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Downsizing the CEO
Labor and shareholders unite to roll back executive power

The omnipotent corporate chief executive emerged in the ’90s as a popular economic superhero, rivaling the high-tech nerd as creator of the economic boom. But that came to a crashing finale with misdeeds at Enron and dozens of other high-profile businesses—when a mix of executive greed, lawbreaking and deregulation built up then burst the stock market bubble.

In the angry aftermath, the labor movement worked closely with public employee pension funds to create a new model of accountability for corporate executives, and this spring the Securities and Exchange Commission (SEC) is expected to issue new rules that will make it easier for shareholders to nominate directors.

“This is the most important corporate governance reform to correct past abuses that we’ve seen in recent years,” says Brandon Rees, a researcher at the AFL-CIO’s Center for Working Capital. It reflects a tentative alliance between organized labor and shareholders against arrogant executives and their destructive corporate decision-making.

Shareholders own corporations, but in the first decades of the 20th Century control shifted to professional managers. Although technically accountable to boards of directors representing shareholders, CEOs and corporate insiders now effectively name the directors, who set executive pay, oversee audits and approve broad strategies. With CEOs in near-total control, executive pay skyrocketed regardless of how well corporations performed or planned for the long term.

During the ’90s, unions increasingly used the power of their members’ pension funds—valued at $6 trillion—to combat the mismanagement that threatened the retirement wealth of their membership....