SAG comic, Allen Lulu, has never, as far as I know, played a lawyer in reality or on TV, but that has not stopped him from misinterpreting federal labor law in pursuit of his goal of promoting the SAG-AFTRA merger.
Let’s take a closer look at Mr. Lulu’s argument. Maybe we can stop him from bombing during his next appearance in a SAG video. (Click here to see how Mr. Lulu misleads his own brothers and sisters in a video promoting the merger.)
Some time ago merger opponents proposed that SAG pursue something they called a “global bargaining unit” to cover actors working in digital cable. Their hope has been to enable actors in cable pilots to have a genuine choice about which union, SAG or AFTRA, should represent them. Alternatively, they contend that these same actors should be able to petition the NLRB for a “unit clarification” which would mandate that the NLRB place them inside already existing bargaining units where SAG is the exclusive bargaining representative.
This issue is important because merger proponents claim that if merger fails there is no end to the growing tensions between SAG and AFTRA. Of course, that argument has been to some extent self-perpetuating. AFTRA has been the beneficiary of so-called “promulgated” agreements with cable producers over the last several years. Thus, cable pilots have been awarded overwhelmingly to AFTRA most likely because the producers were angered and frustrated by the strategy that SAG’s former Membership First leadership implemented in 2008.
If merger were to fail, however, a campaign for either unit clarification or a new bargaining unit that would allow actors self-determination makes eminent sense. Then SAG and AFTRA would be forced to compete to convince actors which union would be the better representative. Union competition often results in stronger outcomes for workers and of course it minimizes the chances for the third option, No Union, to be voted in.
But is there really a basis in labor law for these approaches? Non-lawyer Mr. Lulu says no. He argues that bargaining units must be implemented on an individual “employer-by-employer” basis and thus there is no such thing as a “global” bargaining unit. (Apparently joining Mr. Lulu in this conclusion, if reports of a recent SAG town hall are accurate, is SAG General Counsel Duncan Crabtree-Ireland.)
Unfortunately for Mr. Lulu his understanding of federal labor law is barely an improvement over his understanding of the impact of merger on actors’ benefit plans. While the NLRB does not use the term “global” bargaining unit, it does, with frequency, recognize the existence of multi-employer bargaining units.
In fact, Mr. Lulu, if he works in the film or TV business under a SAG contract, is a member of such a multi-employer bargaining unit. The AMPTP, the bargaining agent for multiple production companies, negotiates on behalf of the employer side of a multi-employer bargaining unit and SAG and AFTRA represent the employee side of that same unit. You can find multi-employer bargaining units in many industries, including trucking and professional sports.
When TV first emerged in the 1950s this is exactly how SAG and AFTRA (actually, its predecessor the Television Authority) resolved their conflict over films made for distribution on TV. In one case, for example, AFTRA/TVA wanted actors included in an already existing bargaining unit it had established at CBS. SAG, however, succeeded, as it had in other similar cases in having those film for TV actors assigned to a separate new bargaining unit. AFTRA was free to contest for the allegiance of those workers in an election.
In another case, much more significant, SAG also prevailed in winning rights to represent actors in a multi-employer bargaining unit in negotiations with the employers organizations of that period representing “almost all the motion picture producers in this country.” The NLRB decision noted the existence of a “multiple-employer bargaining pattern” going back to the 1930s. The decision went on to agree with SAG that actors made up the constituency of a number of multiple-employer units. Elections in those units were ordered and SAG prevailed.
More recently, other unions in the entertainment industry have used “unit clarification” petitions to defend their jurisdiction successfully. NABET, a division of CWA which represents some writers and editors working for NBC succeeded recently in front of the NLRB when NBC tried to recast these workers as so-called “content producers” who fell outside the NABET bargaining unit.
So there is nothing preventing the NLRB from considering a petition either:
1) to clarify the existing multi-employer bargaining unit so that it is understood that actors on cable pilots, to take one example, should be part of that existing unit; OR
2) to consider the argument for the creation of a new multi-employer bargaining unit consisting of all actors who work in cable scripted drama.
A SAG filed petition for clarification might have to be linked back to those original NLRB bargaining units in order to succeed. While some of the original production companies have likely disappeared and there may be legal objections to including others, there is likely also some continuity with today’s producers. Among the employers then were Columbia, Fox and Universal, for example, which exist today as well. If these same production companies are now employing actors on cable pilots those actors arguably are still part of that original bargaining unit.
For those actors who fall outside of the existing multiple-employer bargaining unit or units, it is feasible to consider a new multi-employer bargaining unit. In fact, SAG attempts to use a master agreement with a group of cable companies now and that would provide some precedent for the logic of a new multi-employer bargaining unit.
Of course, the map of bargaining units is separate from whatever jurisdictional agreement competing labor unions may have reached amongst themselves. Jurisdictional allocation is an issue within the labor movement. There have been in the past attempts to allocate jurisdiction between AFTRA and SAG that may or may not cover the current battleground over cable pilots. But that is an internal political issue for the labor movement not a question of federal labor law.
In any case, there is nothing in federal labor law that creates any per se barrier to the resolution of this issue either with a petition for unit clarification or a petition to establish a new bargaining unit leading to a union election.
Perhaps Mr. Lulu should stick to his own material.
Over the past few months I have been following closely the proposed merger between the Screen Actors Guild and AFTRA. The logic behind merger, at least in the form proposed now, escapes me. While the pro-merger propaganda package stresses in a colorful format the potential to improve the lives of actors through greater leverage with their employers, there is almost no specific detail on how that will be achieved. For nearly three decades the two unions have worked side by side to produce contracts that are largely identical, according to pro-merger advocates, but nonetheless they argue that without merger now the two unions will end up undercutting each other. Of course, the only real evidence for this is the arguably pro-producer approach to contract flexibility offered by AFTRA to cable producers. That problem is not eliminated by merger – it will only be fought out in house if a merger is accomplished. Given the very visible nature of conflicts in the Hollywood unions it is unclear why that is an improvement over the current situation.
The other major argument for merger is that it will allow for consolidation of the pension and health care plans of the two unions. But that remains a goal not an accomplishment of the merger. The plans are legally separate entities run by a joint board of management and union trustees. The AFTRA plan board even went so far as to issue a statement denying that they had considered the merger issue at this point despite what the pro-merger propaganda package said.
What the merger plan really adds up to is rearranging the deck chairs on the Titanic. The industry is being rocked below the water line by the iceberg of new media, social networking and mobile communications. The recent brutal defeat by Silicon Valley of much needed anti-piracy rules only indicated the power of the new technology, which helped the opponents of the law overcome the film industry’s old boy lobbying effort. The industry, including its unions, languishes in the past. (I am certain I wasn’t the only one who noticed the tired and dated quality of the Oscars last night. Meryl Streep, Billy Crystal and a black and white silent movie? Really?)
Thus, the leaders of SAG and AFTRA seem to have fallen for the same kind of “circle the wagons” defensive mentality that sadly plagues the rest of American organized labor. The new leadership of the AFL-CIO under Richard Trumka has failed noticeably to take advantage of the widespread discontent among American workers over the financial crisis and continued erosion of good high paying stable jobs. Thus, many unions are being merged out of existence as labor cuts back despite new opportunities for organizing.
In this post I am providing a set of links all in one place to the various posts I have done analyzing these issues. As the ballots for merger go out to both SAG and AFTRA members it may help to rethink the attempt to push this reorganization of their unions by the current leadership.
As these posts indicate, Hollywood labor needs a strategy – but merger is not a strategy it is an excuse.
The proposal to merge SAG, currently incorporated in California, with AFTRA in a new Delaware non-stock corporation has sparked an intense debate among SAG members. No explanation for the decision to reincorporate in Delaware has been provided by SAG to its members.
Yet there are significant differences between California and Delaware corporate law. Non-profit organizations based in California, as is the case with both SAG and AFTRA (though AFTRA remains an unincorporated New York association), rarely reincorporate in Delaware. That means that full disclosure of the implications of a reincorporation is vital to SAG members before they are asked to vote on the merger proposal. There is ample precedent for such disclosure.
The SEC demands that public corporations fully disclose the significant differences between state law when a for profit company asks shareholders to vote on a board of directors proposal to reincorporate. The SEC’s approach to corporate disclosure rests on insuring that shareholders have a balanced view of both the benefits AND RISKS of a merger. Yet SAG provides no description of any risks to the merger, instead only allowing merger opponents a 1,000 word statement. That leaves members believing that the entire process is politicized rather than an objective balanced presentation of the pros and cons that shareholders in for profit corporations receive.
