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January 30, 2005


With the mechanics' union rank-and-file voting down concessions, including some pretty severe ones like jobs cuts, United Airlines is once again facing bankruptcy.

Oh wait, we're well past that. They're looking at liquidation. The union is claiming that it can save the airline millions of dollars without further cuts, and let's hope they're right, because everyone agrees that a strike will kill the airline once and for all. The real question is, when the local spokesmen say that mechanics are ready for that, is it the real turtle soup, or only the mock? Because now it's for all time, and not merely a lark.

Pointing that the unions (not this particular union, though) sat on United's board for years, and helped to plunder the company just as surely as any Global Crossing executive doesn't help things now. But it does raise some interesting questions about this au currant idea known as "Stakeholder Theory."

Briefly put, Stakeholder theory claims that a business has responsibilities that go outside of satisfying shareholders. Milton Friedman has argued vociferously that if you don't like what a company's doing, pass a law, or maybe strike, but that to load all the responsibilities of the world onto corporate management is to create insolvable problems. It's bad enough they're expected to make a profit when the guy next door is trying to do the same thing; burderning them with other, fairly ill-defined obligations is just going to sink the company in the long run. The employees, neighbors, suppliers, customers, generations future and past, and presumptive visiting space aliens all have the means to defend their own interests if they exist.

Nevertheless, Stakeholder Theory is now standard fare in b-schools. Hundreds of books have been written, thousands of seminars taught, millions indoctrinated, so going back probably isn't an option. And to be fair, to cite a current topic of conversation, it might not, strictly speaking, be a food chain's fault that it smells like french fries and its customers forget how to use trash cans when they walk out the door. But the company might still be considered to have an ethical obligation to mitigate some of those effects.

Now these are usually presented as management obligations. In the first place, the people teaching ethics tend to lean a little to the liberal, though not usually Leftist, side. Still, the mechanics' case suggests that this water may flow in many directions.

For the sake of argument, let's suppose that the union proposal, due in court this morning, saves cash but prevents improving internal processes. The company won't emerge from bankruptcy, and it wouldn't be any better-able to compete in the long run. The company would liquidate.

Who would be hurt? All the other employees, who have accepted cuts, for one thing. United's debt-holders, who have gone along with this long-running last act for years, hoping to get paid back. Airport business employees and owners, who would find their concourse following the mining industry. Not to mention a judge who'd have to find another case to manage. All these people would be perfectly furious with the mechanics, and rightly so. If management has an ethical obligation to consider employees and customers, unions have no less an obligation to consider other employees and downstream businesses.

In a way, this argument should be resolved by now. Margaret Thatcher and, to a lesser extent, Ronald Reagan, were both elected as a result of union intransigence that was hurting non-members. Like the people freezing to death for the greater glory of Scargill.

At the same time, maybe the union is, in a perverse way, actually aiding stakeholders. United isn't coming out of receivership any time soon. It retains its death-grip on gates it can barely use, and can't possibly be the most efficient tenant for. It's already prevented Frontier from expanding service, and reconsidering its plan for a maintenance shop here. As sinking ships go, United is taking a lot of surrounding shipping with it.

There's no way to do this calculation, of course. Once you start expanding the universe of people with claims, there's practically no end. Not to mention the fact that if shareholders have to consider everyone else, who'll be left to consider the shareholders? Which is perhaps the best reason to leave Stakeholder Theory on the shelf, for now.

Posted by joshuasharf at January 30, 2005 10:43 PM | TrackBack

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