MAY 1983 - VOLUME 4 - NUMBER 5
Litton vs. Labor
Together, unions advance a serious challenge to the Litton game plan.by Tim Shorrock, Kathy Selvaggio and Jeff Bentoff
Stop the Litton lawbreaker." "No government contracts for corporate outlaws." Those are some of the slogans of a unique labor campaign that has been organized against Litton Industries, one of the nation's largest corporations. Coordinated by eight different unions, the Campaign is the first successful effort to form a labor coalition to match the diversified strength and political power of a conglomerate.
The unions have banded together because individually they have been unable to defeat the policies of what actor and labor leader Ed Asner calls "the most brazen, the most outrageous, unrepentant, insidious and consistent labor law violator in the country today."
Since 1963, a record 44 complaints against Litton were brought by the National Labor Relations Board (NLRB). The company was found guilty in 21 cases, and agreed to voluntary settlement in 13 others. According to William Gilbert of the California AFL-CIO, Litton has had "major disputes with at least 14 international unions at 24 locations in 17 states" during the last 20 years.
The coalition has developed a three-pronged approach. First, the unions have petitioned the NLRB to recognize Litton as the single employer of its subsidiaries. Second, the coalition and its allies in Congress are backing a bill which would make repeat offenders of labor law ineligible for federal contracts. And third, the unions have organized public demonstrations on campuses like Stanford University and George Washington University, where members of Litton's board of directors sit on the faculty. Last December the coalition - along with supporters like Ed Asner - held a rally in front of the Beverly Hills high school where Litton's stockholders were meeting.
It's a campaign of a thousand pin pricks," says Lance Compa, Washington representative of the United Electrical, Radio and Machine Workers of America (UE) and a local coordinator of the campaign.
The unions wake up to Litton
The campaign against Litton has its roots in the company's 1978 move of its unionized oven factory from Minneapolis to Sioux Falls, South Dakota, a state with low wages and right-to-work laws. Union organizers from the UE organized the new plant, then fought and won a fierce certification campaign in 1980. But in the next year, Litton fired several union leaders, threatened to close the plant, and refused to bargain in good faith, according to the UE.
In 1981, after hearing reports of Litton harassment of other unions, UE initiated a meeting of midwestern union organizers to discuss the company's practices. Later that year another meeting was held in Washington under the auspices of the industrial Union Department of the AFL -CIO, to which the unions brought detailed background information on the company and its labor policies.
"It was just astounding," says Lance Compa. "There was a vague notion that people had problems, but nobody had any idea of the scope of it." Compa says this was partly because the company usually kept the original names of the companies it bought - Monroe, Sweda International, Western Geophysical, and Precision Gear - instead of giving these divisions an easily recognizable "Litton" label.
Out of these meetings a coalition of unions was formed to organize a coordinated campaign against Litton to counter what the unions say is a companywide anti-union policy. Among the cases cited by the campaign:
The Litton campaign, says Compa, is "a multi-union effort of equal partners," the first time that unions have joined forces to fight a common employer. Cornell University Professor Charles Craypo, a specialist in labor relations and author of a major study on Litton, notes the precedent set by the campaign: "The union coalition against Litton is a remarkable achievement because the unions' instincts are in the other direction. They've come to see their common interest."
One unique aspect of the Litton campaign is that the coalition is not hiring expensive media consultants or raising large sums of money for their efforts. This is "an old-fashioned union effort, where everyone pitches in," says Compa, with the unions donating existing staff and resources. While the strategy may have been dictated by economic pressures, Compa believes that it will be more effective in reaching rank-and-file trade unionists than slick television or magazine ads.
The growth of conglomerates
The Litton campaign represents a new strategy to deal with a relatively recent development in the U.S. economy. Since the end of World War II, the primary form of growth in the U.S. has been conglomerate expansion, characterized by the acquisition of totally unrelated businesses through sales or mergers, and the buying and selling of other companies.
Between 1948 and 1965, according to one study, there were 711 mergers of large firms, 454 of which were conglomerate. The trend accelerated greatly in the 1970s. In 1972, the value of conglomerate mergers and acquisitions was less than $1.5 billion; by 1977 the figure had increased to nearly $6 billion.
Because of the rapid pace of mergers and acquisitions, a definition of conglomerate is hard to come by - and applied very loosely by the business press.
Asked about their criteria for classifying conglomerates, editors at Forbes and Business Week say they have "no hard and fast rules." "It's very subjective," says Business Week accounting editor Robert Mims. "Our main criteria is a widely diversified collection of companies, none of which seem to fall into any one industry." Mims says that the historical roots of a company and its competitive position are also factors; thus Mobil Oil, Philip Morris, and RCA - all very diversified companies - are listed respectively as oil, tobacco, and electronics companies because they compete heavily with other companies in these sectors.