Below I have excerpted a sample of the kind of detailed disclosure that for profits provide their shareholders on just the issue of reincorporation to Delaware from another state (in this case involving a recent proposal to move Williams Sonoma from California to Delaware).
Of course the legal differences for non-profits mean that this particular disclosure would have to be modified, but it demonstrates some of the problems. SAG members deserve no less disclosure than what shareholders get. No doubt this will be a key issue in the upcoming hearing on the lawsuit filed by some leading SAG figures concerned about the disclosure issue.
REINCORPORATION OF THE COMPANY FROM CALIFORNIA TO DELAWARE
What is this proposal?
Our Board has unanimously approved a change in our state of incorporation from California to Delaware (the “Reincorporation”) pursuant to the terms of a merger agreement providing for us to merge into a newly formed wholly-owned subsidiary incorporated in the State of Delaware (“W-S Delaware”), subject to the approval of our shareholders and certain other conditions. The name of the company after the Reincorporation will remain Williams-Sonoma, Inc. For purposes of the discussion below, the company as it currently exists as a corporation organized under the laws of the State of California is sometimes referred to as “W-S California.”
The State of Delaware is recognized for adopting comprehensive, modern and flexible corporate laws that are periodically revised to respond to the changing legal and business needs of corporations. Consequently, the Delaware judiciary has become particularly familiar with corporate law matters and a substantial body of court decisions has developed construing Delaware law. Delaware corporate law, accordingly, has been, and is likely to continue to be, interpreted in many significant judicial decisions, a fact which may provide greater clarity and predictability with respect to our corporate legal affairs. For this reason, the majority of public corporations, including a majority of our peer companies, are incorporated in Delaware.
Our Board believes that the Reincorporation is in the best interests of the company and will help maximize shareholder value. The Board also believes that the Reincorporation in Delaware will allow us to take advantage of the certainty provided by extensive Delaware case law, provide us access to the specialized Delaware Chancery Court, and help in the recruitment and retention of outside directors due to the more tested exculpation and indemnification provisions permitted under Delaware law.
Shareholders are urged to read this proposal carefully, including all of the related exhibits referenced below and attached to this Proxy Statement, before voting on the Reincorporation. The following discussion summarizes material provisions of the Reincorporation. This summary is subject to and qualified in its entirety by the Agreement and Plan of Merger (the “Reincorporation Agreement”) that will be entered into by W-S California and W-S Delaware in substantially the form attached hereto as Exhibit A, the Amended and Restated Certificate of Incorporation of W-S Delaware to be effective immediately following the Reincorporation (the “Delaware Certificate”), in substantially the form attached hereto as Exhibit B, and the Amended and Restated Bylaws of W-S Delaware to be effective immediately following the Reincorporation (the “Delaware Bylaws”), in substantially the form attached hereto as Exhibit C. Copies of the Articles of Incorporation of W-S California filed in California, as amended to date (the “California Articles”), and the bylaws of W-S California, as amended to date (the “California Bylaws”), are filed publicly as exhibits to our periodic reports and are also available for inspection at our principal executive offices. Copies will be sent to shareholders free of charge upon written request to Williams-Sonoma, Inc., Attention: Corporate Secretary, 3250 Van Ness Avenue, San Francisco, California 94109.
What are the reasons for the Reincorporation?
Our Board and management believe that it is essential for us to be able to draw upon well-established principles of corporate governance in making legal and business decisions. The prominence and predictability of Delaware corporate law provide a reliable foundation on which our governance decisions can be based, and we believe that our shareholders will benefit from the responsiveness of Delaware corporate law to their needs and to those of the corporation they own. The principal factors the Board considered in electing to pursue the Reincorporation are summarized below:
highly developed and predictable corporate law in Delaware
enhanced ability of the majority of shareholders to exercise control; and
enhanced ability to attract and retain directors and officers.
Highly Developed and Predictable Corporate Law. Delaware has adopted comprehensive and flexible corporate laws that are revised regularly to meet changing business circumstances. The Delaware legislature is particularly sensitive to issues regarding corporate law and is especially responsive to developments in modern corporate law. In addition, Delaware offers a system of specialized Chancery Courts to deal with corporate law questions, which have streamlined procedures and processes that help provide relatively quick decisions. These courts have developed considerable expertise in dealing with corporate issues, as well as a substantial and influential body of case law construing Delaware’s corporate law. In contrast, California does not have a similar specialized court established to hear only corporate law cases. Instead, disputes involving questions of California corporate law are either heard by the California Superior Court, the general trial court in California that hears all manner of cases, or, if federal jurisdiction exists, a federal district court. This lack of specialized courts in California has been known to result in lengthy delays in resolving cases and to produce outcomes that are inconsistent from court to court. In addition, the Delaware Secretary of State is particularly flexible, highly experienced and responsive in its administration of the filings required for mergers, acquisitions and other corporate transactions.
Delaware has become the preferred domicile for most major American corporations, and Delaware law and administrative practices have become comparatively well-known and widely understood. As a result of these factors, it is anticipated that Delaware law will provide greater efficiency, predictability and flexibility in our legal affairs than is presently available under California law. In addition, in general, Delaware case law provides a well-developed body of law defining the proper duties and decision making process expected of a board of directors in evaluating potential and proposed corporate takeover offers and business combinations. The Board believes that the Delaware law will help the Board to protect W-S Delaware’s strategic objectives, consider fully any proposed takeover and alternatives, and, if appropriate, negotiate terms that maximize the benefit to all of our shareholders.
Enhanced Ability of the Majority of Shareholders to Exercise Control. The majority of shareholders of a Delaware corporation would have greater ability to exercise control, because Delaware law does not require cumulative voting. Cumulative voting is often used when a minority shareholder (or shareholder group) is otherwise unable to persuade the majority to elect one or more nominees for the election of directors. Under cumulative voting, a shareholder may cast as many votes as shall equal the number of votes that such holder would be entitled to cast for the election of directors multiplied by the number of directors to be elected. The holder may cast all such votes for a single director or distribute the votes among two or more directors. Thus, minority shareholders are often able to use cumulative voting to elect one or more directors to the corporation’s board of directors. The Board believes that directors so elected by a minority shareholder who was unable or unwilling to persuade the majority of shareholders would then act to advance courses of action with respect to which the majority of shareholders was not persuaded. Oftentimes, such situations lead to impediment and frustration of the intentions of the majority of shareholders. The Board believes that each director should be elected by a majority vote of the shareholders, rather than a minority, and has included a majority vote provision in the Delaware Bylaws.
Enhanced Ability to Attract and Retain Directors and Officers. The Board believes that the Reincorporation will enhance our ability to attract and retain qualified directors and officers, as well as encourage directors and officers to continue to make independent decisions in good faith on behalf of the company. We are in a competitive industry and compete for talented individuals to serve on our management team and on our Board. The vast majority of public companies are incorporated in Delaware, including the majority of the companies included in the peer group used by the company to benchmark executive compensation. Not only is Delaware law more familiar to directors, it also offers greater certainty and stability from the perspective of those who serve as corporate officers and directors. The parameters of director and officer liability are more extensively addressed in Delaware court decisions and are therefore better defined and better understood than under California law. The Board believes that the Reincorporation will provide appropriate protection for shareholders from possible abuses by directors and officers, while enhancing our ability to recruit and retain directors and officers. In this regard, it should be noted that directors’ personal liability is not, and cannot be, eliminated under Delaware law for intentional misconduct, bad faith conduct or any transaction from which the director derives an improper personal benefit. We believe that the better understood and comparatively stable corporate environment afforded by Delaware law will enable us to compete more effectively with other public companies in the recruitment of talented and experienced directors and officers.
How will the Reincorporation be effected?
The Reincorporation will be effected by the merger of W-S California with and into W-S Delaware, a wholly-owned subsidiary of the company that has been recently incorporated under the Delaware General Corporation Law (the “DGCL”) for purposes of the Reincorporation. The company as it currently exists as a California corporation will cease to exist as a result of the merger, and W-S Delaware will be the surviving corporation and will continue to operate our business as it existed prior to the Reincorporation. The existing holders of our common stock will own all of the outstanding shares of W-S Delaware common stock, and no change in ownership will result from the Reincorporation. Assuming approval by our shareholders, we currently intend to cause the Reincorporation to become effective as soon as reasonably practicable following the Annual Meeting, which is scheduled for May 25, 2011.
