SAG’s Paradox

Understandably, there is joy in Tinsel Town this week as the Screen Actors Guild, the entertainment industry’s largest union with nearly 100,000 voting members, ousted the hardline and short sighted regime led by Alan Rosenberg and Anne Marie Johnson.

images-13The sober and soft spoken Emmy award winning Ken Howard won 47% of the votes cast in a four way race for the Guild’s Presidency.

He ran on a new slate formed in the last two years called Unite For Strength, or UFS, which was organized by a newer generation of Guild members including Ned Vaughn, Amy Brenneman and Amy Aquino.

images9 The strength of the UFS victory was emphasized by the victory of Aquino as SAG’s new Secretary-Treasurer. She bested the widely recognizable star Connie Stevens, although it must be said that on Stevens’ watch SAG went deeply in deficit while salaries of lackluster senior staff jumped up by a third or more.

images-31The change in tone from the empty bellicose rhetoric of Rosenberg and Johnson could be gleaned even in the recent pre-election Emmy acceptance speech of Howard. This was followed by the statements he made after winning. Both were seen as gracious and elegant. Howard’s first step was to reach out to the leaders of the DGA, AFTRA and the WGA-West to begin discussion of the upcoming 2011 contract round.

That round is more like an onrushing train headed towards the Guilds. SAG, at least, is committed to begin contract talks near the end of 2010, so there is only one year in which to find some way to increase Guild leverage on key issues like residuals for new media and still massive DVD revenues.

Howard and Aquino campaigned on a one note theme: SAG would increase its power if it could merge with AFTRA and thus block the ability of the industry to offer lower cost contracts to actors through AFTRA. Of course, AFTRA does not think its contracts are lower cost. And since SAG and AFTRA have negotiated side by side for at least 25 years and signed identical collective bargaining agreements it is hard to grasp why UFS thinks this is the key problem.

It is true that when the recent contract talks between SAG and the Producers dragged on that AFTRA was able to complete a deal and sign up many new cable pilots some of which might have gone to SAG.

But by that time the AFTRA TV/Theatrical contract was actually more costly than the available SAG terms. SAG members were still available under the old expired deal at the time while AFTRA members would receive the benefit of the new deal. SAG likely lost the pilots because of continuing Producer concern that a strike might yet happen.

The actual overlap of SAG and AFTRA is not all that significant relative to the overall earnings of actors since the bulk of that revenue is earned in film where AFTRA has minimal presence.

Of course, another argument might be that the merger would bring under one roof 30,000 or so News, Weather and Sports performers and so together with actors the newly merged union might be in a position to put more pressure on the entertainment conglomerates. That is the kind of argument that one might hear at strategy sessions held in Washington DC by the AFL-CIO’s Department of Professional Employees (with which SAG and AFTRA are affiliated), but it’s not the kind of argument likely to win the hearts and minds of Hollywood based actors, i.e., the majority of SAG’s members.

At the same time as SAG moved to a more moderate leadership, the WGA did, too. It elected John Wells over Elias Davis. Davis was associated with the leadership of Patric Verrone, who led the WGA in a 100 day strike in the winter of 07-08. The results of that strike set a kind of template that the DGA, AFTRA and SAG all signed on to. AFTRA, of course, is already considered to be lead by moderate Roberta Reardon.

And SAG’s UFS reinforced its moderate message when Aquino signaled that she favored keeping on board SAG’s Interim NED David White, one time SAG General Counsel.  How did he come back to SAG and what was he up to in the meantime?

White is a former lawyer for the studios, having worked under Bob Pisano at Los Angeles white shoe law firm O’Melveny and Myers. When Pisano was hired to head up SAG he brought White with him as general counsel. While Pisano instituted some changes that helped streamline the union’s operations, he was viewed (by some) as overly friendly to his former clients and ran into more serious political trouble when it became clear that he stood to make a significant return on stock options granted him as a board member at Netflix, the DVD rental company.

Pisano resigned and on his recommendation an AFTRA staffer, Greg Hessinger, was brought in. Pisano went back to working for the studios as co-head of the Motion Picture Association of America, the MPAA, the lead lobbying alliance of the major studios. Hessinger was summarily dumped when Rosenberg became President in a three way race against respected independent Morgan Fairchild and spoiler Robert Conrad. Hessinger, too, went to work as a labor lawyer for management at the law firm Reed Smith.

White left soon after Pisano’s departure  and set up his own law/consulting firm that at some point joined forces with now jailed securities fraudster Marc Dreier.  In a scheme that generated $400 million illegally, Dreier sold phoney securities to hedge funds in order to then buy up groups of lawyers around the country, including White’s fledgling firm.  The firm, called ESG for Entertainment Strategies Group apparently played both sides of the street providing producers as well as talent with advice regarding Guild contracts.  Among its clients was the MPAA headed by Pisano, White’s former boss at his studio side law firm and SAG.

