Do union mergers work? Cutting costs is the “easy” part

The entertainment and media industry (EMI) is going through dramatic restructuring. There is huge pressure on the talent that provides the content for EMI to keep up. Over the last decade talent agencies have been among the most aggressive in responding to the changing landscape for talent. This is true in movies, TV and sports.

Now unions representing actors, broadcasters, writers and athletes are trying to respond as well. One tactic that some unions have adopted is to follow what corporations do when they are under economic pressure: merge with fellow unions in an attempt to be both more efficient and more nimble.

The merger last year of longtime “frenemies” SAG and AFTRA is thus an interesting experiment in EMI labor relations. The new entity, SAG-AFTRA, has just announced its second round of layoffs of union personnel. This is one way of course to gain some efficiency because it reduces costs and eliminates duplication of efforts. Now, for example, the union has only one National Executive Director, not two. Since that is a well paid position it creates a significant cost savings for the union.

But the real challenge for union mergers is whether the merger helps generate new revenue for union members. The cost side is painful but not terribly difficult to figure out. The revenue side is very much a challenge.

And there is no time to waste for the unions active in the EMI sector, whether in film or professional sports, because the employers are engaging radically new technologies such as social media and mobile communications to generate new streams of revenue for their investors. Unions in the sector need to come up with innovative ways to respond if they are going to stay relevant.

SAG-AFTRA to Lay Off Up to 80 in Restructuring.

Business as usual already at new union SAG-AFTRA

The actors and broadcasters union negotiating team has reached a new contract with the advertising industry. The terms were supposed to be strictly confidential pending a meeting of the 160 (!) member national board of the union next weekend. But as is inevitably the case in Hollywood someone leaked the deal terms, this time to the new union’s favorite scribe, Jonathan Handel at the Hollywood Reporter.

While the precise language is not available and the terms are, as is also inevitably the case in Hollywood, complex, debate among actors has focused on the proposed 6% up front wage increase. Actors known to have favored the merger of SAG and AFTRA are touting this term while merger critics point out that spread over four years (keeping in mind that the wage hike is a one time event until the contract expires and has to make up for a one year freeze the unions agreed to a year ago) they barely will keep up with inflation.

The tension emerging now is usual for the union but is likely increased because of the kinds of promises made by merger advocates when SAG and AFTRA agreed to create what was called a “new union.” Much was made of the idea that merger would increase the bargaining leverage of the unions. If so, a deal like this does not provide much evidence.

Historically AFTRA has been the more business like union of the two. And so predictably merger backers defend the deal by contending that “unionism is business.” This is the evidence of an employer mindset filtering its way into the union membership. When that happens the employer sits back and smiles because he knows that he has succeeded in getting union members to do his work for him. One merger advocate, for example, suggests the one year wage freeze does not count because SAG and AFTRA not the new entity SAG-AFTRA made that deal – a classic corporate excuse often heard when employers restructure their companies to avoid union contracts.

Mergers like the one engineered by SAG and AFTRA moderates always look attractive on paper but the real merger that must take place for a union to be successful is to unify membership around shared goals and a strategy. That is much harder to do. In the case of these unions the suspicious shift of TV pilots to AFTRA contracts was instrumental in securing votes for the deal. It comes as no surprise then that the new entity has failed to achieve significant gains in its first true test. The merger was built on a culture of “unionism as business” and that is not a basis for genuine success for what must be a collective and creative effort.

New union tested: SAG-AFTRA & Ad industry reach deal

The first major test for the leadership of the newly merged SAG-AFTRA union is now underway. The union leadership has reached a tentative deal over work in commercials with ad industry representatives.  Details have not been released pending approval by the union’s bloated new board of directors upon which now sit some 160 union members. If the deal is approved by the board at its meeting on April 20-21 it will be sent to the 160,000 rank and file members of the union for ratification.

Union president Roberta Reardon, former head of AFTRA, has said she is pleased with the new terms.  SAG-AFTRA staff head David White recently said on the first anniversary of the merger of SAG and AFTRA that the “landscape” had shifted. Presumably this means the union has been able to increase its leverage to lead to greater concrete gains for its members. Once terms of the commercials contract are made public the union membership will be able to decide if, in fact, that has been the case.