At the effective time of the Reincorporation (the “Effective Time”), we will be governed by the Delaware Certificate, the Delaware Bylaws and the DGCL. Although the Delaware Certificate and the Delaware Bylaws contain many provisions that are similar to the provisions of the California Articles and the California Bylaws, they do include certain provisions that are different from the provisions contained in the California Articles and the California Bylaws or under the California General Corporation Law as described in more detail below.
Will there be any changes to the business of the company as a result of the Reincorporation?
Other than the change in corporate domicile, the Reincorporation will not result in any change in the business, physical location, management, assets, liabilities or net worth of the company, nor will it result in any change in location of our current employees, including management. Upon consummation of the Reincorporation, our daily business operations will continue as they are presently conducted at our principal executive offices located at 3250 Van Ness Avenue, San Francisco, California 94109. The consolidated financial condition and results of operations of W-S Delaware immediately after consummation of the Reincorporation will be the same as those of W-S California immediately prior to the consummation of the Reincorporation. In addition, upon the effectiveness of the merger, the board of directors of W-S Delaware will consist of those persons elected to the board of directors of W-S California and will continue to serve for the term of their respective elections to our Board, and the individuals serving as executive officers of W-S California immediately prior to the Reincorporation will continue to serve as executive officers of W-S Delaware, without a change in title or responsibilities. Upon effectiveness of the Reincorporation, W-S Delaware will be the successor in interest to W-S California, and the shareholders will become stockholders of W-S Delaware.
If the Reincorporation is approved, each outstanding share of common stock of W-S California will automatically be converted into one share of common stock of W-S Delaware when the Reincorporation is effected. All of our employee benefit and incentive compensation plans immediately prior to the Reincorporation will be continued by W-S Delaware, and each outstanding option to purchase shares of W-S California’s common stock will be converted into an option to purchase an equivalent number of shares of W-S Delaware’s common stock on the same terms and subject to the same conditions. The registration statements of W-S California on file with the Securities and Exchange Commission immediately prior to the Reincorporation will be assumed by W-S Delaware, and the shares of W-S Delaware will continue to be listed on the New York Stock Exchange.
CERTIFICATES FOR SHARES IN W-S CALIFORNIA WILL AUTOMATICALLY REPRESENT SHARES IN W-S DELAWARE UPON COMPLETION OF THE MERGER, AND SHAREHOLDERS WILL NOT BE REQUIRED TO EXCHANGE STOCK CERTIFICATES AS A RESULT OF THE REINCORPORATION.
The Reincorporation Agreement provides that the Board may abandon the Reincorporation at any time prior to the Effective Time if the Board determines that the Reincorporation is inadvisable for any reason. For example, the DGCL or the California General Corporation Law may be changed to reduce the benefits that the company hopes to achieve through the Reincorporation, or the costs of operating as a Delaware corporation may be increased, although the company does not know of any such changes under consideration. The Reincorporation Agreement may be amended at any time prior to the Effective Time, either before or after the shareholders have voted to adopt the proposal, subject to applicable law. The company will re-solicit shareholder approval of the Reincorporation if the terms of the Reincorporation Agreement are changed in any material respect.
Are there any disadvantages to the Reincorporation?
Notwithstanding the belief of the Board as to the benefits to our shareholders of the Reincorporation, it should be noted that Delaware law has been criticized by some commentators and institutional shareholders on the grounds that it does not afford minority shareholders the same substantive rights and protections as are available in a number of other states, including California. In addition, the Delaware Certificate and the Delaware Bylaws, in comparison to the California Articles and the California Bylaws, contain or eliminate certain provisions that may have the effect of reducing the rights of minority shareholders. The Reincorporation may make it more difficult for minority shareholders to elect directors and influence our policies. It should also be noted that the interests of the Board, management and affiliated shareholders in voting on the Reincorporation proposal may not be the same as those of unaffiliated shareholders. In addition, franchise taxes payable by us in Delaware may be greater than in California.
The Board has considered the potential disadvantages of the Reincorporation and has concluded that the potential benefits outweigh the possible disadvantages.
What are the differences between the charters and bylaws of W-S California and W-S Delaware?
The following is a comparison of the provisions in the charters and bylaws of W-S California and W-S Delaware, as well as certain provisions of California law and Delaware law. The comparison summarizes the important differences, but is not intended to list all differences, and is qualified in its entirety by reference to such documents and to the respective General Corporation Laws of the States of California and Delaware. Shareholders are encouraged to read the Delaware Certificate, the Delaware Bylaws, the California Articles and the California Bylaws in their entirety. The Delaware Bylaws and Delaware Certificate are attached to this proxy statement, and the California Bylaws and California Articles are filed publicly as exhibits to our periodic reports.
253,125,000 shares of Common Stock, par value $0.01 per share
7,500,000 shares of Preferred Stock, par value $0.01 per share
253,125,000 shares of Common Stock, par value $0.01 per share
7,500,000 shares of Preferred Stock, par value $0.01 per share
Restrictions on Transactions with Interested Shareholders
Section 203 prohibits, subject to certain exceptions, a Delaware corporation from engaging in a business combination with an interested stockholder (i.e., a stockholder acquiring 15% or more of the outstanding voting stock) for three years following the date that such stockholder becomes an interested stockholder without Board approval. Section 203 makes certain types of unfriendly or hostile corporate takeovers, or other non-board approved transactions involving a corporation and one or more of its significant stockholders, more difficult.
Because Section 203 could be considered to have anti-takeover implications that could be construed as unfavorable to stockholder interests, the Board has elected to have W-S Delaware “opt-out” of Section 203, so it is not applicable to W-S Delaware.
Vote Required to Approve Merger or Sale of Company
The California Articles require the affirmative vote of not less than two-thirds of the outstanding shares to approve a merger of the company or a sale of substantially all the assets of the company.
The Delaware Certificate requires the affirmative vote of not less than two-thirds of the outstanding shares to approve a merger of the company or a sale of substantially all the assets of the company.
50/90 Rule Restriction on Cash Mergers
Under California law, a merger may not be consummated for cash if the purchaser owns more than 50% but less than 90% of the then outstanding shares unless either (i) all the shareholders consent, which is not practical for a public company, or (ii) the Commissioner of Corporations approves the merger.
The 50/90 rule, when combined with the requirement in the California Articles that holders of two-thirds of the outstanding shares must approve a merger transaction, may make it more difficult for an acquiror to make an all cash acquisition of the company which is opposed by the Board of W-S California. Specifically, the 50/90 rule encourages such an acquiror making an unsolicited tender offer to either tender for less than 50% of the outstanding shares or more than 90% of the outstanding shares. A purchase by such acquiror of less than 50% of the outstanding shares does not allow the acquiror to gain ownership of the two-thirds needed to approve a second step merger (which merger would be used to enable the acquiror to acquire 100% of the company’s equity) and, therefore, creates risk for such an acquiror that such a favorable vote will not be obtained. Yet, a tender offer conditioned upon receipt of tenders from at least 90% of the outstanding shares also creates risk for such an acquiror since it may be very difficult to receive tenders from holders of at least 90% of the outstanding shares. Consequently, it is possible that these risks would discourage some potential acquirors from pursuing an all cash acquisition of the company opposed by the Board of Directors of W-S California.
Delaware law does not have a provision similar to the 50/90 rule in California.
The California Bylaws may be amended by shareholders entitled to exercise a majority of the voting power, or by the Board; provided,however, that a change in the size of the Board in certain circumstances will require the approval of shareholders.
The Delaware Bylaws may be amended by stockholders entitled to exercise a majority of the voting power, or by the Board; provided,however, that a change in the size of the Board in certain circumstances will require the approval of stockholders.
Shareholder Action by Written Consent
The California Bylaws provide that any action that may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the actions so taken, is signed by holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Under California law, directors may not be elected by written consent except by unanimous written consent of all outstanding shares entitled to vote for the election of directors.
The Delaware Certificate and the Delaware Bylaws provide that any action that may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the actions so taken, is signed by holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Any stockholder of record seeking to have the stockholders take corporate action by written consent shall request the Board to fix a record date. The Board shall promptly, but in all events within ten days after the date on which such a request is received, adopt a resolution fixing the record date.
