will continue to struggle to be a profitable firm. It recorded a gain of USD 997 million in 2018, the first net gain since the company began reporting figures in 2014. The net gain figure is due, in large part, to the sale of Uber's businesses in Russia and Southeast Asia, as well as a gain on the value of its 2018 investment in its former Chinese competitor DiDi, to which Uber sold its business in exchange for a minority stake. These are non-recurring gains.

The company uses “Adjusted EBITDA” as a key measure to evaluate its operating performance. According to this measure, the company has not made a quarterly gain since this figure was first reported in Q1 2015. Its adjusted EBIDTA was a USD 1.85 billion loss in 2018, USD 2.64 billion loss in 2017 and USD 2.51 billion loss in 2016.

It is unclear whether Uber can make profits with its core rideshare business, through which it generates 81% of its revenue. Uber's main revenue driver is the fee that it generates on passenger fares. The fee model means that Uber requires increasing scale to generate revenue growth, which it can achieve by attracting more drivers. Drivers are considered contractors by the company and can switch between rideshare platforms. A number of lawsuits and regulatory pressure that the company faces around the world present challenges for this business model.

These headwinds will continue to fundamentally challenge Uber's ability to generate enough revenue on rideshare services to a) provide adequate compensation to drivers, b) maintain customers satisfied with low fares and c) deliver value to shareholders.

What risks should investors consider?

1. Legal risks

Uber has faced a large number of lawsuits related to various aspects of its operations. The onset of new court cases means that Uber may need to set aside significant and variable reserves every year into the medium term. The company increased legal, tax and regulatory reserves and settlements by USD 598 million 2017 before decreasing it by USD 325 million in 2018.

The company cites costs associated with lawsuits as a risk in its prospectus. Recent examples include:

Misrepresentation: In 2017, Uber paid a USD 20 million settlement to the US Federal Trade Commission for driver redress to settle an investigation into whether the company exaggerated possible earnable income and misrepresented the terms of its vehicle financing options.

Misclassification: At least 12 lawsuits alleging Uber misclassified drivers as independent contractors have been filed in jurisdictions across the world. In some of these cases, Uber has prevailed in having the lawsuits dismissed.

2. Regulatory risks

Misclassification and driver status
Misclassification suits and other legal challenges related to Uber's use of independent contractors as drivers have resulted in case law and rulingswith broader consequences for employment standards. Present and future regulatory risks posing fundamental challenges to the company's business model include:

California: Legislation to both codify and expand a state Supreme Court ruling establishing a stricter test on worker classification as employees is now moving through the California legislature, with significant potential implications for Uber drivers in California.

UK: In Uber's biggest market in Europe, a UK employment tribunal ruled that Uber drivers are considered workers and entitled to benefits such as holiday pay and minimum wage. Uber has appealed the decision to the UK Supreme Court.

EU: The Court of Justice of the European Union (ECJ) classified Uber's UberPOP product as a transport service rather than a digital platform in 2017, removing protections against national regulation that its classification as a digital service would have offered.

Regulations banning certain ridesharing products or imposing extensive operational restrictions have been adopted in key markets, including Argentina, Germany, Italy, Japan, South Korea, and Spain. New York City imposed a rate structure for for-hire drivers and limited the expansion of new vehicle licenses for car services in 2018.

Tax avoidance

Beyond misclassification, Uber faces risks related to tax avoidance. The OECD is developing a framework to address tax issues raised by the digital economy and is seeking consensus by the end of 2020 on new international tax rules for digital multinationals. Furthermore, Uber faces investigations into its compliance with tax rules and may become subject to sales tax rates in certain jurisdictions.

3. Reputational risks

Uber faces reputational risks generated by media coverage of the following issues:

Driver dissatisfaction: Uber drivers have protested in Australia, India, Kenya, the UK and the US. Uber's prospectus asserts that it expects driver dissatisfaction to increase as it aims to move towards profitability by reducing financial incentives to drivers. Its ability to increase fares while still retaining customers and moving towards profitability in a competitive market is questionable.

Community impacts: Taxi drivers in various jurisdictions have organized against Uber, generating reputational risks that have, in some cases, triggered regulatory restrictions. Argentina, Germany, Italy, Japan, South Korea, and Spain are among the jurisdictions where laws and regulations on ridesharing have been adopted. A series of driver suicides were attributed to the spread of Uber in New York City, contributing to pressure on the city to limit the expansion of ridesharing.

