Business Week, September 13, 2004

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Business Week

September 13, 2004

SECTION: Cover Story; Pg. 80 Vol. 3899

HEADLINE: Can This Man Save Labor?;
Andy Stern wants to radically retool the U.S. labor movement. But first he must win over some powerful union leaders

BYLINE: By Aaron Bernstein

BODY:
The symbolism couldn't have been more stark: The son trying to overthrow the father. Seventy-year-old AFL-CIO President John J. Sweeney had come to San Francisco in June to give a pep talk to 3,000 members of the Service Employees International Union (SEIU), a union of public-sector, health-care, and janitorial workers he had run before becoming labor's chief honcho in 1995. But instead of a rousing homecoming reception, his successor and former protege, 53-year-old SEIU President Andrew L. Stern, let rip a razor-sharp swipe at Sweeney's largely failed struggle to rejuvenate the labor movement over the past nine years.
Stern's message: Labor remains in a death spiral, and its house needs a top-to-bottom overhaul if it's ever going to revive. The AFL-CIO, he charged, has become an antiquated structure that ``divides workers' strength.'' When the SEIU's own policies and traditions hindered its expansion, Stern reminded his audience, he swept them aside. Barring drastic action, he told his delegates, the 1.6-million-member SEIU should break away and start a new federation. Change ``is so long overdue that we either transform the AFL-CIO -- or build something stronger,'' he proclaimed.
In the clubby world of organized labor, these harsh public words were an open declaration of war -- one that has been roiling the nation's labor leaders ever since. It comes after several years of increasingly vocal criticism by Stern and four fellow union leaders who have been agitating for a fundamental revamping of labor. The five men, including the heads of the carpenters, the laborers, and the needletrades and hotel-workers' unions (table), which merged this summer, formed the New Unity Partnership (NUP) in 2003 to showcase what they want to do.
Now NUP, led by Stern, is accelerating its campaign, hoping to shake up the entire 16 million-member labor movement. The goal: to get unions growing again in an economy in which their membership has fallen to just 13% of the workforce. Stern, who leads by far the largest and fastest-growing U.S. union, is aiming high, planning to force the federation to confront its malaise with constitutional changes when the AFL-CIO meets next July for its quadrennial convention. He and fellow NUPsters haven't worked out the details, but they have been hashing out the broad themes for a year. The central idea is to slash the AFL-CIO's 60 unions to 15 or 20 powerful mega-unions -- and get those to focus on building what they call membership density, or share of the labor market, in specific industries, thereby giving unions more clout to lift wages.
Capturing the leadership is also in the plan: John W. Wilhelm, former hotel-workers president and NUPster, is likely to run against Sweeney, who's up for reelection next year. But the group faces a tough battle. Some labor leaders say they see Stern as power-hungry and arrogant, and he has made enemies by poaching public-sector workers claimed by Gerald W. McEntee, president of the 1.4-million-member American Federation of State, County, and Municipal Employees (AFSCME). In a sign of how hard-fought the contest could be, United Brotherhood of Carpenters President Douglas J. McCarron, who quit the AFL-CIO in disgust over Sweeney's policies in 2001, swallowed his pride and told the federation chief on Aug. 24 that he would rejoin the AFL-CIO. That would allow him to cast his 520,000-member vote for Wilhelm next summer.
Right now the entire labor movement is obsessed with putting a Democrat back in the White House. But come Nov. 3, Stern and his NUP pals say they'll refocus on reversing labor's decline. ``What we're doing in the labor movement isn't working. There has to be dramatic change,'' says Wilhelm, who's now No.2 in the merged needletrades and hotel union, called UNITE/HERE. ``After the [November] elections we're going to have a full and vigorous debate about what to do.''
Nothing less than a deep sense of desperation about the fate of organized labor drives Stern & Co. The forces of globalization that began pounding labor's manufacturing strongholds in the late 1970s have intensified in recent years as offshore production has exploded. Membership has slid steadily in service industries, too. In everything from retailing to health care to office work, deregulation, heightened competition, and cheap immigrant labor have forced employers into a ceaseless struggle to keep down costs, including wages and benefits.
The so-called Wal-Martization of the economy has fueled the trend: Many companies feel pressure to seek out the lowest costs, even if it means paying skimpy wages. American paychecks have slid again after the gains of the 1990s, more employees are losing company-paid health coverage, and worker anxiety has been heightened by the shift of white-collar jobs overseas. ``If you understand that employers are subject to global pressures and have to keep profits up, it may well cause employees to say, 'You know, it's not in my interest to vote in a union,''' says Charles I. Cohen, a management-side labor attorney at Morgan, Lewis & Bockius LLP.