Consistent with the California Bylaws and California law, the Delaware Certificate and the Delaware Bylaws provide that directors may not be elected by written consent except by unanimous written consent of all outstanding shares entitled to vote for the election of directors.
Shareholder Ability to Call Special Shareholders’ Meetings
Under California law, a special meeting of shareholders may be called by the board of directors, the chairman of the Board, the president, the holders of shares entitled to cast not less than 10% of the votes at such meeting and such persons as are authorized by the articles of incorporation or bylaws.
Consistent with California law, the California Bylaws provide that a special meeting of shareholders may be called by the Board, the Chairman of the Board, the President, or holders of shares entitled to cast not less than 10% of the votes at such meeting.
Under the DGCL, a special meeting of stockholders may be called by the board of directors or by any person authorized to do so in the certificate of incorporation or the bylaws.
The Delaware Bylaws provide that a special meeting of stockholders may be called by the Board, the Chairman of the Board, the Chief Executive Officer, or holders of shares entitled to cast not less than 10% of the votes at such meeting, provided that such holders have held at least a 10% net long position in the company’s outstanding shares for at least one year. In the case of a special meeting called by the Secretary following receipt of a written demand or demands from stockholders entitled to call such meeting, the date of such special meeting, as fixed by the Board will be not fewer than 30 days nor more than 90 days after the date a demand or demands by such stockholders have been received by the Secretary of the company at the principal executive offices of the company.
Shareholder Proposal Notice Provisions
The California Bylaws provide that notice containing the name of any person to be nominated by any shareholder for election as a director of the company or of any shareholder proposal to be presented at the meeting shall generally be received by the Secretary of the company not less than 45 days nor more than the 75 days before the one-year anniversary date of the date on which the company first mailed its proxy materials for its immediately preceding annual meeting of shareholders.
The Delaware Bylaws provide that notice must generally be received by the Secretary of the company not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting.
Change in Number of Directors
Under the California General Corporation Law, although a change in the number of directors must generally be approved by shareholders, the board of directors may fix the exact number of directors within a stated range set forth in either the articles of incorporation or bylaws, if that stated range has been approved by the shareholders. Any change outside of the established range or a change in the established range must be approved by the shareholders.
The California Bylaws provide that the number of directors shall not be less than seven nor more than thirteen.
Under the DGCL, the number of directors shall be fixed by or in the manner provided in the bylaws, unless the certificate of incorporation fixes the number of directors.
Consistent with our California Bylaws, the Delaware Bylaws provide that the number of directors shall not be less than seven nor more than thirteen. Changes outside of these limits may be made only by amendment to the certificate of incorporation, which must be approved by at least a majority of the outstanding voting stock of W-S Delaware.
The California Articles do not provide for a classified board.
The Delaware Certificate does not provide for a classified board.
Filling Vacancies on the Board
Under California law, any vacancy on the board of directors other than one created by removal of a director may be filled by the board. If the number of directors is less than a quorum, a vacancy may be filled by the unanimous written consent of the directors then in office, by the affirmative vote of a majority of the directors at a meeting held pursuant to notice or waivers of notice, or by a sole remaining director. A vacancy created by removal of a director may be filled by the board only if authorized by the articles of incorporation or a bylaw approved by the corporation’s shareholders.
The California Bylaws provide that all vacancies on the Board may be filled by a majority of the remaining directors or, if the number of directors then in office is less than a quorum, by the unanimous written consent of the directors then in office, the affirmative vote of a majority of the directors then in office or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote or consent of the holders of any percentage exceeding fifty percent of the outstanding shares of the company entitled to vote at a duly held meeting at which a quorum is present.
Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director, unless otherwise provided in the certificate of incorporation or bylaws.
The Delaware Certificate and the Delaware Bylaws follow Delaware law and provide that any vacancies and any newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director.
Cumulative Voting; Vote Required to Elect Directors
California law provides that if any shareholder has given notice of his or her intention to cumulate votes for the election of directors, all other shareholders of the corporation are also entitled to cumulate their votes at such election. California law permits a corporation that is listed on a national securities exchange to amend its articles or bylaws to eliminate cumulative voting by approval of the board of directors and of the outstanding shares voting together as a single class.
The California Articles and the California Bylaws have not eliminated cumulative voting.
The Board of W-S California has adopted a majority voting policy in uncontested elections.
Under Delaware law, cumulative voting is not permitted unless a corporation provides for cumulative voting rights in its certificate of incorporation. Further, a corporation may adopt a policy that specifies the vote necessary for the election of directors, such as a majority.
The Board of W-S Delaware has adopted a majority voting bylaw in uncontested elections. As a result, we will not provide for cumulative voting in director elections following the Reincorporation. Most Delaware corporations have not adopted cumulative voting.
The Board believes that cumulative voting is incompatible with the objectives of a majority voting standard. Majority voting enables all stockholders to have a greater voice in director elections and facilitates the election of directors who most closely represent the interests of all stockholders. By contrast, cumulative voting gives stockholders the ability to vote all of their shares for a single nominee or to distribute the number of shares that they are entitled to vote among two or more nominees. Cumulative voting thus allows minority stockholders to elect a director, and the absence of cumulative voting would make it more difficult for a minority stockholder whose interests may be adverse to a majority of the stockholders to obtain representation on the Board.
California law requires indemnification when the indemnitee has defended the action successfully on the merits. Expenses incurred by an officer or director in defending an action may be paid in advance, if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification. California law authorizes a corporation to purchase indemnity insurance for the benefit of its officers, directors, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy.
California law permits a corporation to provide rights to indemnification beyond those provided therein to the extent such additional indemnification is authorized in the corporation’s articles of incorporation. Thus, if so authorized, rights to indemnification may be provided pursuant to agreements or bylaw provisions which make mandatory the permissive indemnification provided by California law.
The California Articles authorize indemnification to the fullest extent permissible under California law.
Delaware law generally permits indemnification of expenses, including attorneys’ fees, actually and reasonably incurred in the defense or settlement of a derivative or third party action, provided there is a determination by a majority vote of a disinterested quorum of the directors, by independent legal counsel or by the stockholders that the person seeking indemnification acted in good faith and in a manner reasonably believed to be in the best interests of the corporation. Without court approval, however, no indemnification may be made in respect of any derivative action in which such person is adjudged liable for negligence or misconduct in the performance of his or her duty to the corporation. Expenses incurred by an officer or director in defending an action may be paid in advance, if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification. Delaware law authorizes a corporation to purchase indemnity insurance for the benefit of its directors, officers, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy.
Delaware law permits a Delaware corporation to provide indemnification in excess of that provided by statute.
The Delaware Certificate authorizes indemnification to the fullest extent permissible under Delaware law.
Elimination of Director Personal Liability for Monetary Damages
California law permits a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:
• Intentional misconduct or knowing and culpable violation of law;
• Acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director;
• Receipt of an improper personal benefit;
• Acts or omissions that show reckless disregard for the director’s duty to the corporation or its shareholders, where the director in the ordinary course of performing a director’s duties should be aware of a risk of serious injury to the corporation or its shareholders;
• Acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation and its shareholders;
• Transactions between the corporation and a director who has a material financial interest in such transaction; or
• Liability for improper distributions, loans or guarantees.
The California Articles eliminate the liability of directors for monetary damages to the fullest extent permissible under California law.
The DGCL permits a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:
• Breaches of the director’s duty of loyalty to the corporation or its stockholders;
• Acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;
• The payment of unlawful dividends or unlawful stock repurchases or redemption; or
• Transactions in which the director received an improper personal benefit.
Such a limitation of liability provision also may not limit a director’s liability for violation of, or otherwise relieve the company or directors from the necessity of complying with, federal or state securities laws, or affect the availability of non-monetary remedies such as injunctive relief or rescission.
The Delaware Certificate eliminates the liability of directors to the company for monetary damages to the fullest extent permissible under the DGCL. As a result, following the Reincorporation, directors of W-S Delaware cannot be held liable for monetary damages even for gross negligence or lack of due care in carrying out their fiduciary duties as directors, so long as that gross negligence or lack of due care does not involve bad faith or a breach of their duty of loyalty to the company.