Alleged sexual harassment: A former Uber employee wrote a blog post detailing allegations of sexual harassment and gender discrimination in 2017. This and other negative publicity led to platform users deleting Uber's app. Its prospectus acknowledged that this contributed to the hiring of a new Chief Executive Officer, Dara Khosrowshahi, to replace Travis Kalanick in 2017.

Trustee Guidance: What can trustees do about Uber??

Trustees should ask their fund staff how an investment in Uber is in the interests of pension plan members – in the short and long term. If you are concerned about Uber, consider taking the following steps:

Ask for due diligence before investing in Uber: Ask your consultants, managers and/or fund staff to carry out some due diligence on the issues in this letter and report back to the board if an investment in Uber is being considered.

Initiate a board discussion on digitalized companies and business models: Ask your consultants, board colleagues and/or staff to work with you to set up an agenda item at a future board meeting where the implications of emerging digital business models on workers' rights and pension fund members would be discussed, with a variety of presenters sharing information. If your fund has an investment belief statement or an ESG policy, you might propose discussing investments in digital businesses in this context.

Request an engagement with Uber: If your fund has invested in Uber, ask your manager or staff to engage Uber on the issues outlined in this brief and report back.

Please note that this brief is for informational purposes only, and is not intended to provide, and should not be relied on for investment, legal, tax or accounting advice. Trustees should consult their own advisors and investment professionals to evaluate the merits and risks of any investment.

For more information, please contact the CWC Secretariat.

Victor Xok

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

Workers' Capital in Action: The Las Vegas Hard Rock Casino

Tamara Herman — 2019-03-21T22:28:47Z

For over 8 years, valet workers at the Hard Rock Casino and Hotel in Las Vegas had been fighting for union protection with the Teamsters. The struggle was marked by countless federal court hearings, National Labor Relations Board charges, letters, meetings and demonstrations. The Teamsters' Louis Malizia tells the story of how capital stewardship and labour movement solidarity were instrumental in the hard-won Teamsters contract that the workers achieved in 2018.

It was not until the hotel's owners, the Canadian investment firm Brookfield Asset Management, was set to secure $500 million in new investments with the New York City Retirement System that the hotel's bad management practices came back to haunt them.

With a Teamster representative on the public employees' retirement system board and other union trustees across the five funds of that system (including the NYC Teachers, Firefighters and Police), concerns about the management of the Hard Rock held up the vote for the $500 million allocation. You see, NYCRS had recently adopted a new responsible contractor policy for its real estate investments and the trustees were concerned about allocating $500 million of members' retirement assets to an investment firm whose management team violates workers' rights and the federal laws designed to protect them.

With $500 million on the line for Brookfield, Hard Rock's management quickly changed its tune, agreeing to a Teamster contract that provides $2/hour wage increases, participation in the Western Conference of Teamsters Pension Trust, and employer paid health care. Where workers had been paying between $400-$500/month for health insurance, they now pay zero for the life of the contract. And that's not all. Because of this engagement, the union also secured card-check neutrality for the whole property which now has new owners. Teamsters and other unions now represent hundreds of additional members at the Hard Rock Hotel who have the security of a strong union contract.

By Louis Malizia, Teamsters

For more information on this story, click here

Photo: Teamsters 986

Workers' rights take center stage in San Francisco: Reflections on the CWC Conference, PRI in Person and the Marriott Workers' Strike

Tamara Herman — 2018-10-18T18:03:45Z

Labour issues do not usually take centre-stage among ESG priorities at the annual PRI in Person conferences. That changed this year, when Marriott hotel worker Consuelo Escorcia addressed the attendees from the stage during the opening plenary, providing the often-abstract debates on whether workplace issues are an investment concern with a real-life case-in-point.

Consuelo is a worker at the Marriott Marquis – the hotel where the PRI in Person was held. While the PRI delegates discussed pressing issues related to responsible investment, Consuelo and 99% of her UniteHere Local 2 colleagues voted to strike.

Blocks away from the Marriott Marquis and the strike vote centre, the CWC and UniteHere convened a meeting with a local union representative and one of Host Hotels and Resorts' (“Host”) key investors in UniteHere Local 2's office. We had been working closely with UniteHere to engage Host investors since the spring, when urged our network to support a shareholder resolution for an annual sustainability report.

A publicly-listed REIT, Host owns a significant number of the properties that serve as Marriott-operated hotels. Indeed, according to its 2018 10-k report, Host generates approximately 70 percent of its revenue from Marriott-branded hotels. Host is the largest lodging REIT in the US. Fifty-seven percent of its expenses are in wages and benefits (see 10-k report, p.41).