STIFF RESISTANCE
Heightened corporate power has checked union growth, too. Unionization elections are typically so lopsided today that most unions have all but given up on them. Most employers pull out the stops when labor organizers appear, using everything from mandatory antiunion meetings to staged videos showing alleged union thugs beating workers, backed by streams of leaflets and letters to workers' homes. While most of these tactics are legal, companies also illegally fire union supporters in 25% of all elections, according to studies of federal data by Cornell University labor researcher Kate Bronfenbrenner. That's triple the percentage of the 1960s. So companies are often able to turn employees against a union, even though a rising number of Americans have said in national polls over the past two decades that they would join one.
Most employers disagree with that assessment. They see unions as more suited to an industrial age, with often-rigid work rules and little to offer in a high-tech, knowledge-based economy. Certainly, unions' ability to protect pay and benefits has diminished drastically, as seen in the huge pension losses for unionized workers in steel and airlines. ``I don't believe that secret-ballot union elections have been corrupted by management. The problem is that unions have lost their relevance to the American workplace,'' says Andrew M. Kramer, a labor law partner at Jones Day who represents large employers such as General Motors Corp.
Still, Stern's drive to kick-start labor comes from watching the SEIU and a few other unions succeed in becoming relevant to workers despite all the obstacles. Some observers see him as trying to play the role of labor giant John L. Lewis, who helped create the Congress of Industrial Organizations in the 1930s when the craft-oriented American Federation of Labor he belonged to seemed incapable of aiding low-skilled factory workers. Lewis fanned out hundreds of organizers from the then-powerful mineworkers union, which he headed for 40 years, to help form unions in autos, steel, and telecommunications -- largely because he felt that his group couldn't survive on its own.
Stern has been taking analogous steps, laying the groundwork for a parallel, CIO-style federation should the campaign to transform the AFL-CIO fail to take hold. The SEIU recently ponied up $1 million to help the United Food & Commercial Workers tackle Wal-Mart Stores Inc. He's building separate political muscle, shelling out an astonishing $65 million to elect John Kerry and make the political atmosphere more receptive to a labor comeback. Stern helped found the Democratic Party's most successful 527 political committee, America Coming Together, which is headed by former AFL-CIO Political Director Steve Rosenthal (a close personal friend with whom he has shared a New Jersey beach house for 25 years).
The SEIU also set up a political network aimed at nonunion Americans called PurpleOcean.org, modeled after a similar effort the AFL-CIO launched last year. Stern told his convention: ``We know that even if we build strength in our industries, no one union, including SEIU, can succeed as an isolated island of strength in a nonunion sea. As the largest union, it is our job to help rebuild U.S. labor's strength.''
An ambitious, impatient man with the lean frame of a regular runner, Stern has turned the SEIU into a whirlwind of activity that he thinks others could emulate -- if they're willing to change how they operate. The SEIU nearly doubled in size, to 1.1 million, during Sweeney's tenure there, in part due to Stern's role as recruitment chief (a job Sweeney tapped him for in friendlier days). Then Stern took the reins and cracked the whip even harder. At the SEIU's 2000 convention, he persuaded delegates to set a specific recruitment spending target for all locals: 20% of their budgets, totaling $80 million. And he got them to come up with $50 million more for an organizing fund.
Meanwhile, Stern funneled half of the international union's $100 million annual spending into membership growth. Overall, the SEIU and its locals devote some $180 million a year to expansion, says SEIU Executive Vice-President Tom Woodruff. That's nearly twice the AFL-CIO's entire annual budget.
It has worked -- which is one reason even labor leaders Stern rubs the wrong way still pay him heed. While most unions are shedding members, the SEIU will hit 1.8 million by the end of the year, with only about 100,000 of the growth coming from mergers with smaller unions, says Woodruff. No other union comes close to matching such a record. Stern also has succeeded with low-skilled minorities and immigrants in high-growth occupations such as janitors and hospital aides. Their unionization is a sharp departure from the white males who historically comprised the rank and file of industrial unions.
A CLEAN SWEEP
Much of Stern's vision for labor is honed from his own experience battling employers. Consider the case of janitors. The union long had strongholds in major cities such as New York, where its 50,000 office-building janitors earn up to $18.57 an hour, plus benefits. But across the Hudson River in New Jersey, some 10,000 nonunion janitors make little more than the $5.15-an-hour minimum wage -- even though they're the same largely immigrant workers cleaning similar offices.
