Forwarded from Vic Thorpe: "Look for the union label . . . and run the other way" - Morgan Stanley advise 'biting the hand that feeds you'

[Dan Bell <dbell@kent.edu>]

This message was sent by Vic Thorpe, but not relayed to the list due to the 
addition of
attachments. If interested in the attachments, please contact Vic directly at
just.solutions@pandora.be

Sent: 21 November 2002 15:33
To: Global Unions Forum on Workers' Capital
Subject: "Look for the union label . . . and run the other way" - Morgan
Stanley advise 'biting the hand that feeds you'


Last week Morgan Stanley issued a highly contentious analyst's report
advising investors to avoid investing in companies with a unionised
workforce. In the controversial note "Look for the Union Label" issued on
November 14, Morgan Stanley Equity Research North America advised US
investors to avoid heavily unionised industries "today more than usual"
because their stocks under perform the broader equity market in the US.
Referring to pension liabilities and post retirement health care benefits as
"plagues" Steve Galbraith, Morgan Stanley's US equity strategist, says that
"investors do not want to own businesses with high fixed costs, pension
funding issues and spiralling post-retirement healthcare obligations...found
prominently in industries with outsized union representation."
In a strongly worded response to the Chairman and CEO of Morgan Stanley,
AFL-CIO President John Sweeney calls the analyst report an attack on all
union members, their employers and their benefit funds. He asks if Morgan
Stanley believes it is in investors' interests that companies should NOT
provide - or continue to fund - employee benefit plans. He points out that
it is these pension plans that provide the capital markets with so much of
their capital and reminds Morgan Stanley of the collapse of anti-union
companies like Enron, Tyco and WorldCom - which the analysts failed to
foresee.
So far as I know he is still waiting for a response but Morgan Stanley did
issue a further analyst's report to "clarify" their position in which they
claim they are not anti-union and, somewhat more convincingly, that they
"are explicitly not in a position to cite unionisation per se as cause of
this [stock price] underperformance". In fact the note of November 18 goes
on to say that "our intuition suggests that the long-term lagging
performance of airlines, autos, railroads etc. has more to do with the fact
that they are extremely tough businesses than simply the fact that they are
unionized".
Of course it's not just coincidence that unions are found in these
industries or that good benefits are found where there is a strong union
influence. And which individual investor would not welcome the retirement
and healthcare benefits that Morgan Stanley so disparage? But the report
offers little or no empirical evidence to correlate union presence with poor
stock price beyond the fact that both occur in 'old economy' industries.
Morgan Stanley admits that "it is beyond the scope of our work to declare
unequivocally that it is unions per se that have led to poor stock
performance in certain industries" but still had little hesitation in
confusing cause and effect when claiming that the most heavily unionised
groups in the S&P 500 index have profoundly under performed the market. In
some cases, they claim, the union/non-union differential "amounts to the
difference between survival and extinction" while acknowledging in the very
next sentence that "all kinds of things can influence stock behaviour, and
unionisation may be just one variable in a complex tapestry."
Notwithstanding the later amendments, their original note brings into
question the quality of Morgan Stanley's research and, at a time when the
role of the investment analysts is under close scrutiny, could result in
their advice being seriously questioned - not least by pension fund trustees
in unionised companies. It is hard to see how the advice not to invest in
their companies could be in the best interests of the pension fund
beneficiaries. At the very least the report's anti-union, anti-pension fund
stance could be considered an exercise in 'biting the hand that feeds you'.
For further details see the attached Morgan Stanley reports of November 14
and 18 and the AFL-CIO President's letter.
  <<Look for the Union Label 11.14.02_1.pdf>>  <<doc1_1.pdf>>
<<addenda.pdf>>
----------------------------------------
Jon Robinson - ICFTU
Tel +44 (0) 207 467 1224
Fax +44 (0) 207 1317
mailto:jrobinson@tuc.org.uk
----------------------------------------

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