Unions Are Democratically Organized, Corporations Are Not

In establishing the rules that govern engagement with the democratic process—including laws related to elections, campaign finance, and lobbying—unions and corporations are often lumped together under the incorrect assumption that these two types of organizations are roughly equivalent and thus should be subject to similar rules. For example, prior to the Supreme Court’s Citizens United v. Federal Election Commission decision, unions and corporations were subject to identical limits on their ability to spend general treasury funds on federal elections, and since the decision have been equally free to use their general funds on political expenditures.¹

Efforts to equate corporate and union political activity date back to at least the 1940s with the passage of the 1943 Smith-Connally Act, which barred unions from making contributions to federal candidates in the spirit of parity with the Tillman Act’s limitations on corporate contributions,² and the 1947 Taft-Hartley Act, which prohibited any independent expenditures by corporations and labor unions.³ As former professor of constitutional law at American University Rep. Jamie Raskin (D-MD) explains, the false equivalence between unions and corporations “has sunk deeply into American legal, political, and social consciousness, weakening the sense of unions as organic democratic institutions in civil society … while aggrandizing the political power of CEOs of large companies who are increasingly, if bizarrely, treated as leaders of civic membership associations.”⁴

The law, however, does not always treat unions and corporations equally. For example, unions are subject to more stringent disclosure requirements for political and other forms of spending.⁵ In addition, workers covered by a collective bargaining agreement are able to opt out of funding political activity while corporate shareholders cannot.⁶ As a result, unions are more limited in the manner in which they engage with the political process.⁷ At the same time, corporations have vastly greater financial resources to use for political engagement.⁸

There are many grounds on which to critique the comparative regulation of political engagement by unions and corporations, with one of the most obvious yet relatively underdeveloped issues being that unions and corporations are fundamentally different organizations. They are structured differently, have a different purpose, and engage with U.S. democracy in different ways.

This issue brief focuses on the leadership elections of unions and corporations. Union leadership elections resemble those in a well-functioning political democracy: They follow the basic norm of one person, one vote; offer candidates equal opportunities to campaign; and ensure a secret ballot. As a result, unions are often considered schools of democracy, teaching their members about electoral democracy and providing them with opportunities to participate.

In contrast, elections for public corporations are based on the number or type of shares owned. Additionally, campaigning opportunities are limited and individual votes are made public. Although corporations are sometimes called “shareholder democracies,” public corporations fall short of embodying core democratic principles, even when considering only shareholders.⁹ Furthermore, important stakeholders such as workers and customers generally have no say in corporate leadership elections.¹⁰

Beyond internal structural differences, unions and for-profit corporations also differ regarding their impact on democracy. For example, unions increase voter turnout in political elections, not only among their own members but among nonunion workers as well.¹¹ Increased voter participation is most pronounced among those who are less educated and have a lower income.¹² Moreover, research shows that unions generally advocate for policies supported by the public at large, whereas corporations commonly advocate for policies opposed by the majority of the public.¹³ This is not to say that for-profit corporations do not benefit society, as they can produce important economic benefits and contribute to the community. However, corporate participation in democratic and political processes is distinct from and has a different impact than participation by unions.

To promote political democracy, policymakers should encourage the formation of unions by passing the Protecting the Right to Organize Act and the Public Service Freedom to Negotiate Act.¹⁴ More generally, when considering reforms to the rules governing political participation, policymakers should reverse policies that regulate unions more restrictively than corporations, stop defaulting to conventions that assume unions and corporations are equivalent organizations, and seek to promote political participation by unions and other democratically organized groups. Regulations that treat unions and corporations similarly may be appropriate in some instances, but not in every case.

Unions have free and fair elections for leadership positions

Academics, journalists, and international organizations have identified a number of principles and values as essential elements of political democracy.¹⁵ One of the most basic elements of any democratically organized system is the right of relevant stakeholders to participate in regularly held free and fair elections for leadership positions.¹⁶ Regular, free, and fair elections for leadership are a fundamental element of any democracy, and participation in elections is one of the most important and effective ways for citizens to have a say in how their government operates.¹⁷

Both unions and public corporations hold regular elections for leadership positions.¹⁸ National and international labor organizations choose their officers at least every five years, and local labor organizations select their leadership at least every three years.¹⁹ Similarly, public corporations are required to hold annual elections for board directors.²⁰ Although unions and for-profit corporations both hold regular elections, however, only unions host elections that are consistent with basic democratic principles and norms.²¹

For instance, unions adhere to the principle of one person, one vote. When choosing union officers, each union member in good standing is entitled to one vote.²² And in cases where officers are chosen by a convention of delegates—who themselves must be chosen by secret ballot by their respective membership—the convention must be conducted in accordance with the labor organization’s constitution and bylaws, so long as those are consistent with the general federal laws governing union elections.²³ Union constitutions and bylaws generally provide for representative election procedures for delegates consistent with the principle of one person, one vote.²⁴

Unions also have required processes for casting secret ballots.²⁵ Importantly, federal labor law explicitly protects members’ right to support the candidate of their choice without fear of “penalty, discipline, or improper interference or reprisal.”²⁶ Such rules and processes ensure that all union members have an equal opportunity to make their voices heard.