Four years ago, as part of a nationwide janitors' campaign, the SEIU set out to sign up the New Jersey workers. The union only had about 1,000 janitors in the Newark area and had done little to keep pace as corporate flight from Manhattan led to a boom of new offices in northern New Jersey. Stern knew he couldn't run a typical recruitment drive, one janitorial contracting company at a time: In this fragmented industry, any that agreed to higher pay would be quickly undercut by nonunion rivals.
So SEIU tackled whole markets at once. In 11 New Jersey counties, it told contractors that they wouldn't have to lift pay until the SEIU got 55% of those in their area to go along. The union then mounted strikes and rallies by would-be members and took other actions to try to force contractors to go along.
The first 55% trigger point was reached in 2001, and the union contracts took effect. By the end of this year, the SEIU will represent about 70% of northern New Jersey janitors, whose pay now ranges up to $11.75 an hour, plus benefits. While that's still far short of the Manhattan wage, the SEIU is realistic enough to know that lower-priced New Jersey can't support the same pay. Nonetheless, unionization ``has been beneficial to the industry because we're not undercutting each other, turnover is down, and workers are more dedicated and loyal,'' says Mark Blackburn, marketing vice-president at CSI International Inc., a privately held custodial-services company based in Red Bank, N.J., that employs 2,000 janitors in a dozen states and is the SEIU's largest New Jersey contractor.
The janitor campaign is helping low-wage immigrants reach the mainstream. Rita Cortes, who came to the U.S. from Honduras 17 years ago, had been cleaning New Jersey offices for the minimum wage since 1988. When the SEIU contract kicked in three years ago, she jumped immediately from $5.15 an hour to $8, plus some benefits. Today, Cortes, 54, earns $9.75 as a nighttime office cleaner in Secaucus and will go to $10.75 in October. ``Now my husband and I can eat better, and I get three weeks' vacation a year, which I never had before,'' says Cortes.
To Stern and his NUP colleagues, the lesson is elementary: Unions can't lift workers into the middle class unless they control a significant chunk of the labor market, either geographically or by industry. Hence their focus on membership density. It's not enough, they say, to simply increase their absolute numbers. Unions must think strategically, targeting whole areas and industries and coordinating their efforts against market forces that drive companies to undercut each other.
Few labor leaders disagree in principle, but only a handful have taken any such action. Many bristle at the notion that the AFL-CIO would force them to recruit in specific industries, as Stern and the others are suggesting. But last year, in a white paper called United We Win, Stern laid out labor's uncoordinated and overlapping structure and showed how multiple unions represent workers in the same industry. He found that there are 8 unions with a significant presence in nondurable goods such as clothing, 9 in heavy manufacturing such as autos, 13 representing government workers, and 15 each in construction and transportation. If Stern had his way, there would be one or two giant unions in each industry sector.
Clearly, in an economy dominated by corporate giants, Stern and his NUP colleagues argue, unions must gain scale, too. Today the smallest two-thirds of the AFL-CIO's 60 unions average less than 60,000 members apiece -- not nearly enough to wield market clout in most cases. Conversely, when SEIU merged the New Jersey janitors' local into the larger, richer New York union, it could suddenly afford to commit 50 organizers and $5 million a year to recruitment.
That local also illustrates the way many union recruitment successes occur nowadays. Rather than use a formal unionization election supervised by the federal government, the SEIU got a majority of each building's workers to sign union authorization cards -- a process known as card check. The goal is to circumvent management's power to influence an election.
A growing number of unions -- including the Communications Workers of America (CWA), the United Auto Workers, and to some degree the SEIU -- have turned to card checks in recent years. There's no official count, but unions enlist about 150,000 to 200,000 new members a year through card checks today, vs. just 70,000 through federal elections, according to the AFL-CIO. This is why the federation has launched a major drive for federal legislation requiring employers to recognize unions through card checks. (Currently employers can do so if they wish but don't have to.)
LEADERSHIP STYLE
The irony of Stern's frontal attack on the AFL-CIO is that Sweeney has been hitting many of the same notes ever since he took over. He came to office after frustrated labor leaders gave up on predecessor Lane Kirkland, whom they thought was moving too slowly against labor's long decline. Sweeney won a hotly contested election against Kirkland's No. 2, Thomas R. Donahue, and swept to power insisting that unions devote at least 30% of their resources to new-member recruitment.
Despite their clash, Stern and Sweeney differ more in leadership style than in substance. Sweeney is an unruffled, soft-spoken man given to consensus rather than rhetoric. But his low-key cajoling has done nothing to stem labor's membership slide, which has plunged by two percentage points under his tenure -- the same rate of decline that occurred under Kirkland.