Dividends and Repurchases of Shares
Under California law, a corporation may not make any distribution to its shareholders unless either:
• The corporation’s retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution; or
• Immediately after giving effect to the distribution, the corporation’s assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to one and one fourth (1-1/4) times its liabilities (not including deferred taxes, deferred income and other deferred credits), and the corporation’s current assets would be at least equal to its current liabilities (or one and one fourth (1-1/4) times its current liabilities if the average pre-tax and pre-interest expense earnings for the preceding two fiscal years were less than the average interest expense for such years).
These tests are applied to California corporations on a consolidated basis.
The DGCL is more flexible than California law with respect to payment of dividends and implementing share repurchase programs. The DGCL generally provides that a corporation may redeem or repurchase its shares out of its surplus. In addition, the DGCL generally provides that a corporation may declare and pay dividends out of surplus, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. Surplus is defined as the excess of a corporation’s net assets (i.e., its total assets minus its total liabilities) over the capital associated with issuances of its common stock. Moreover, the DGCL permits a board of directors to reduce its capital and transfer such amount to its surplus.
What are the interests of the Company’s directors and executive officers in the Reincorporation?
In considering the recommendations of the Board, shareholders should be aware that certain of our directors and executive officers have interests in the transaction that are different from, or in addition to, the interests of the shareholders generally. For instance, the Reincorporation may be of benefit to our directors and officers by reducing their potential personal liability and increasing the scope of permitted indemnification, by strengthening directors’ ability to resist a takeover bid, and in other respects. The Board was aware of these interests and considered them, among other matters, in reaching its decision to approve the Reincorporation and to recommend that our shareholders vote in favor of this proposal.
Are there income tax considerations associated with the Reincorporation?
The following discussion summarizes the material U.S. federal income tax consequences of the Reincorporation to holders of our common stock. This summary is not exhaustive of all possible tax considerations. The discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the Internal Revenue Service (the “IRS”), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described herein.
This summary is for general information only and does not address all aspects of U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as partnerships, subchapter S corporations or other pass-through entities, banks, financial institutions, tax-exempt entities, insurance companies, regulated investment companies, real estate investment trusts, trusts and estates, dealers in stocks, securities or currencies, traders in securities that have elected to use the mark-to-market method of accounting for their securities, persons holding our common stock as part of an integrated transaction, including a “straddle,” “hedge,” “constructive sale,” or “conversion transaction,” persons whose functional currency for tax purposes is not the U.S. dollar and persons subject to the alternative minimum tax provisions of the Code. This summary does not include any description of the tax laws of any state or local governments, or of any foreign government, that may be applicable to a particular holder.
This summary is directed solely to holders that hold our common stock as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment. In addition, the following discussion only addresses “U.S. persons” for U.S. federal income tax purposes, generally defined as beneficial owners of our common stock who are:
individuals who are citizens or residents of the United States;
corporations (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of any state of the United States or the District of Columbia;
estates the income of which is subject to U.S. federal income taxation regardless of its source;
trusts if a court within the United States is able to exercise primary supervision over the administration of any such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust; or
trusts in existence on August 20, 1996 that have valid elections in effect under applicable Treasury regulations to be treated as U.S. persons.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. A partner of a partnership holding our common stock should consult its own tax advisor regarding the U.S. federal income tax consequences to the partner of the Reincorporation.
This summary is not a comprehensive description of all of the U.S. federal tax consequences that may be relevant to holders. We urge you to consult your own tax advisor regarding your particular circumstances and the U.S. federal income and estate tax consequences to you of the Reincorporation, as well as any tax consequences arising under the laws of any state, local, foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.
We have not requested a ruling from the IRS or an opinion of counsel regarding the U.S. federal income tax consequences of the Reincorporation. However, we believe:
the Reincorporation will constitute a tax-free reorganization under Section 368(a) of the Code;
no gain or loss will be recognized by holders of W-S California common stock on receipt of W-S Delaware common stock pursuant to the Reincorporation;
the aggregate tax basis of the W-S Delaware common stock received by each holder will equal the aggregate tax basis of the W-S California common stock surrendered by such holder in exchange therefor; and
the holding period of the W-S Delaware common stock received by each holder will include the period during which such holder held the W-S California common stock surrendered in exchange therefor.
Are there accounting consequences associated with the Reincorporation?
We believe that there will be no material accounting consequences to us resulting from the Reincorporation.
What vote is required to approve this proposal?
To approve this proposal, a majority of the outstanding shares of the company must vote “FOR” this proposal.
If approved, when would the Reincorporation become effective?
We expect that the Reincorporation, if approved, will become effective shortly after the shareholder approval.
In what might end up being the biggest case of blowback in Hollywood this season, the pro-merger forces in SAG and AFTRA apparently leaked a 2003 study of union benefit plans in an attempt to bolster their argument for a merger of the two unions.
The Mercer Report, prepared in connection with an earlier attempt at merger by an outside consulting group, does start out concluding as the pro-merger groups have argued that the separate health and pension plans maintained by the two unions could be merged. But it then quickly notes that there are “key philosophical differences” between the plans that will cause the trustees to “wrestle” with resolution of them in case of a merger.
It also poses a critical question for the unions: Is it “worth” it to take on those “key issues and challenges” in three major areas identified by the Report?
In fact, the Report puts on the table as an open question whether it makes sense or not to merge the benefits plans at all. The possibility of merging the plans after the merger of the unions has been a critical part of the argument for merger proponents. Now it is clear that the Report they themselves apparently leaked – the Report was said to be confidential – will actually undermine their arguments.
The Report will have to be scrutinized carefully and compared with current plan benefits, but even a cursory glance indicates that SAG’s plan is more generous in key areas, such as the threshold for family coverage for health care. The Report also notes that SAG “is generating much greater employer contributions.” It is this kind of “philosophical difference” that would mean a fierce post-merger battle if the unions merge first without resolving these differences.
Thus, the Mercer Report concludes that “it may be a challenge to find a common design that will be agreeable to both parties.” And they leave open as a “fall back” the idea of separate benefits structures for SAG and AFTRA even within a “combined plan.”
Of course, the pro-merger leaders of SAG and AFTRA are well aware of this upcoming battle. And they also know if they try to resolve these differences prior to merger the likelihood of getting SAG to compromise is greatly reduced. And of course compromise by SAG is the critical variable in this merger, of both the unions (where SAG’s rules against non-union work are stronger) and the benefits plans.
Making good on its threat over the last few weeks, the ghost of Membership First has risen with figures like Ed Asner, Ed Harris, Anne-Marie Johnson and Martin Sheen leading a group of some 68 actors in a suit aimed at stopping the proposed merger with AFTRA.
The core theme of the suit is grounded in the disclosure requirements inherent in federal labor law. The complaint rests, in part, on the applicability of the concept of a “meaningful” vote by union members. This principle is at the heart of labor’s bill of rights, the Labor-Management Reporting and Disclosure Act or LMRDA.
When I worked with dissident UAW members during their contract negotiations a few years ago we used this concept in our discussions. The core of this kind of claim is that union members are guaranteed certain voting rights by the LMRDA and their own union constitutions. To be meaningful such voting rights must be accompanied by the information needed to decide how to vote. Since, arguably, the merger document package does not contain a full assessment of the risks involved in a merger, SAG members cannot make a meaningful decision on whether to vote for or against merger.
When working on the UAW issues, we also paired the “meaningful” vote argument with a claim grounded in securities law as well, namely the obligation of employers who issue securities to provide full disclosure of both benefits and risks.
Here, a similar claim based in California corporate law could be invoked although the current version of the complaint, which can be amended, does not do so. SAG is a member governed mutual benefit corporation (a “non-profit” in common parlance) chartered under California law. Thus, state law sets in place certain requirements for the merger of SAG which include both disclosure to the board of the union “the terms and conditions” of the merger prior to their vote to approve the merger and approval by the members of the organization. For such a vote by union members to be meaningful it should receive disclose that contains a full assessment of the risks as well as the potential benefits of the merger. As one example, there is no meaningful disclosure to SAG members explaining why the new merged union is to be incorporated in Delaware. No for-profit corporation could get away with this approach.
If the complaint receives a sympathetic hearing in court, it will be because SAG and AFTRA leaders mistakenly approached the merger as if it were a political campaign where these same leaders are attempting to get themselves elected. In other words they may be portrayed successfully as trying to ram this proposal through for their own political goals without adequate discussion.
