Labor Organization Financial Transparency and Accountability: A Comparative Analysis

Summary

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In this article, the authors develop a model based upon agency theory and monitoring costs to better examine the role of government-mandated transparency and disclosure regulations on unions and their members both in terms of the likely cost to unions versus the anticipated benefit of improved member understanding and union accountability. Just as financial disclosure regimes for corporations are often defined in significant part by the regulatory environment, the same can be said about trade union financial disclosure and transparency. Government regulations appear to assume that transparency is a "yes/no" proposition, not one of degrees and perhaps confuse transparency with accountability. Unions, members and governments alike need to be evaluating the impact of improved disclosure on union finances. Finally, in an era of shrinking public budgets, it seems worthwhile to consider whether or not an increased reliance on self-regulation may be more cost effective.

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Labor Organization Financial Transparency and Accountability: A Comparative Analysis

A new breed of fat cat is stalking Downing Street in search of beer and sandwiches. Union bosses have had pay raises three and a half times the rate of inflation. The average package of pay and perks for a union general secretary has increased by 7.55% and some remuneration deals are topping pounds 125,000 for the first time. Union bosses are taking home pay and perks worth up to nine times the wages of their members at a time when trade union membership is at its lowest since the World War II. Some of the biggest earners are the very general secretaries who have accused company directors of being 'greedy bastards.'1

If ever there was a poster child for the Labor Department's bid to bring union bookkeeping into the sunlight, it's Barbara Bullock. You might recall Miss Bullock from the headlines last December, when FBI agents raided the home of the Washington Teachers' Union president and found everything from fur coats to a Tiffany silver service they said she'd bought with $2.5 million in dues money stolen from the rank and file.2 (Wall Street Journal, 10/8/2003).

The above are only two samples of recent media coverage of trade union financial stories in the UK and US gleaned from the two sources; the first story was gleaned from publicly available annual financial reports filed by trade unions with a government regulatory agency; the latter was compiled from court documents. The first reflects data gathered from an audited financial statement, which had been reviewed and approved by the union's governing body, including the compensation packages of general secretaries. In the second case, the Washington Teachers Union had been filing publicly available financial statements with the Labor Department for the entire period of time the alleged financial scandals had been occurring. Just as publicly-held or -traded businesses have a legal duty to disclose certain financial details to their shareholders, trade unions should have a similar duty to disclose to their members. At the close of the US Senate debate on the passage of the Labor-Management Reporting and Disclosure Act in 1959, Senator Jacob Javits (D-N.Y.) remarked: "I think this is an excellent solution of the matter, because it equates the rights of the union members with the rights of corporate stockholders."3 However, just like Enron and other corporate financial scandals, publicly available annual reports seldom themselves reveal the underlying scandals.

While there doesn't appear to be much debate of whether unions have a duty to disclose their financial details to members, there is considerable controversy over what impact these disclosures will have both on the union providing them and on the members who will receive them: specifically, will increased information about union finances enable...

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