Labor Unions and Strategic Corporate Governance: A Balancing Act of Managerial Power and Entrenchment

Abstract

This paper investigates the relation between unionization and corporate governance practices in the United States. For unionized firms to secure a bargaining advantage, we hypothesize that the managers of such firms will optimally adopt structures of governance that increase managerial power and reduce the influence of union-backed dissident shareholders. We also recognize a force that counteracts this power and avoids provoking quiet-life problems, leading to the prediction that unionized CEOs will face greater exposure to external discipline. Using a matching estimator with hand-collected data on unionization, we find support for our hypotheses. Unionized firms are more likely to unify the CEO and chairman positions, avoid voting mechanisms that increase the power of minority shareholders (e.g., cumulative voting), and install a younger board (i.e., a board that is more exposed to the market for directors). Finally, unionized firms are less likely to adopt golden parachutes and/or poison pills.