President Joe Biden’s Securities and Exchange Commission has created an ugly can of worms through its ‘universal proxy’ rule, which empowers activist investors to harm American businesses.
This rule was used by the Service Employees International Union (SEIU) during Workers United’s, an SEIU affiliate’s, recent negotiations with Starbucks. Using the Strategic Organizing Center (SOC), a union advocacy group which an SEIU executive chairs, to file various proxy battles aimed at Starbucks leadership, the SEIU was able to secure collective bargaining agreements in exchange for making the costly proxy fight go away.
A week later, on March 5, 2024, SOC withdrew its campaign. SOC cited the progress of the Workers United in its decision not to proceed with the board fight. Their mission was accomplished—they successfully pressured a major public company using boardroom activism.
While the union activism campaign ultimately cost the SOC $1.2 million with its SEC disclosures revealing a willingness to spend as much as $3 million, the group only actually owned a total of $16,000 of Starbucks stock, a pittance considering the company’s total market capitalization of $102.03 billion.
The Biden rule worked exactly as intended, empowering an already powerful union to create havoc for the management of a company they were attempting to organize in order to force a capitulation against the companies and other shareholder’s interests.
The U.S. Department of Labor reports that only 6.0 percent of private sector workers hold union membership, down from a high of 16.8 percent forty years ago.
This decline in private sector union membership poses an existential threat to unions which have been unsuccessful in tapping into the public employee sector, which makes up almost half of all organized employees.
The SEIU has for years targeted the fast food workforce for unionization as the sector has no labor history. But more importantly for the SEIU’s bottom line, the high turnover rate for employees combined with the up-front membership fee the union charges creates significantly more cash-flow than the cost of representing the members.
Ironically, Starbucks has traditionally been allied politically with SEIU in support of left-wing candidates. Yet, that alliance did not save the Seattle-based coffee house from being targeted. As a result, the company is likely to be saddled with a unionized workforce with increased costs, less ability to fire non-performing employees and aggressive competitors on seemingly every street corner.
Shareholders who own 99.999999% of the company will be surprised to discover that their investment has been fundamentally changed by a little known union front group as the marketing advantage Starbucks has maintained over the years will be collapsed in the near future due to the SEIU using the new Biden regulations to their advantage.
However, this might be a pyrrhic victory for the left, as the same mechanism can be used to drive shareholder demands for a focus on profit making rather than bowing to the whims of the Diversity, Equity and Inclusion mob along with the Environmental, Social and Governance warriors.
Unfortunately, the Starbucks example shows how a well-financed shareholder campaign can take advantage of the new rules to convince a corporation to effectively commit economic suicide rather than continue to spend money to fight. And that is exactly what the Biden SEC intended.
Rick Manning in the President of Americans for Limited Government.
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