Forbes has two categories: "multicompanies," corporations with three or four segments, and conglomerates, those with five or six. But "so many companies are diversifying at such incredible speed that we're seriously thinking of getting rid of these classifications," says economics editor Maria Latorraca. (Fortune does not list conglomerates as a separate category.)
The confusion is well-illustrated by the fact that Litton is listed as a conglomerate by Forbes, and as an electronics company by Business Week. Asked about this discrepancy, Mims explained that "Litton was switched at their request only in the last few months. They say they are now predominately in electronics." Was this request related to the union campaign? "That's an interesting question," Mims commented.
The first major company to be recognized as a conglomerate was Textron, which began as a small distributor of clothing and other materials to the U.S. Army. Between 1943 and 1980, Textron bought and sold over 100 different companies in sectors as diverse as textiles, aerospace, machinery, and pens. Today it ranks 136th on the Fortune 500 with over $2.9 billion in sales last year.
Textron's base in the military-industrial complex is typical of conglomerates like L-T-V, Litton, TRW, Teledyne, Singer, and United Technologies - all major military contractors. The founders of many of these companies, in fact, came out of the military; their contracts in the military establishment put them in good positions to take advantage of the defense contracting system developed after World War II.
Military contracts provide a stable cash flow to conglomerates, and also help build an infrastructure for civilian contracts without major investments on the company's part. Military contracts can also be renegotiated when prices escalate, ensuring companies of a constant source of profits.
One aspect of conglomerates that sets them apart from other corporations is that their growth is rarely based on developing new products or design, but instead on the purchase of industries which themselves have designed new products. Their economic power thus comes from buying and selling - not building.
The drive to acquire often results in what is euphemistically called "creative financing" - making a company's stock appear to be worth more than it actually is by inflating figures of inventory or "selling" goods (for inflated prices) to another subsidiary. The purpose is to "trick" the stock market into giving the company's stock a higher price.
This practice was described well in a 1968 Ramparts Magazine profile of Litton: "The key to conglomerate growth is the fact that a company's stock can be ...the `money' that is used to purchase another corporation... By successfully creating a glamorous `growth image' on the stock market that excites expectations of real future growth, he can drive the value of his stock up. This then gives him new `money' with which to buy real assets in the form of another corporation."
Because their basic drive is to expand into the most profitable sectors of the economy, conglomerates do not make it a primary rule to reinvest in companies they buy. Instead, they use them as vehicles to pump cash into other weaker but growing subsidiaries, or to help finance other takeovers. Often, when the company is no longer useful, it is sold - or closed.
One of the most famous instances of such practices was the case of Youngstown Sheet and Tube Company in Ohio, purchased in 1968 by the Lykes Corporation, a New Orleans-based conglomerate. In the next eight years, Lykes "milked" the company to amortize its debt and expand non-steel operations. Investment fell from $72 million a year to $34 million. Meanwhile, Lykes' banker supports - Citibank, Chase Manhattan and Chemical Bank - were increasing their loans to Japanese steel companies and refusing to invest in Youngstown. Because of this conscious disinvestment policy, Youngstown Steel and Tube was permanently closed in 1977, costing 4,100 Ohio steelworkers their jobs. The next year, Lykes itself merged with L-T-V.
Disinvestment and mergers have had a dramatic impact on the U.S. economy. In their book The Deindustrialization of America, authors Barry Bluestone and Bennett Harrison cite one study showing that "somewhere between 32 and 38 million jobs were lost during the 1970s as the direct result of private disinvestment on American business." And they claim,
"If the capital that went into acquiring existing companies had been spent instead on new plants and equipment, national investment in 1968 would have been 46 percent higher than it was."
The political impact of conglomerates
It is not so much their size that gives these new corporate structures their power. That power comes from the organization of the corporations and the inability of present labor and anti-trust laws and union bargaining structures to keep up. Conglomerate power is exercised in three important ways:
1) Centralized control. When purchased by a conglomerate, plants become part of a large, centralized economic structure and plan. Local economies and community needs become much less of a factor in the decision-making of the corporate owner and local managers are less accountable for labor or community conflicts.
This high degree of centralization also gives conglomerates the ability to subsidize new or less profitable industries, giving them a competitive edge, a process known as "cross-subsidization."
2) Control over information. By absorbing firms into a larger structure, a conglomerate can hide vital information on profitability or future plans, making it difficult for unions and communities to bargain over shutdowns or other investment decisions. When the UAW tried to bargain with Litton Industries over the transfer of its Royal Typewriter Company division from Hartford, Connecticut to Europe, the union had no information about where the company was moving or whether the division was making a profit. All information about Royal was consolidated into Litton's overall corporate balance sheets.
3) New controls over labor. "The biggest problem with conglomerates," says Lance Compa of the UE, "is the effect on the bargaining power of unions." Unions cannot negotiate a single national contract with a conglomerate employer, as they can (and did) with giants like General Electric or General Motors.