Prior elections of union leaders, prior attempts to merge and informational meetings are not adequate substitutes for genuine and meaningful written disclosure now when union members must really make a final decision about merger. This is amplified by the fact, again one that is touched upon in the complaint, that this kind of decision is what is known as an “end period” problem – a yes vote means the end of SAG and putting Humpty Dumpty back together again is well nigh impossible.
SAG and AFTRA leaders are not, of course, running a political campaign. They have an independent obligation to act as fiduciaries of the organization as a whole. It is one thing to get elected as advocates of merger but now they have a new obligation to insure that union members are able to cast a “meaningful” vote.
That means stepping back and asking what it is that the membership really needs in order to make a fair and balanced assessment of this proposal. Certainly a vote that is based on materials that do not fully disclose the facts and risks associated with a proposed merger would be suspect in any courtroom.
When one steps back from the bitter debate now engulfing the Screen Actors Guild over whether to ratify a proposed merger with sister guild AFTRA, it becomes clear that the motivations for the merger are not necessarily linked to the future success of unions in Hollywood.
SAG members have rejected merger in the past, albeit by narrow margins, and many thought the idea off the table for the time being. But the failed collective bargaining strategy implemented by Membership First led to a reaction by a new generation of actors, many based in Los Angeles, long the stronghold of Membership First. Among them were successful actors like Amy Brenneman, Ned Vaughn, Assaf Cohen and Amy Aquino who had become fed up with they saw, not inaccurately, as the mindlessly militant tactics of long time SAG activists such as Alan Rosenberg, Anne-Marie Johnson, David Joliffe and Kent McCord.
That fissure in the Los Angeles arm of SAG led to a new union leadership elected explicitly to execute a merger with AFTRA. But being right about the problem in SAG – that Membership First’s approach did not work – is not the same as being right about the proposed solution, i.e., this merger.
There can of course be good reasons to merge unions, particularly in the entertainment industry: it can lead to the end of dual union dues and unnecessary duplicate expenses associated with union staff and the administration of benefits plans.
These are the kinds of “efficiencies” that have often motivated mergers in the private sector as well as the union and non-profit environment. It turns out, however, that such cost savings are harder to achieve than is often thought when a merger is first dreamed up.
And, in fact, the proposed merger will not dramatically reduce dues, it will not at the outset lead to a cut in union staff and, as I blogged about recently, it will not lead, at least initially and perhaps ever, to a merging of the benefits plans.
In the case of the SAG-AFTRA proposed merger, however, there is a deeper concern, one that goes to the heart of what makes Los Angeles a union town, what makes nearly the entire entertainment industry, from New York to Portland, a unionized industry.
It turns out that the “SAG Card” is the glue so essential to holding that environment together. The SAG Card is the draw for many thousands of aspiring actors around the world because it represents the chance of earning their place in the Guild. And it is this global motivation, as intangible as it may seem, that lies at the hub of unionization in the film and TV industry.
The merger of SAG and AFTRA into a new entity called “SAG-AFTRA” (yes, seriously) means in essence the tearing up of that vaunted SAG card. That is a very dangerous turn of events for the future of unionism in Hollywood.
There is a great deal of confusion among SAG members about the basis of their union’s strength in the entertainment industry. Unlike many unions SAG secures representation of actors through something known as “voluntary recognition.” SAG does not typically try to organize actors via a union election. Even the original recognition of SAG in the late 1930s was a form of “voluntary recognition” as the studios conceded that indeed SAG was the actors’ choice as their collective bargaining agent.
The “voluntary recognition” mechanism is often more attractive to unions because it avoids the time, expense and unpredictability of a union election. And in recent years it avoids the inevitable confrontation with an anti-union campaign by the employer. But to be successful, the union must be able to demonstrate that an uncoerced majority of employees supports the union. Many unions use a system called “card check” to demonstrate that majority support: they collect signed cards from workers that state the workers’ support for the union as their exclusive bargaining agent.
SAG does not actually need to solicit cards or other forms of support. Why? Because it has an even stronger method to demonstrate majority support: the actors that a production company almost inevitably wants to hire are already dues paying members of SAG! There is no clearer form of demonstrating “uncoerced majority support” than that.
In other words, the fact that all, or nearly all, the actors that a production company may want to hire carry a SAG Card is proof of the union support that motivates the production company to voluntarily recognize SAG and therefore to go ahead and sign on to the relevant CBA.
In fact, SAG goes further than this and prepares draft forms of the whole set of documents that a production company needs to execute in order to begin a union production. This is a very important means of controlling the industrial environment in which SAG operates and helps improve SAG’s leverage with new production companies.
Notice, though, that the glue that holds this industrial system together is the SAG Card. It is the willingness of tens of thousands of actors to hold that card, to be dues paying members in good standing even while in between gigs, that gives SAG the leverage to ask for and get “voluntary recognition” by production companies of SAG as the exclusive bargaining agent for the actors on those projects. When an autoworker leaves a job at GM the UAW often loses that union member for life unless they get rehired later by GM. That does not happen, for the most part, to SAG.
What is it that motivates those thousands of actors to hold SAG Cards in good standing?
It is the collective sense that getting a SAG Card is a significant achievement in and of itself, that there needs to be a collective “all for one, one for all” sense of solidarity among actors if they are to be free to concentrate on their craft and their artistry while not sacrificing their rights as workers. Being part of that collective is the contribution that each actor is willing to give in order to gain the opportunity to pursue their careers.
This leads, in turn, to widespread support in SAG for Global Rule One under which principal actors agree not to work on non-SAG productions anywhere in the world. The SAG Constitution says: “No member shall work as a performer or make an agreement to work as a performer for any producer who has not executed a basic minimum agreement with the Guild which is in full force and effect.”
It doesn’t matter if it’s Tom Cruise or a recent unknown graduate of Yale Drama School, SAG members will not act on non-SAG productions. That commitment comes with the winning of a SAG Card. In fact, Global Rule One is printed on the back of the SAG Card!
As SAG itself (still!) says on its website:
“Screen Actors Guild is the most distinguished performer’s union in the world. Our members are experienced professionals who require certain standards of working conditions, compensation and benefits. Membership is often a major milestone in an actor’s career; every SAG card issued symbolizes success and solidarity with a community of 120,000 talented and accomplished artists worldwide.”
(Notoriously, many leading AFTRA members freely work on non-union jobs sometimes for years at a time. AFTRA’s weak support for union solidarity was highlighted recently by the comment of Roberta Reardon, AFTRA President, that she could help SAG members find a way to sneak around picket lines of her own union members.)
If the intangible sense grows that this collective known as SAG is in fact no longer about primarily actors, about protecting their ability to pursue their craft knowing that the union has enough collective power to defend and improve their basic working conditions, then the entire edifice of SAG power in Hollywood will decay and could even collapse.
A merger with a union that includes many thousands of workers – albeit professionals – who have very different economic interests and working conditions can easily dilute the collective sense that the organization is committed to protecting actors. Union staff will be divided among those groups and competition for resources will ensue. Attention will be diverted and new fault lines will develop.
And of course it is highly unlikely that the merger-happy AFL-CIO will stop with this single merger. No doubt if the SAG-AFTRA merger is pushed through, it will be followed by efforts to force that new organization into other alliances. Already, AFTRA is in an alliance with IATSE and it is conceivable there are plans to place what other labor unions view as small organizations into larger players like CWA (where the Newspaper Guild and NABET already reside).
Once the sense takes hold that actors are just one of several if not many occupational groups inside a larger “industrial” union instead of the central craft inside a genuine “trade” union, it is very likely that producers and agencies could begin a campaign to encourage actors to consider non-union productions. Pressure to weaken Global Rule One could easily follow. An uptick in Fi-Cor could occur and the ensuing downward spiral could lead to a post-union entertainment industry.
This seems, of course, a dire prediction. But it is meant to highlight the risks associated with this kind of union reorganization. Very little attention has been paid to these risks.
To take one example, SAG members have received little or no disclosure about the intentions of the AFL-CIO in this process. Yet it is instructive to note that AFTRA has gained the inside track with the AFL-CIO in recent years, securing its own seat on the AFL-CIO Executive Council after leaving the 4A’s.
Merger critics, of course, have a very poor track record of navigating AFL-CIO waters. Their former NED, Doug Allen, was not well known in that environment and did little to help Membership First with that issue when they ran the Guild.