SAG-AFTRA & Ad Industry Reach Tentative New Commercials Contracts Deal –

First anniversary of S.A.G.-AFTRA merger not a happy one

The promised benefits of merger seem to be eluding the now combined membership of SAG and AFTRA, the two major actor unions in Hollywood. Even Jonathan Handel of The Hollywood Reporter, who is close to the current union leadership, was forced to acknowledge the “internal tension” affecting the union. The simmering conflicts are reportedly affecting both staff and the elected leadership.

One oddity reported by Handel but not examined is that the new union, which on paper has 160,000 members many of whom are not regularly working as actors, has 550 staff members! So much for the promise of a streamlined and efficient new union as a result of merger.

Handel’s reporting of the “tensions” is not specific and it does not get in the way of Handel’s opining that “one actors’ union is much more harmonious than two.” No evidence of this harmony is provided other than PR statements from union leaders who promise that success will take “decades” to measure. That mindset is not likely to win applause among actors. As Keynes put it, in the long run we are all dead.

More importantly, the much hoped for merger of union benefits plans has not moved anywhere near completion, apparently. “The divided system deprives too many actors of health and pension benefits because their credits are split,” Handel writes. Of course, it was the promise of merging the plans that gave union leaders the votes they needed to win the merger vote in the first place.

SAG-AFTRA Executive Director David White told Handel the main accomplishment of the merger “was to shift the very landscape of opportunity.” No one knows what that is supposed to mean but it apparently means little when it comes to actors’ paychecks.

Even Handel, a long time friend of White, seems sceptical and says he’ll “check back in a year and see what that landscape looks like.”

In the meantime, internal tensions may lead to electoral battles this fall for control of the new union entity. Elections and a convention are planned for September.

Stay tuned.

SAG-AFTRAs Year One Scorecard – The Hollywood Reporter.

S.E.C. Inquiry Into China Film Trade Unnerves Hollywood

An interesting crossover between two of my interests, securities law and Hollywood. The film business has been enjoying a renaissance overseas what with Bollywood and all. Of course China remains the ultimate new market for the industry. But the industry has to realize that without free speech or the rule of law it is not like moving into India. True cultural expression remains suppressed, just ask the Tibetans. And the reach of US securities law is long as this article on an investigation into possible bribery cases indicates.

S.E.C. Inquiry Into China Film Trade Unnerves Hollywood –

Is TV streaming changing the landscape?

Is Netflix’s remake of a British political thriller changing the structure of TV? It’s about time.

TV streaming: six of the best shows.

LA city attorney candidate takes on SAG Plan whistleblower case

In a sign that there is more here than meets the eye, prominent litigator Greg Smith, who has a long track record of winning large claims on behalf of fired public sector employees especially police officers and firemen, has taken on the case of Craig Simmons, the fired senior staff member of SAG’s pension and health plan.

According to a copy of the complaint posted on the site of Deadline Hollywood, Smith has filed a suit against the plan and as yet unnamed individuals for wrongful termination in connection with Simmons’ complaints about wrongdoing by the CEO of the $2 billion Plan, Bruce Dow, and others. Smith was profiled in the Los Angeles Times recently in connection with his campaign for the position of Los Angeles city attorney. Smith is joined in representing Simmons by Los Angeles attorney Robert Stanford Brown.  (Brown is the son of Hall of Fame football player Bob “The Boomer” Brown, who played for the Philadelphia Eagles, Los Angeles Rams and Oakland Raiders.)

The new lawsuit comes as SAG itself is being sued by its own members for failing to provide union members adequate information about the future of the pension and health care plan in connection with an ongoing vote to merge SAG with sister guild AFTRA. A decision on the latter suit is expected any day now as a planned hearing scheduled for Monday was recently vacated by the judge, which indicates that he is close to deciding the case based on the papers already in front of him. No doubt, a copy of the Simmons complaint will also be filed with the federal court considering the request for an injunction to stop the merger proposal.

Simmons was fired last year. A letter he wrote detailed numerous allegations about wrongdoing by Dow and others at the pension plan. Near the end of the year, CEO Dow left the fund temporarily on leave in connection with a health issue and has not yet returned to his position. There is speculation that the leave was aimed at easing him out of the fund.

Meanwhile, a report on Deadline that the Plan was the subject of a federal investigation led the Plan’s trustees, which include both labor and management representatives, to admit publicly that the Department of Labor was conducting a field audit of the fund, the toughest form of audit that the DOL can conduct of a pension plan. Deadline has reported that other federal agencies are looking at the fund, but the trustees appeared to deny that possibility.

Unconfirmed reports suggest that yet another senior official of the fund known to be an opponent of Dow was also fired today.

