| John Sweeney |
After the blows many investment banks’ reputations took in 2002, equity researchers might have been expected to keep their heads down. Not Steve Galbraith, who put his foot deftly in his mouth with a note advising clients to avoid investing in companies with highly unionized workforces.
“Look for the union label – and run the other way,” Morgan Stanley’s chief US market strategist argued, explaining: “Rigidity in labour costs, processes and pension requirements, while perhaps beneficial to employees, may prove toxic to shareholders.” According to Galbraith, heavily unionized companies tend to underperform.
His remarks prompted outrage among unions, left-wing institutes and others eager to get involved who feel Morgan Stanley showed its true colours as an implacable foe of organized labour.
John Sweeney, president of the AFL-CIO labour federation (pictured), told the bank it was “attacking the fundamental structures of fairness in our economy”. A lack of unionization had hardly prevented problems at Enron and Tyco, he said. The IUF, a union representing food, agricultural, catering, hotel and tobacco workers, bemoaned “the financialization of the corporate mind”.
Morgan Stanley rushed out a counter-statement. “Nothing could be further from the truth” than the claim that it harbours an anti-union bias, it argued. In fact, it claimed, it is “strongly supportive of American labour”. Many of its suppliers and contractors are unionized, it said, and more than half the companies across its five model portfolios employ union staff. And it has advised several US unions on financial matters.
Nevertheless, the bank admitted: “In retrospect … we can see how both the substance and the style of the report could provoke strong and diametrically opposed reactions from many readers, particularly union members.” It expresses regret at any offence caused.
But maybe there is some consolation – the fact that such problems arise at all shows the independence of its research.