Under NED David White, who has even less experience than Doug Allen with the AFL-CIO, it appears SAG has been willing to follow AFTRA’s lead – it is clear that AFTRA is driving the merger process, building off their unexpected success in winning cable pilot shows in the wake of the 2008-09 negotiations. In a post-SAG organization AFTRA staff and leadership weight will likely grow flush with the success of winning the merger debate.
This points precisely to the very kind of problem that can trigger the downward spiral of support for unionization. When SAG represents actors in cable productions it demands that the production companies sign on to a single master agreement. SAG is successful at this by demonstrating the kind of support for voluntary recognition described above. No cable company risks saying no, we won’t sign this agreement, because SAG can point to Global Rule One and make it clear that failure to sign means you won’t get SAG actors on this set.
AFTRA, however, does not make this claim. And it does not have a master agreement that sets a floor beneath which wages and working conditions cannot fall. Instead it drafts a new form of contract (based on one of four separate templates apparently) each time it negotiates with a cable production company. AFTRA justifies this by arguing it wants to provide those companies flexibility lest those acting jobs go to Canada or elsewhere.
The problem is that this apparently “flexible” approach can easily lead to a race to the bottom in pay and working conditions. It can allow the employer to dictate the basic terms instead of negotiating those terms collectively with the union. But AFTRA does not have what SAG has to enforce a master agreement. SAG knows Tom Cruise will not work a non-SAG project. But AFTRA is unwilling to enforce that kind of rule against Brian Williams or Anderson Cooper.
No doubt merger advocates will say that merger will not change this, that SAG can continue to have Global Rule One inside the new SAG-AFTRA. But that is where the dynamics of a new multi-occupation “industrial” union come into play. Once the union membership and staff get into battles over the allocation of resources among the different occupational groups there will be pressure to compromise. This is precisely what happens in larger conglomerate style unions like the Teamsters. Remarkably, even small differences in working conditions can lead to fierce battles, which is demonstrated by the difficulty UPS workers have had in gaining support inside the Teamsters. It is harder to harmonize upward to better and stronger principles of solidarity than it is to give way to weaker rules and principles.
And, of course, the new organization will not be operating in a vacuum. There will be pressure to merge again with other larger unions where the sense that the organization is for actors will dissipate even further.
Finally, and most ominously, the employers will see this development, the creation of a clumsily organized (and even more clumsily named) SAG-AFTRA entity, as an opportunity to call into question what has been the unquestioned principle of solidarity that has held SAG together, through thick and thin, since 1933.
The idea of merger was conceived by all sides in SAG as a solution to some important problems, but it is now being implemented for altogether different reasons – largely motivated by an overreaction to the already discredited bargaining strategy of one tendency in the union. That is a weak and dangerous basis upon which to build a future for actors.
In the category of “you can’t make this stuff up,” AFTRA President Roberta Reardon reportedly told a roomful of SAG members at SAG headquarters in Los Angeles last night that her union could help SAG members sneak around a picket line of striking AFTRA members if the two unions merge.
The question came in response to a question from long time SAG leader Anne Marie Johnson who asked whether if SAG merges with AFTRA and AFTRA newscasters went on strike at, for example, NBC, actors working a show at NBC would be forced to cross the newscasters’ picket line.
Perhaps as shocking, none of the pro-merger SAG leaders on the stage objected to Sister Reardon’s comments. This is particularly disturbing in light of SAG’s stronger policy supporting union solidarity. SAG’s Global Rule One requires all principal actors in SAG to refuse to work on any production where the producer is not a signatory to a SAG contract. The union can punish members who violate the rule, and it has. AFTRA, on the other hand, is notorious for allowing openly prominent members like Brian Williams to work at non-union sites, like MSNBC without any consequences.
Roberta Reardon is a member of the AFL-CIO’s national Executive Council. The phone number of the AFL-CIO is 202-637-5000. Perhaps AFL-CIO President Trumka would like to know what is going on out in LA.
The Obama team started out using the birth control issue to throw key centrist Catholic Democrats like Bob Casey under the bus. But once that blew up in their faces, they decided to just throw a Catholic Cabinet Secretary under the bus. In this case, Kathleen Sebelius.
In the article linked below, the New York Times contends, with only off the record sourcing, that Sebelius, a Catholic moderate from the heart of the bible belt dragged her feet on the Hawaii compromise announced today. Meanwhile, Obama is portrayed as having wanted the Hawaii approach all along.
Sure, that’s what happened.
The Times fails, however, to square that argument with the widely accepted reality that anything Obama supports, Valerie Jarrett supports. And the Times agrees with other reporting that Jarrett led the charge against Bill Daley and Joe Biden on this issue, in favor of the toughest version of the rule. Up against Jarrett, Sebelius is irrelevant inside the West Wing.
So what does this add up to? The Jarrett/Michelle/Barack troika has a long term agenda. They are interlopers inside the Democratic party and have no loyalty to or comprehension of its central goals and purposes, much less its history and institutions. They see a good number of Congressional Democrats as their enemy as much as the Republicans. They hope to use a second term to clean house, to see the Republicans wipe out a whole swath of conservative and centrist Democrats (some like California Cong. Dennis Cardoza are already giving up, and making clear their displeasure on the way out the door).
With those in the way gone, they can restructure the party from within. They are well aware that that is how successful Presidents end up in the history books – they shift politics in some fundamental way for a generation or more. Lincoln, FDR, Reagan – all moved the wider political debate well beyond their own term in office.
Obama shares that same grand ambition. Once the pesky centrists are gone and the only thing left is a rump group made up of members of the black caucus, a few hispanics and opportunistic leftists like Dennis Kucinich, Obama and Jarrett will try to rebuild the party with their own odd brand of multicultural racialist politics.
The only problem with this scenario is that the team around Obama, now firmly in the hands of Jarrett with Daley gone, continues to prove how out of touch they are with reality. The birth control disaster is only a small example. Does anyone really believe a Jarrett-led White House should be in charge of designing our strategy with respect to Iran, Syria and China? In other words, the Chicago-bred political ideology they took with them to the White House leaves them woefully unprepared to execute Presidential policy and to exercise effectively Presidential power.
The final question this tempest brings up is whether genuine left liberals and the labor left believe that this is the way to argue for their solutions to the nation’s deep seated economic problems as well as foreign affairs. The one upside of the Obamabroglio is that it makes clear that the Democratic Party itself is in crisis. It is time for the democratic left to think about organizing a new genuinely left and genuinely democrtic party.
Among the most important considerations that unions have to take into account in today’s rapidly changing economic environment is how to gain a foothold in their industries. With longstanding and stable business models being torn up across the economy this is a real challenge.
Modern American unionism was built on a joint relationship with management that formed the core of what was called the Industrial Relations era. In that era, which ran roughly from the passage of the Wagner Act in 1935 to the Reagan presidency in the 1980’s, stable collective bargaining linked pay hikes to increases in productivity and profitability. That economic arrangement made the toleration of unions by American employers – who have historically been viciously anti-union – possible.
But beginning roughly in the 1970s, American companies faced new competition in the global economy from places like Japan and Germany where rebuilt post-war economies had put in place new technologies and new forms of labor-management relationships. These challenged the American Industrial Relations model and laid the ground for an anti-union backlash based on arguments that unions had become “special interest groups” that undermined U.S. competitiveness. When former trade unionist and SAG president Reagan fired the air traffic controllers it signaled the end of that era.
As a result a great achievement of the American people, the formation of genuine organizations that countered the power of big corporations in the form of unions, was in danger of being destroyed. Over the last few decades two areas of the economy have escaped this fate. These are in the public sector where, obviously, teachers, fire fighters, and police cannot be easily replaced by low cost imports, but also in certain corners of the private sector. Where unionization was established in the big wave of union struggles of the 30s and where the goods and services those corners produced could not find easy substitutes out of the sweatshops of Mexico or China, unions continued to survive.
The entertainment and media industry, the trucking industry, the railroads and air travel sectors – these are all arenas where unions have faced tremendous challenges but where they have nonetheless survived.
But while these unions escaped the first wave of Reagan era attacks followed by globalization, there is nothing that makes them genuinely immune from attempts to displace them. The most dangerous foe that these unions face, in fact, is not the anti-union attitudes of this country’s employers, as vicious as those are, but rather technological changes that make unions seem reactionary and out of date. When revolutionary technologies appear and disrupt entire industries, employers receive a double gift: new profitable lines of business but also a seemingly politically neutral excuse to crush labor organizations in those industries.