It is common for REITs, such as Host, to claim they hold no responsibility for the terms of employment at the hotels that operate in the properties they own. Yet under the OECD Guidelines for MNEs, Host has a business relationship with Marriott International. Accordingly, it has a responsibility to use its leverage to influence Marriott to avoid causing or contributing to adverse human rights impacts. Similarly, under the OECD Guidelines, Host investors – including minority shareholders – also have responsibilities regarding human rights due diligence processes.

Initiated in collaboration with CWC Trustee Leadership Network Chair José Meijer (ABP) and PRI Board Member Xander den Uyl (ABP), the investor meeting in San Francisco served as an opportunity for the trustees and their fund's asset manager, APG, to discuss the issues at stake with those most impacted: workers themselves.

While engaging some investors on labour issues continues to be an uphill battle, others are willing to sit in a room lined with banners and picket signs to consider integrating worker and labour-related issues into their engagements with investee companies. At a time when workers in the hotel hosting the PRI in Person are organizing under the campaign slogan “one job should be enough”, the importance of this work cannot be understated.

For many CWC participants who attended the PRI in Person, one of the more memorable moments would be walking together to the site of the UniteHere Local 2 strike vote. On October 4, Marriott workers at seven hotels in San Francisco – including the Marquis - joined their colleagues in eight cities across the US. In total, it is estimated that 8,000 Marriott workers are now on strike. To learn more, please click here.

An Interview with Roslyn McLennan (Australia)

Tamara Herman — 2018-02-14T08:55:26Z

Roslyn McLennan was appointed to the Sunsuper board in 2015 as a member representative on behalf of the Queensland Council of Unions. She is also a member of the fund's Investment Committee, Remuneration, Nomination and Governance Committee, Successor Funds Transfer Committee and Claims Committee.

The CWC interviewed Roslyn in February 2018.

cwc_trustee_rmclennan_final_v2.pdf

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

Archer Capital Investor Brief

Tamara Herman — 2017-06-30T05:27:00Z

The Australian Council of Trade Unions (ACTU), on behalf of affiliate unions with coverage of the Australian aviation industry, particularly the Transport Workers Union (TWU) and the Australian Services Union (ASU), is kindly asking that:

Union-nominated pension trustees raise at their Board the fund's exposure to Archer Capital Fund 5, a private equity vehicle; and,
If there is exposure, arrange for the Board of trustees to take the steps outlined below.

Archer Capital is an Australian private equity firm, with $2 billion in funds under management, specializing in leveraged buyouts in Australia and New Zealand. Since inception, Archer Capital has closed over 35 acquisitions involving total aggregate funding in excess of $6 billion.

One of its current acquisitions is AeroCare, a provider of outsourced flight support services in Australia and New Zealand, which includes customer service, baggage and ramp handling, cleaning, and other ancillary services. AeroCare employs over 2,500 staff and services major domestic and international airlines across 35 airports in Australia and New Zealand.

AeroCare's labour relations and work practices have been identified by the ASU and TWU as of significant concern. The main concerns are:

Undermining freedom of association and the right to collective bargaining:
AeroCare has engaged the services of First IR, a recognized anti-union labour relations consultancy organisation. The consultancy firm's expertise is utilized by clients to deny the workforce the right to the assistance of unions in collective agreement making. This contravenes the CWC Guideline 2.7 and 2.8 on Social Dialogue.

Labour standards and employment conditions:
AeroCare has negotiated a non-union collective agreement that significantly undermines the Award Safety Net Minimum Standards for the Australian aviation industry. This agreement includes provisions such as:
1. No guaranteed weekly hours within a monthly hours cycle.
2. Work rosters can be altered at 2 hrs notice.
3. Split shifts, which is resulting in employees being required to sleep rough at the airport while awaiting the second shift.
4. No maximum shift duration.
5. No specified minimum break between shifts.

There is no mechanism for reviewing wages over the 3-year life of the collective agreement. This contravenes the CWC Guideline 6.4 on pay levels.

Why is this a risk for investors?

Regulatory risks: The current employment model at AeroCare exposes investors to risks and challenges in light of developments in industrial law and practice in Australia.

Legal risks: The potential exposure to liability includes underpayments, labour conditions that present award compliance risks and non-conformity with OH&S standards.

Reputational risks: AeroCare was the subject of an Australian Broadcasting Corporation investigation, which garnered significant negative media attention. This could put future business opportunities at risk for the company and thereby reduce the value of the investment

To read the full investor brief, click here:

actu_cwc_archer_investor_brief_final-2.pdf