With conglomerates, union contracts (where they exist) vary from plant to plant. "When you operate in so many lines of business," says Compa, "there's just a kaleidoscope of contract provisions, different contract expiration dates and lengths. No single bargaining unit or even a single union has effective bargaining power in that situation." The campaign against Litton is partly aimed at this structure.
By operating several plants and different divisions, conglomerates also gain leverage over strikes and other labor actions. When one of these plants go on strike, the company can "wait it out" by maintaining or increasing production at other sites - it can even shut the plant or division down.
Labor activists also say that current labor law is obsolete and ineffective against new economic structures like conglomerates. Professor Charles Craypo points out that "the assumptions of labor law may have been OK once, but now big, powerful, diversified conglomerates are using them in a calculated way." That is, corporations take advantage of the years it often takes to litigate the remedies ordered by the NLRB (reinstatement of fired employees, orders to bargain, and posting of notices promising good faith behavior are the most common remedies) and, all the while, resist unionizing efforts and continue unfair labor practices. According to Leonard Page of the UAW, by the time an employer is finally ordered to begin bargaining, "The union, its status and support eroded, is seldom able to transform its final `victory' into a first labor agreement."
Unions look to legal, Congressional remedies
To strengthen its hand in achieving such agreements, the union coalition against Litton is pursuing legal action on two fronts. First, the unions have asked the NLRB to recognize Litton as a single employer with a centrally directed labor policy. Finding Litton liable for the actions of its various divisions would mean that a remedy ordered by the labor board for one division's transgressions would apply company-wide.
The unions argue that the present NLRB policy of viewing each subsidiary as a separate company masks the considerable record of violations that become evident when the Litton conglomerate is viewed as a whole. Since the NLRB tends to be tougher on repeat violators then on first-time offenders, recognizing Litton as a single employer will, in the unions' view, provoke stiffer penalties from the board.
Litton officials deny that they have a centrally directed labor policy. "Each division is autonomous," Douglas Smith, a public relations spokesperson for the company told the Monitor. "However a division chooses to manage its operations is its own prerogative." But he admits that "occasionally, Litton corporate staff will act as advisors or offer guidance to divisions."
These advisors, say the unions, have considerable influence on Litton subsidiaries, and are frequently sent to supervise contract negotiations and oversee union elections at Litton divisions around the country. Lance Compa calls them "a cadre of anti-union hit men."
In conjunction with this request for single employer status, the unions are "asking the board to be more creative in its approaches and remedies," says Compa. Among the ideas are pressures on the NLRB to exercise the option of court injunctions and contempt orders with Litton. It also wants the NLRB to set up a special team at the national level that would consolidate information from the various regional NLRB offices to coordinate Litton cases. The board will be acting on the unions' requests after it completes an internal review of the Litton case.
On the legislative front, the union coalition is backing a bill introduced in the House of Representatives by Congressman Paul Simon (D-Illinois, see box p. 14). The bill would deny government contracts to parties with a history of willful violation of the labor law. The same procedure has been used to enforce civil rights provisions in the Equal Employment Opportunity Act and to protect workers on government construction projects. For a company like Litton, which last year received nearly a third of its $4.9 billion sales from government defense contracts, the loss could be substantial.
At a hearing on the bill before the House Subcommittee on Labor Management Relations in mid-April, speakers argued that union busting tactics put companies in a better position to compete for lucrative government contracts - in effect rewarding them for breaking the law. William Winpisinger, president of the Machinists Union, told the committee that "this bill will take some of the profit and fun out of union busting."
Campaign leaders see both legal strategies as supplemental to their long range goals of educating the public about Litton and building broad-based support for the unions. Towards that end, they have organized the recent demonstrations at Stanford University and George Washington University.
But the challenge that companies like Litton pose to workers and communities is a formidable one. What is significant about the Litton campaign is its attempt to meet this challenge with an organization that matches a conglomerate's diversified strength. "This Litton campaign is a long term thing," says Compa. "The real objective is to put together an effective countervailing force of union-represented people that can stand up to the conglomerate as a whole. That's going to take years and years. But we figure its going to take that if the union movement is to survive as anything more than an empty shell."
* The unions involved are the Graphics Arts International Union; International Association of Machinists; International Brotherhood of Electrical Workers; International Brotherhood of Teamsters; International Union of Electrical, Radio and Machine Workers of America; United Auto Workers; United Electrical, Radio and Machine Workers of America; and United Steelworkers. Also endorsing the campaign are the Coalition of Black Trade Unionists; Coalition of Labor Women; Metropolitan Washington Council, AFL-CIO, and Metropolitan Washington Frontlash. between 1964 and 1981, the UAW, the Sheet Metal Workers, and the International Union of Electrical, Radio and Machine Workers of America (IUE) claimed that during organizing campaigns, Litton interrogated union sympathizers, threatened to close the plant, conducted surveillance of union meetings, and harassed and fired union organizers.