Disclosing Union Finances to Minimize Corruption
In the 1950s, about one-third of the U.S. workforce in the private sector was unionized (as compared to 8 percent in 2005), and unions represented the majority of workers in steel and auto manufacturing, trucking, construction, food processing, and other industries central to the economy. Union leaders like John L. Lewis, Walter Reuther, George Meany, and Jimmy Hoffa were well-known national figures. The considerable economic and political influence exercised by labor unions provoked concern in the business community and in Congress.
In 1957, congressional hearings chaired by Senator John L. McClellan (D-Ark.) focused on one source of concern: bribery, fraud, and other forms of racketeering in parts of the labor movement. The two-year, high-profile, and often sensational Senate investigations revealed corruption in a number of major labor organizations and resulted in calls for government intervention in union governance. In this crisis atmosphere, Congress debated different methods to improve standards of democracy, fiscal responsibility, and transparency in private-sector labor organizations.
Political compromise produced the Labor Management Reporting and Disclosure Act (LMRDA), which created standards for democratic governance and required unions to periodically reveal detailed information regarding financial practices and governance procedures. Disclosure requirements were relatively narrow in scope, focusing on union balance sheets, loan activities, officer salaries, and line-item disbursements (e.g., for employee salary and benefits, administrative expenses, and rent and operating expenses) rather than on programmatic expenditures at the national and local union level. A division of the U.S. Department of Labor, the Office of Labor Management Services (OLMS), was created to enforce the law, including its disclosure provisions. The penalties associated with failing to provide timely and accurate reports were significant.
From the start, disclosure imposed substantial costs on union officers but offered few benefits to them, creating incentives for officers to provide minimal information. For most of the disclosure requirement’s history, it was difficult and costly for union members to gain access to the information that was ostensibly made public. They had to go to a reading room at the Labor Department in Washington, D.C., or to a regional office, or make a request by mail, paying a per-page charge. Even then, information remained fragmented. Regional offices carried only records relating to union affiliates in their geographical area. Most union members were unaware that the information existed, and even for those who learned about it, reporting forms proved technical and difficult to interpret.
These high costs to individual information users created a potential role for intermediaries. But, as of 2006, it remained uncommon to find formal groups within unions that could act independently of incumbent officers and were capable of playing an intermediary role. Employers, too, rarely used the information from the disclosure system to discredit unions—they had more effective tools at hand. The decline of union strength beginning in the early 1980s also made many in the labor movement reluctant to “air dirty laundry” in public for fear of providing ammunition to antiunion employers and damaging public support for the labor movement.
With high costs to information disclosers and users, and few intermediaries available to lower user costs, it is not surprising that the scope, accuracy, and use of this disclosure system did not improve much in forty years. The only significant expansion in scope occurred with the passage of legislation that created similar access to union financial information for federal government workers and the addition of reporting requirements for financial institutions that made loans to unions.
Accuracy or timeliness of the disclosed information improved little. The financial categories and definitions remained the same, as did the level of required financial detail, except form reductions for smaller unions. And despite strong enforcement provisions, the annual delinquency rate in filing reports was 25 percent, the GAO found in 2000. The likelihood of a recordkeeping inspection was small, and most penalties were directed toward unions that intentionally failed to file or that falsified reports.
Overall use of information by rank-and-file unionmembers remained minimal. Contrary to Congress’s expectation that information would be used by union members, most users over the past three decades have been business groups, antiunion consultants, or academics. In 1999, a typical year prior to the creation of Internet-based access, the Labor Department responded to only eight thousand disclosure requests from all sources (out of 13 million union members whowere covered by the transparency policy).
The costs of disclosing and particularly of using information, however, fell substantially when Congress appropriated funds in fiscal years 1998 and 1999 to develop and implement electronic filing and dissemination of reports. Over the following three years, the Labor Department developed systems for both filing and accessing disclosure forms via the Internet. As of 2006, unions could file forms electronically, and users could view and print all union financial reports from the year 2000 to the present, search records by a variety of criteria, and request copies from earlier periods via the Department of Labor’s Internet Public Disclosure Room (http://www.union-reports.dol.gov). The most significant changes to union financial reporting requirements since 1959 came with the election of George W. Bush in 2000. From 2001 to 2006 the Bush administration dramatically increased funding to the Labor Department office that administers the disclosure system (while reducing budgets in much of the rest of the Labor Department), expanding the number of full-time equivalent staff from 290 in FY 2001 to 384 in its proposed FY 2006 budget, and raising overall funding from $30.5 million in FY2001 to $48.8 million in its proposed FY 2006 budget. The administration cited improving the accuracy and timeliness of union reporting as one of the strategic priorities for this division.
More important, the Bush administration used its authority to issue regulations to alter a variety of reporting requirements. These included expanding reporting for smaller labor unions; requiring electronic filing; and changing the way that financial information is provided by, for example, requiring that unions disclose information on all services purchased for five thousand dollars or more. The new regulations also required reporting of financial information on a programmatic—as well as a line-item—basis (e.g., providing information on the amount of money spent for representation, organizing, and other major union activities). Individual unions and the AFL-CIO opposed many of these changes, arguing that they would substantially increase the costs faced by labor organizations with little additional benefit to union members. They ultimately lost these legal challenges in 2005.
This case study is drawn from Full Disclosure, Fung, Graham and Weil, 2007.