In light of this information it would not be surprising if the attorneys representing AFTRA in the merger would have some tough questions for SAG about the risks that AFTRA might be taking on board if the merger were to proceed.

As information comes out, this post will be updated.

Is the audit of the SAG pension and health plan really “much ado about nothing”?

After stories surfaced of a possible “raid” by federal agents on SAG’s pension and health plan, the Plan trustees themselves responded with an unusual statement denying that any such raid had taken place. They claimed that all that was happening was a “routine” field audit by the Department of Labor. This led pro-merger advocates to rush to a judgment that really there was nothing to see here, so move along.

The problem with this story is that audits by the Department of Labor and the IRS, which have regulatory authority to monitor employee benefits plans, may take place on a regular basis but they are never “routine.” And of course the Plan trustees do not know now what the outcome of the audit will be so it is a mistake for them to claim that this audit is “no different” than prior audits. If the employees of the SAG plan or the trustees are treating this multi-year investigation, the 10th in the last 25 years, as routine they are likely doing so only for public consumption. Otherwise, they would likely be in violation of their fiduciary obligation to the plan’s beneficiaries and participants.

Audits by a federal agency are not the same as the audits by a plan’s outside auditing firm. The latter are required every year in order to prepare reporting statements to federal agencies and to participants and beneficiaries. But audits by the DOL or the IRS are aimed at finding out if there is fraud or incompetence or weak internal plan controls at work.  A “field” audit, where government agents come on site to review documents and meet with Plan staff, is the most stringent of the several forms that an audit can take. Other less demanding audits could include a questionnaire, compliance check or correspondence audit.

In other words, the SAG plan is now being subjected to the closest form of scrutiny allowed under ERISA which empowers both the DOL and the IRS to investigate benefits plans for civil and criminal violations.

While an audit’s existence does not mean that there is, in fact, a problem at the plan it usually is triggered, according to experts in the area, by one of several possibilities, including complaints by plan participants (and of course at the SAG plan there is the now infamous whistle blowing letter by Craig Simmons), red flags because of the way in which the plan has described its assets or benefits on its filings with the government or concerns about whether the plan’s own auditors have done an adequate job.

In the case of SAG, for example, the investigation into the Simmons complaint led to a disclosure of a multi-million dollar fraud that was not prevented by internal controls at the plan.  Both the DOL and the IRS have become more aggressive in audits of benefits plans and in 2010, when the SAG plan says the current audit began, the DOL first set up its “Contributory Plans Criminal Project” to target fraud against participants and beneficiaries.

While no one can know now the outcome of the current audit, it is over the top to conclude that is it much ado about nothing or is simply routine. The weaknesses in internal controls admitted by the plan itself in response to the Simmons letter (the Plan told participants and beneficiaries that it had created a new board committee with its own independent counsel), a statement by pro-merger SAG Watch site that the Plan had to strengthen internal controls after a prior incident of malfeasance, the public declaration by Bob Carlson (a merger opponent and trustee) that the merger would place a “staggering burden” on the plan, and now the admission of an ongoing multi-year investigation by the Department of Labor all point to the fact that SAG went into the merger negotiations with AFTRA at a time of weakness. If the merger is approved there will be very difficult internal battles to resolve the problems that merger does not touch, including the future of the vitally important health care and pension plans built over so many years by the hard work of SAG members.

SAG arrest threat story collapses – mea culpa

A controversial report earlier this week by SAG anti-merger activist Michele Santopietro posted on several social media sites that SAG general counsel Duncan Crabtree-Ireland and SAG Communications Director Pamela Greenwalt threatened Santopietro and a second SAG member, Samantha Hartson, with arrest has now collapsed as the two actors now differ significantly in their explanations of the event. It is no longer clear that anyone was ever threatened with arrest.

It does look as if an overly zealous property manager got a bit hot and bothered by the presence of leafletters outside his building but it’s not clear that this had anything to do with the ongoing merger debate in SAG.

The building manager’s name is John Carter, so maybe this was all part of a guerrilla marketing for that new movie. Who knows.

In light of the serious issues under discussion, however, it is unfortunate that this saga was played out here and on various social media.  Obviously had there been any attempt to intimidate SAG members by SAG staff that would have been a very serious matter.   Rather than try to sort out the constantly shifting stories from Hartson and Santopietro, I would like to apologize to my readers for the confusion I may have caused in trying to sort out what happened.