According to Dreier’s financial controller, all revenues earned by firms like ESG were deposited in an account controlled by Dreier who then paid the salaries of the firm’s lawyers.  In some cases, Dreier won the bid to buy these firms by guaranteeing salaries of a million dollars a year or more.  According to one news account, the acquired firms were not actually partners in running the business but employees of Dreier himself.  Here is how Vanity Fair described Dreier’s Los Angeles operations:

In Southern California, beginning in 2006, Dreier hired two large groups of attorneys, more than 50 individuals in all. Mostly entertainment lawyers and litigators, they brought with them a string of celebrity clients, including Jay Leno, the Olsen twins, Rob Lowe, Andy Pettitte of the New York Yankees, singer Diana Krall, and the band Wilco. Dreier’s start-up costs were enormous: a number of lawyers worked with guaranteed salaries of $1 million or more. To house them, Dreier rented and renovated office space in the Century City skyscraper featured in the movie Die Hard—the lease alone cost him an estimated $300,000 a month.

Dreier began spending a week every month in Los Angeles, where, as in New York, he spent heavily to impress prospective clients. He paid $180,000 to play golf as a member at the Brentwood Country Club, rented a condominium on Ocean Drive in Santa Monica, then opened a branch of a sushi restaurant called Tengu nearby. When in L.A., Dreier could be found most nights there, surrounded by attractive young women and potential clients.

Within the legal community, Dreier was viewed as a rising star. He told anyone who would listen that Dreier L.L.P. was a new kind of law firm, one where lawyers could work with freedom, unburdened by old-school bureaucracy and administration, all of which Dreier handled himself. In a 2007 article for The National Law Journal, Dreier argued that the “Dreier Model,” as he christened it, freed attorneys from petty bickering over profits and allowed them to operate as true legal entrepreneurs. It certainly appeared to work. Dreier L.L.P.’s functions were glittering. In 2007, he and Michael Strahan, of the New York Giants, co-hosted a charity golf tournament for which William Shatner served as M.C. and Diana Ross was the entertainment. Alicia Keys sang the next year. One of the firm’s Christmas parties was held at the Waldorf-Astoria, where Dreier danced wildly to the song “Shout,” from Animal House. At a firm party at his Quogue beach house a plane flew overhead trailing a banner that said, dreier lawyers rock.

Through it all, Dreier kept quietly selling bogus notes. During the first three years of his scheme, in fact, from 2004 until the summer of 2007, he found it simple to keep going. Almost every time a note came due, the hedge fund in question would simply renew it for another year, usually with a slightly higher interest rate. No one ever asked to meet Solow or any of his executives; they simply accepted that Dreier was operating on their behalf.

Dreier himself now admits to 60 Minutes it was a “very bad business plan.”

White was not implicated in the fraud that underlay Dreier’s investment in ESG but ESG was forced to shut down when it had its assets frozen in connection with the prosecution by federal lawyers.

Dreier has now been sentenced to 20 years in federal prison. A bankruptcy trustee appointed by a federal judge is now pursuing the assets of the former firms in order to pay off creditors of Dreier and Dreier LLP. This includes in some cases monies paid to lawyers in those firms, some of whom are alleged by the trustee to be interfering in his efforts to recoup losses for creditors from Dreier’s assets.  White is not named as one of those lawyers.

Ironically, one of the LA firms bought by Dreier was used by Alan Rosenberg, then SAG President, to sue SAG itself in connection with the ouster of White’s predecessor, Allen, and the attempt by the Board of SAG to limit the ability of Rosenberg to speak on behalf of SAG publicly.

As contract talks had dragged on into late 2008, UFS emerged to win a slim National Board majority and they fired the thuggish and ineffectual Doug Allen, whom Rosenberg recruited from the corrupt football players union. (While at the NFLPA Allen was in charge of its licensing arm that was later found by a jury in federal court to have cheated retired football players of $26 million in licensing revenue.  Hard to imagine better propaganda for the anti-union forces out there.)

The Guild’s new Board majority (including UFS and independents in NY and the Regional Boards based in other parts of the country) replaced Allen with White but only as “Interim” NED under a one year contract due to expire this year. White quickly engineered the ratification of the TV/Theatrical deal on the same basic terms that AFTRA, the DGA and WGA had secured almost a year earlier. Despite the new leadership and the additional year SAG was unable to find a way to improve on the deal. In fact, the studios wanted the deal to run until 2012 to reflect the one year delay and used that effectively to prevent the Guild from improving on any other terms. It appears that this gambit caught White and the new board majority by surprise.

So here is the SAG Paradox: Howard got 47% of the votes cast with the remaining 53% split among two hardliners: Anne-Marie Johnson and Seymour Cassel. A merger with AFTRA requires a 60% approval of the membership. Since Johnson and Cassel voters are largely anti-merger there would seem to be little chance of achieving that goal even if there were time prior to the next contract round.

At the same time, the shift in both the WGA and SAG to more moderate leadership in the wake of the 100 day strike that put actors as well as writers out of work is very likely a signal that the membership of all the guilds does not want to contemplate another strike in 2011.

So, merger is out as a tactic and possibly a strike as well. And SAG seems intent on keeping in office an NED with no real trade union or wider political organizing experience.

How, then, will they develop a strategy to come to the table in late 2010 with more actor power than in 2008?