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Equity analyst fingers unions

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".

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