Stern, by contrast, has an intense, driven personality that propelled him into leadership roles at an early age. The son of middle-class parents in suburban West Orange, N.J., he got an Ivy League education at the University of Pennsylvania, where he gravitated toward the student movement. He joined the SEIU at 21 as a state social worker and soon became head of the local. By 29, he had vaulted onto the international union's Executive Board, the youngest person to have made it there.
His zeal for left-leaning social causes dovetailed with the traditions of the SEIU. As a young SEIU official in the early 1980s, Stern joined other activists in the union to force through controversial resolutions opposing U.S. military intervention in Latin America. More recently he threw his union's weight behind Howard Dean's Presidential campaign, switching to the more mainstream Kerry only after Dean flamed out. He also has cultivated close relations with a wide range of social leaders. (His wife, Jane Perkins, from whom he is getting a divorce, headed the environmental network Friends of the Earth in the 1990s.)
Throughout, Stern honed his organizing skills and strategic thinking. In 1995 he directed Sweeney's effort to win the AFL-CIO presidency (thus clearing the way for his own succession). The team he put together to corral votes that year outmaneuvered the more staid Donahue forces, coordinating its efforts with bright yellow T-shirts sporting the Sweeney slogan and using radio headphones that let Stern's crew keep in constant contact as they counted noses on the convention floor.
Still, it will take a masterful hand to sell his message to the AFL-CIO's 54-member Executive Council. Already, Stern's outspokenness has riled a number of union presidents who perceive him as self-serving. Critics argue -- with some validity -- that much of his recruitment success has come among easy-to-organize public-sector workers in home health aid and child care -- not among the tough-as-nails private-sector employers that unions must prevail against to grow again. Twice in recent months at federation meetings, labor leaders such as International Association of Machinists President R. Thomas Buffenbarger blasted Stern for his attacks on the AFL-CIO.
BAD BLOOD
In response, Stern agreed not to speak out again until after the November Presidential elections. Although he discussed his ideas freely with BusinessWeek earlier this year, Stern refused even to be photographed for this article, apparently worried that a story focused on him would further inflame colleagues.
But the bad blood lingers. Buffenbarger says he's so ticked off at Stern's high-handedness that he may quit the AFL-CIO himself. Edward J. McElroy, the new head of the American Federation of Teachers, says he will listen but remains highly skeptical.
Meanwhile, Sweeney is maneuvering for a counterattack. He told an August AFL-CIO powwow that he would set up a process to discuss the NUP's ideas come November. Sweeney also will put forth his own platform, insiders say, incorporating many of those ideas. (Sweeney declined to comment.) ``There's going to be a showdown on all this next summer,'' predicts Joseph T. Hansen, president of the 1.4 million-member food-workers union, who says he is sympathetic to Stern's goals but has some reservations.
There's also the question of succession. When NUP emerged last year, Sweeney quickly announced he would run again, surprising many who had expected him to retire. Even some backers aren't sure he really will stand again, although insiders and AFL-CIO public affairs chief Denise Mitchell insist that he will.
Sweeney's retirement would open the door for 55-year-old AFL-CIO Secretary-Treasurer Richard L. Trumka, a fiery former mineworkers union president who has been underutilized by Sweeney's team but retains strong support among industrial unions. One possible compromise: a unity ticket with Wilhelm and Trumka, who have been friends for years.
The tangled politics in this close-knit group -- Stern's wife has worked recently as a top Sweeney aide on environmental issues -- makes any leadership battle unpredictable. CWA President Morton Bahr, an elder statesman of the federation, opposed Sweeney in 1995, figuring a power struggle was bad for labor, even though he agreed with Sweeney's goals. He feels the same today and says he stands behind the incumbent but agrees that NUP raises urgent questions. ``I'll listen to what they propose, but I'm not ready to tear down the institution in order to remake it,'' he says.
If Stern and his NUP pals can't persuade enough union leaders that labor's near-extinction requires drastic action, the last resort may be to form a new labor movement a la John L. Lewis. Right now, the threat is mostly a way to provoke a sense of crisis. And so far it seems to be working: America's unions are poised for an internal debate more wide-ranging than any they have had in decades. Although it's still early, one possible outcome is a more militant, pumped-up labor movement. If that happens, employers could feel renewed pressure to share with workers more of the gains from the economy's healthy productivity growth. Either way, the U.S. labor movement is in for some turbulent times.