Beyond robust suffrage rights, union elections ensure that all members are given an opportunity to run for office. Every union member has the right to nominate candidates,²⁷ and every member in good standing, subject to certain reasonable restrictions, is eligible to hold office.²⁸ Moreover, Freedom House—a nongovernmental organization that advocates for democracy worldwide—assesses whether elections are “free and fair” in part by whether candidates can “make speeches, hold public meetings, and enjoy fair or proportionate media access throughout the campaign, free of intimidation.”²⁹ Unions abide by this principle: They are prohibited from privileging certain candidates in elections and may only marshal union money for the purpose of disseminating general election information.³⁰

In contrast, whereas union elections are designed to ensure equal suffrage for members and produce outcomes that reflect the proverbial “will of the people,” elections held by for-profit corporations are often designed to favor existing management and provide greater voting power to certain shareholders over others. Rather than one person, one vote, the default principle in corporate elections is “one share, one vote.”³¹ That is, voting power derives from the number or type of shares an investor owns, with certain classes of shares denoting more voting power for their owners.³² In addition, only shareholders who have owned company shares since a specific “record date,” usually 10 to 60 days before an election, have the right to vote.³³

As such, in firms with concentrated ownership, only a handful of individuals or entities—which is to say, the major or controlling shareholders—can effectively determine the makeup of the board and, in turn, corporate policy.³⁴ Meanwhile, investors who hold small numbers of shares generally have little influence over corporate power structures.³⁵ In addition, the past few years have seen a rise in dual-class and multiclass voting structures, wherein certain shareholders—usually founders—hold stock conferring greater voting rights, even if those shareholders only own a small percentage of the overall stock.³⁶ For example, corporations can issue different types of stock, some of which are worth 10 votes per share and others only one vote per share. At least one company has even issued stock in which public company shares had no voting power.³⁷

Another distinct difference between elections held by unions and those held by corporations is how candidates for leadership positions are selected and how leadership campaigns are run. Whereas labor organizations often draw officers from their membership, shareholders in public corporations are deterred from nominating board directors or running themselves.

Incumbent directors and their allies enjoy a distinct advantage in corporate electoral structures. For example, during elections for corporate directors, incumbent directors can use incumbency funds for election materials and their distribution. Shareholders and other nonincumbent candidates, on the other hand, cannot.³⁸ Moreover, according to a 2010 U.S. Securities and Exchange Commission rule, only “significant, long-term shareholders”—shareholders who have owned at least 3 percent of company shares continuously for at least three years prior—can have their proposed board nominees included in proxy materials that are sent to other shareholders before an election.³⁹ As of February 2020, the right to include a director nominee in the proxy materials has only been used once in the United States.⁴⁰

Furthermore, although shareholders are permitted to submit statements of support for board nominees, they are often subject to length restrictions.⁴¹ By contrast, similar statements by incumbent directors have no such restrictions. These restrictions on shareholders’ nomination rights often mean that corporate elections may reflect little more than a rubber stamp on choices made by longstanding shareholders and existing management rather than by shareholder majorities.⁴²

Arguably, the very design of corporate elections disincentivizes participation among certain shareholders. Retail shareholders and shareholders who hold small numbers of shares or shares that are of low value often refrain from attending annual meetings or from participating in elections because they feel unable to realistically compete with controlling shareholders and incumbent directors.⁴³ As a result of these policies, the outcomes of corporate elections tend to reflect the will of existing powerholders and a small number of very influential shareholders over that of other shareholders who may, in fact, numerically outnumber those with controlling shares. By favoring individuals with the most power and corporate wealth, corporate electoral processes are more plutocratic than democratic in nature.

Table 1

Conclusion

Unions and corporations are fundamentally different organizations and operate in distinct ways. Labor unions, whose express purpose is to provide more favorable workplace conditions for their members, are generally governed by the democratic ideal of free and fair elections for leadership. In contrast, public corporations, whose primary purpose is to maximize profits for shareholders, deviate from democratic norms in their leadership elections.

In practice, corporate processes tend to favor those with more wealth and power and discourage all but the most influential shareholders from participating in elections and decision-making processes. Due to unequal voting rights, many individual shareholders lack meaningful opportunities to exercise their voice or hold leadership accountable. The inherent inequality of corporate elections is compounded by the fact that workers, who are directly affected by corporate decision-making, are usually entirely absent from voting processes.

When constructing the rules that shape democratic engagement by these entities, policymakers should be cognizant of the organizational and operational differences between unions and corporations. In order to strengthen political democracy in the United States, policymakers should better support the creation of, and engagement by, democratically organized groups.

David Madland is a senior fellow at the Center for American Progress. Malkie Wall is a research associate for Economic Policy at the Center. Danielle Root is associate director of voting rights and access to justice on the Democracy and Government Reform team at the Center. Sam Berger is vice president of Democracy and Government Reform at the Center.

The authors would like to thank Adam Stromme for his excellent research assistance on this brief.