Those darn LM2’s

Federal labor law requires all unions to file an annual report of financial information. The 2006 LM2 for the Screen Actors Guild is apparently late and while the LM2 for 2005 has been filed according to one source, it has not yet turned up on the DOL website (when on line available here: http://erds.dol-esa.gov/query/getOrgQryResult.do).

There is some speculation on the web that the delay may be a conscious effort to avoid disclosing some key financial information about the union. But there is no genuine evidence available to suggest that. The problem may be far more mundane.

The Bush Administration changed the LM2 requirements recently. They are far more demanding of unions than in the past yet the new forms do not add much of any real value for union members. The changes appear to be aimed at allowing outside anti-union forces to distinguish between money spent on collective bargaining as opposed to political activity in order to make hay about unions and politics, as if it was not appropriate for unions to be involved in politics.

Unfortunately, unions are notoriously tight about disclosing significant information publicly, particularly financial information. In my view, that undermines their credibility when pressing employers to make disclsoures about their businesses as unions do during collective bargaining and in political campaigns. Organized labor, for example, supports the post-Enron strengthening of disclosure requirements in new laws like Sarbanes-Oxley. But how credible is it to be for that disclosure requirement and against disclosure of one’s own financial records? And, of course, the reluctance to disclose information also undercuts the ability of the union rank and file to understand what is happening in their own unions.

In theory, the LM2 is supposed to insure that union members can track what the union is doing with their dues money. Unions are not supposed to be run as “private fiefdoms.” The disclosure requirements were put in place in the late 1950s in response to mob influence and other forms of corruption in the labor movement. But the recent changes to the LM2 border on the ridiculous. For example, every expenditure above $5000 must be disclosed. When it comes to disclosure of financial information by large publicly traded companies, a standard of materiality applies – companies must disclose “material” information, which, briefly, means information that a reasonable investor would need in order to decide whether or not to invest in a particular stock. Expenditures of 5 or 10 thousand dollars are rarely material. But that is the kind of bright line low level disclosure that unions are now required to make. If a principle like “materiality” applied it might be the case that 5K was material for a very small union, but it is quite unlikely to be that significant for a union like the Guild. Yet the rule applies to all irrespective of size.

Labor fought the changes and, for the most part, lost. A federal court of appeals upheld the new form but did delay its imposition to give unions the time to put in place new IT systems, train staff, etc. I think labor should have taken a pro-active view and have been way ahead of their opponents on this by mimicking the disclosure required of corporations – at least with respect to large international unions or large regional organizations – and provide quarterly financial reports to their members along with annual reports. And these should also be made available online to the public. Labor should have nothing to hide.

Of course, I have no insight into what may explain the delays in the Guild’s filings, but it would not surprise me if many unions were later than usual this year (the new rules would not have applied for any fiscal year that began prior to Jan 1, 2005). However, while the LM2 may reveal some information of value to members my own experience with these documents leads me to think that they are not the most effective way to learn in detail about the internal operations of one’s own union. I think that is only possible by steady patient attendance at union meetings and participation in union committees and activities open to rank and file members.