How Stern Wants To Remake The House Of Labor

Service Employees President Andy Stern and four other union leaders want sweeping changes in the way the AFL-CIO and its member unions are run. While they're still formalizing their plans, they have been discussing ideas such as:

CENTRALIZED AFL-CIO
Alter the AFL-CIO's constitution to allow for a more powerful executive body, so it can force unions to change more rapidly

A FEW MEGA-UNIONS
Prod dozens of small unions to merge to create 15 or 20 powerful million-plus-member ones, down from more than 60 today

INDUSTRYWIDE BARGAINING
Get unions to focus on specific industries to boost their bargaining clout so they can lift wages and benefits across the board

MASTER LABOR CONTRACTS
Create industrywide labor pacts to maintain uniform wage levels across companies

JOINT MEMBERSHIP DRIVES
Multiply labor's strength by mounting multi-union recruitment drives against giant employers such as Wal-Mart

Data: BusinessWeek

Labor's Free Fall
Labor's share of the workforce continues to slide...
Union members as a share of the U.S. workforce

1973
24%
1983
20%
1993
16%
2003
13%


Data: Barry T. Hirsch and David A. Macpherson

...and labor leaders have failed to aggressively recruit new members.


Union representation elections

1970
7,773
1980
7,296
1990
3,623
2003
2,516


Data: National Labor Relations Board

Although millions of Americans want to join a union...

Share of 84 million nonunion workers* who say they would vote for a union at their company


1984
30%
1993
39%
2003
47%


* Private-sector nonsupervisory workforce in 2003

Data: Peter D. Hart
Associates

...they often are intimidated by illegal firings of union supporters...

Share of representation elections in which a union supporter is illegally fired


1964-69
8%
1980-84
20%
1998-99
25%


Data: Robert J. LaLonde and Bernard D. Meltzer, Kate Bronfenbrenner,

Cornell University


...and other union-resistance tactics.



% of employers that used union-avoidance tactics in representation elections

in 1998-99



TACTIC
% OF EMPLOYERS


Hold mandatory antiunion meetings for employees
92%


Have supervisors meet individually with

employees to disparage the union
78%


Hire antiunion management consultants
75%


Distribute antiunion leaflets to employees
70%


Mail antiunion letters to employees' homes
70%


Show antiunion videos to employees
55%
Data: Kate Bronfenbrenner, Cornell University

Bio: Andy Stern

BORN
1950, West Orange, N.J.

EDUCATION
B.A. in education and urban planning, University of Pennsylvania.

CAREER
A left-wing student activist, he took a job at 21 as a social worker in New Jersey and promptly joined the SEIU, which represents many health-care workers, janitors, and other low-wage workers.

SEIU
At 29, he became his union's youngest-ever Executive Board member. At 45, he became its youngest-ever president.

FAMILY
Married fellow Pennsylvania SEIU activist Jane Perkins, president of Friends of the Earth in the 1990s; they are now divorcing. They have one teenage son and lost a daughter following surgery in 2002.