We received two responses – from Ashwini Agrawal and from Steven Kaplan – to the AFL-CIO post responding to the study by Mr Agrawal of the AFL-CIO’s proxy-voting record. The Agrawal study is described on our blog here, and the AFL-CIO response is available on our blog here.
Ashwini Agrawal wrote to us:
In my study, Corporate Governance Objectives of Labor Union Shareholders, I examine the proxy votes of the AFL-CIO Reserve Fund and Staff Retirement Fund. I compare the votes before and after the AFL-CIO split into two groups: the AFL-CIO and the Change to Win Coalition. After the breakup, the funds become relatively more supportive of directors of firms in which workers become primarily affiliated with the Change to Win Coalition.
In his blog post and letter, Daniel Pedrotty makes a number of mischaracterizations regarding my study.
For example, in the paper I note that the AFL-CIO proxy votes are cast by a third party fiduciary in accordance with AFL-CIO proxy voting guidelines; I do not argue otherwise, as Pedrotty claims. AFL-CIO proxy voting guidelines can be found here.
In another example, Pedrotty states that changes in AFL-CIO voting patterns solely reflect changes in governance characteristics. To investigate this, I look at the votes of other institutional investors who take governance characteristics into account, such as mutual funds Fidelity, Vanguard, TIAA-CREF and union pension funds associated with the Brotherhood of Carpenters (UBCJA). I find that these other investors do not change their voting patterns in the same ways as AFL-CIO funds, suggesting the AFL-CIO votes are not solely based on governance characteristics.
Pedrotty also erroneously claims I treat all firms with mixed union representation as though they are affiliated with the AFL-CIO only. Based on publicly available data, I distinctly categorize a company based on whether a significant fraction (at least 90%) of the unionized workers at the firm switches affiliation from the AFL-CIO to the Change to Win Coalition. This is meant to capture significant decreases in the AFL-CIO’s labor representation across firms. For example, if 50% of a firm’s unionized workers remain part of the AFL-CIO, while the other 50% switch to the Change to Win coalition, then I assume the AFL-CIO still has substantial labor representation in this firm. If labor interests do not influence proxy votes, this categorization should not impact the findings in the paper.
Pedrotty asserts I gather data on certain Change to Win funds but that I do not compare their voting behavior with the AFL-CIO. This is incorrect; I compare the UBCJA pension fund votes (a Change to Win affiliate) with those of the AFL-CIO funds. Upon joining the Change to Win Coalition, the UBCJA funds become relatively more opposed to directors of firms in which workers are primarily affiliated with the Change to Win Coalition.
Pedrotty also claims that I made no effort to inquire into the methods by which AFL-CIO proxies are voted. When I requested this information from the AFL-CIO Office of Investment (in May, 2007), I was told by the AFL-CIO Office of Investment that this information would not be disclosed to me (in June, 2007).
The AFL-CIO’s claim that their voting fiduciary cast votes the same way for certain CTW funds does not change the findings as they pertain to AFL-CIO affiliated funds. In addition to the AFL-CIO not disclosing the sizes of these CTW funds and the extent to which AFL-CIO proxy voting guidelines are applied to them, the AFL-CIO’s claim could reflect agency issues within the voting structure of union pension funds. However, making any such assessment is beyond the scope of my paper.
This study can be easily replicated using publicly available sources of data. Both the sources and methodologies are described in the paper, available online here. It should also be noted that I use publicly available data because it is verifiable by other researchers and because my requests to the AFL-CIO for access to their own database on union membership were denied. I am happy to incorporate the AFL-CIO’s internal data into my study, however this data has still not been given to me.
I encourage blog readers to read both my study and the AFL-CIO’s report to reach their own conclusions. Peer review, comments, and criticisms are welcome.
Steven Kaplan wrote to us:
I would like to respond to Daniel Pedrotty’s post on Ashwini Agrawal’s work. I am a member (but not the chairman) of Mr. Agrawal’s dissertation committee so I know his work well. His committee consists of four professors at the University of Chicago Graduate School of Business.
Daniel Pedrotty’s post (criticizing Ashwini Agrawal’s study) does not in any way contradict Mr. Agrawal’s study. Mr. Pedrotty claims the paper makes a “serious and completely false accusation of voting behavior.” That is not true. Mr. Agrawal’s paper reports the results of his data collection and analysis. Mr. Agrawal’s results use publicly available data and are replicable. Using data on AFL-CIO votes and data from public sources regarding AFL-CIO union representation, Mr. Agrawal finds significant changes in AFL-CIO votes. After the split of the AFL-CIO and CtW, the AFL-CIO pension fund was much more likely to vote for management and directors of companies with unions primarily represented by the CtW than before the split. At the same time, the AFL-CIO pension fund remained less likely to vote for management and directors of companies still mainly represented by the AFL-CIO. The union voting behavior that Mr. Agrawal’s analysis reports is more consistent with union self-interest than with shareholder value maximization. While any such behavior cannot be proved beyond a shadow of a doubt, the results are very statistically significant.
Mr. Pedrotty has not attempted to replicate Mr. Agrawal’s methodology or tests. He presents some other data and claims that are irrelevant to Mr. Agrawal’s analysis. And, therefore, Mr. Pedrotty’s post does not have anything substantive to say about Mr. Agrawal’s results. Given this, it is extraordinary that Mr. Pedrotty request Mr. Agrawal to withdraw or revise his paper.
Let me examine Mr. Agrawal’s paper and Mr. Pedrotty’s post in more detail.
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