It is becoming increasingly clear that the semiconductor combined with the internet is precisely this kind of threatening technological revolution. It has already produced tremendous social value, to be sure, but it has done so in a very particular economic context. That context has allowed employers to adopt and deploy computer based technologies in a way that devastates wide swathes of what had been stable industrial business models.
The entertainment and media industry has long been a heavily unionized sector. It still takes people aback when one describes for them the fact that across the board big film producers like Disney or Fox are heavily unionized, from the truck drivers who deliver production equipment to a set in the desert, to the cameramen, to the writers, the actors, and even, in their own way, the directors and producers. All in labor organizations or guilds or traditional craft unions. All the beneficiaries of collective bargaining agreements that have for many decades delivered solid wages, good hours and reasonable working conditions to those union members.
And the employers, the owners of the production companies, the film studios, the television broadcasters, have found a way to make a profit, in some cases, amazing profits, while employing union labor despite the inevitable volatility of an industry where no one can predict what will be a success and what will not ($55 million for Ishtar??).
But that is no longer possible. The threat created by the powerful new technologies emerging every day from Silicon Valley are tearing apart a fifty year old business model in a manner never seen by the entertainment and media industry before. The core of the threat is that new technology makes it possible to finance, produce and distribute content in far less expensive and complicated fashion than ever before. As a result the bastions of the industry in New York and Hollywood are scrambling to figure out how to fight back.
The recent battle over piracy is clear evidence of how out of their depth the industry remains. A colleague of mine here in the Valley was a leading advocate for the Valley’s effort to defeat the piracy legislation. He credited the “user revolution” as key to the success of the Valley’s lobbying. In other words, the Valley used its own revolutionary technology in a fashion akin to the activists of the Arab Spring to spread the word and make their argument. They did not rely on a paid off ex-politician like Chris Dodd who engaged in what turned out to be old fashioned and ineffective arm twisting of inside the beltway politicians. The battle was fought and won elsewhere – in the hearts and minds of the users of the internet.
The proposed merger of SAG and AFTRA resembles the decision of the Producers to rely on old time lobbying by an ex-pol to win the piracy battle. It is a case of the generals fighting the last war. What is happening is that SAG and AFTRA leaders are being influenced, even courted in the case of AFTRA, by AFL-CIO leaders who are victims of the earlier Reagan and globalization era anti-union attacks.
Many of those unions had no choice but to merge with larger players or else they would go out of existence. One of my first tasks when I started out in the labor movement was to train the shop stewards of the Hod Carriers local union. Hod carriers, believe it or not, still exist but they have dwindled in size as technology for delivering cement and other materials to a building site have changed radically. (And even when such mergers seem unavoidable there are problems as this video suggests.)
But of course SAG and AFTRA have other choices. They are not like the Hod Carriers. The technology is a threat but it is only now being rolled out. There is a tremendous opportunity for the right union strategy to play a major role in shaping the new forms the industry will take. In its most successful moments, American unions have not simply accepted the business models of the employers as a given, instead they have been pro-active in shaping them. A prime example is the success of Jimmy Hoffa (the father) in leading the organization of the trucking industry itself in order to support his strategy of organizing over the road truckers. That strategy was shaped in part by the socialist labor activist Farrell Dobbs, a leader of the Minnesota teamsters union.
Another example is closer to home for SAG. In the 1940s one of SAG’s rising leaders was the same Ronald Reagan who would later lead employers in a brutal attack on unionization signaled by his battering of PATCO, the air traffic controllers union. But in the 1940s Reagan was still a liberal, even a leftist of sorts, and certainly a trade unionist. One should emphasize the word “trade” in the term trade unionist. Reagan understood the value to SAG of building on its “guild” heritage which meant the organization primarily represented actors. A genuine “trade” union relies for strength on its membership coming out of the same industrial conditions. Not only does it mean that the members understand each others’ problems more readily it also insures that its leaders remember their roots.
On Sunday the Los Angeles Times published an article that details Reagan’s effort in the 1940s to fend off a campaign by a Communist Party influenced labor grouping to displace the IATSE from its traditional role representing craft workers in the industry. The CP influenced group wanted to form a new form of organization that would amalgamate a wide range of crafts into a “Conference of Studio Unions.” Reagan and a key IA leader, Roy Brewer, saw that this kind of centralized structure would give the union officials, and those CP’ers among them, undue power and control.
The Times article author, John Meroney, was initially suspicious of this story because of Brewer’s and Reagan’s later role in supporting red-baiting in Hollywood. But even he was forced to note that at this point in time Brewer and Reagan were on the left. What he found surprised him:
In 1945, a strange battle erupted in Hollywood’s 42 craft unions that reflected the Soviet Union’s overarching goal of controlling the worldwide labor movement. Undercover Communists seized control of a painters’ union, formed a larger umbrella group with cartoonists, readers, secretaries and publicists and called a jurisdictional strike, with the goal of taking over other unions.
Archive documents—and court decisions from the 1950s—disclosed their goal: to create one industrial union for all of Hollywood. While the vast majority of the members would be rank-and-file laborers, the organization would be controlled by Communists. To succeed, they had to drive a wedge between labor allies and create chaos in the existing labor structure.
In other words, history’s greatest experts in bureaucratic and undemocratic organization, the Communist Party, were using the labor movement to fashion its own new bureaucratic industrial union to wield power in the industry.
This approach was in stark contrast to SAG’s vibrant internal democratic life. Even the IA had under Brewer’s leadership begun to act in a more democratic and less corrupt fashion (the mob connected leaders had been tossed out several years earlier). Initially sympathetic to the CSU, SAG leaders realized the intransigent approach taken by its leadership was more likely a response to the personal political goals of those leaders than to the interests of its rank and file. SAG refused to support a strike the CSU called and in fact the CSU’s own members eventually revolted as well.
The important backdrop to the story was Reagan and Brewer’s understanding that anti-trust decisions by the US Supreme Court were tearing apart the business model that had sustained the film industry. In fact, the anti-trust decisions were in many ways similar to the impact of the internet is today – it altered the distribution pipeline of the industry for decades to come. In that context, the mindlessly militant strike strategy pushed by the CSU made little sense. There was a need to craft carefully a union strategy that took into account the changing industrial situation.
As Meroney concluded:
By vanquishing the [Communist influenced] painters’ union, Reagan and Brewer preserved IATSE and SAG and the larger American Federation of Labor structure in Hollywood. Their strategy also essentially saved the motion-picture industry, which was struggling financially because television was siphoning moviegoers and courts were ruling that studios could no longer own movie theaters, as they had for decades.
Mergers of unions often force together in opaque bureaucratic structures union members with very different backgrounds and interests. In those cases, it is union officials, including paid professional staff and long serving elected representatives, who gain greater power. It becomes harder for the rank and file member to organize independently to guarantee genuine democratic control of their own unions. The staff and officials live very different lives than most of their own members and they can often behave as if they belong to a different, superior, caste.
Thus, it is perhaps no surprise that AFTRA’s and SAG’s current leadership, hell bent on merger, has done little to explain concretely how merger as currently proposed would improve leverage in the rapidly changing entertainment and media industry. An alternative of course would have been to divide AFTRA and have the journalists join other news media workers inside the CWA and actors and other performers like recording artists join SAG. That would have produced a far more coherent new one big actors union that would maintain the valuable SAG history, tradition and reputation. I think that kind of brand “goodwill” is an asset that a smart SAG leadership could deploy to increase actor leverage in the industry. Now, however, that goodwill will all but disappear.
More importantly, the leadership of such a one big actors union would have a clear mandate and could focus on the particular problems affecting performers. It could begin the process of intervening in the reshaping of the industry now underway, in particular by establishing new relationships with Silicon Valley.
The alternative argument that SAG/AFTRA seems to be making is that the proposed merger will lead to greater bargaining power with the entertainment conglomerates. But it is those conglomerates that are now threatened to their core by the new technology, including platforms like Netflix, You Tube and Facebook. Fashioning a strategy aimed at Rupert Murdoch makes no sense when it is really Mark Zuckerberg you have to worry about.
It’s a new day, and it calls for new thinking. Unfortunately, when it comes to the leverage myth, actors are only getting the “same ol, same ol.”