As UAW Strike Looms and Labour Unrest Surges, Risks to Portfolios Grow

The looming strike by the United Auto Workers at Stellantis STLA (and potentially at the other two of the Big Three automakers, Ford F and General Motors GM) is underlining the risks of labour actions for investors. And on the eve of Labour Day, the number of labour actions is rising.

Recently, 97% of UAW members voted to approve a strike against GM, Ford, and Stellantis, affecting almost 150,000 hourly workers. This doesn’t guarantee a strike. But it does mean the UAW can immediately strike as its contract with each firm expires on Sept. 14.

“We continue to think a strike against Stellantis is the most likely outcome, but UAW President Shawn Fain has made it clear that a simultaneous strike against all three companies is possible,” writes Morningstar analyst David Whiston.

What are they asking for? Among other things, the UAW seeks a 40% pay increase, restoration of pensions for new hires, elimination of wage tiers, and other items. The union also wants to represent joint venture electric vehicle battery plants being built by the companies and top union wages at those factories.

UAW Strike: Automakers Appear Set To Join Hollywood Writers in Demanding Fairer Wages

The potential work stoppage comes at a time when Hollywood writers and actors have walked the picket lines for months. The Writers Guild of America is in the fourth month of its strike, and the affected studios are seeing stoppages pile up. Meanwhile, the union SAG-AFTRA, which represents 160,000 television and movie actors, is in the second month of its strike.

Indeed, labour activity has surged since the pandemic. Just recently, United Parcel Service UPS averted a walkout by offering workers a new contract that will expand the number of full-time jobs and ensure air conditioning in new trucks. Retail workers have organized at Starbucks SBUX, Apple AAPL, and Trader Joe’s.

Strikes pose elevated risks for investor portfolios, ranging from business interruptions to reputational impact.

“The threat that employees are about to go on strike should be a warning flag for any investor, and if employees follow through, it should be an even bigger concern,” says Andrew Poreda, ESG research analyst at Austin, Texas, asset manager Sage Advisory Services.

Those flags will fly as labour activity grows. According to the U.S. Bureau of Labor Statistics, there were 23 major strikes and lockouts in 2022, which idled 120,600 workers, versus 80,700 in 2021. In July, the bureau counts some 201,000 workers on strike.

Meanwhile, Cornell University’s Labor Action Tracker counted 205,500 workers on the picket line in July, marking the largest number of workers on strike tracked in a single month since January 2021, when data collection began. That doesn’t count smaller strikes that the tracker may not follow.

Why Are Workers Striking Right Now?

Decades ago, assets like factories were a company’s most valuable item. That’s changed. In today’s service economy, intangible assets like intellectual property account for 90%-plus of total assets on balance sheets.

Employees aren’t technically intangible assets—in accounting terms, they are considered payroll liabilities—but companies are increasingly realizing that employees’ knowledge and expertise make them extremely valuable. Indeed, companies spend money and resources to gain and keep talent and to build up their skill sets.

“Human capital is largely responsible for driving the increase in these assets,” says Poreda. One result is a broad discussion about how to treat workers from an accounting perspective.

The coronavirus pandemic underscored the importance of employees. At the same time, rising inflation has eroded wages while income inequality persists, causing what Jackie Cook, director, stewardship, at Morningstar Sustainalytics, calls “a breakdown” in the relationship between companies and their workers.

“If workers are striking, it reflects badly on the company,” says Cook. “For investors, there are concerns that companies have been ignoring human capital until now.”

Why Investors Should Care About a UAW Strike

Today, shareholders are increasingly vocal about issues surrounding unions and freedom of association. Striking unions are at the peak of their collective bargaining powers, according to Jonas Kron, chief advocacy officer at Trillium Asset Management. Trillium argues that shareholders and companies ought to support workers’ organizing rights in order to mitigate reputational risk and turnover and to boost employee productivity.

A Gallup poll finds that as of August 2022, 71% of Americans approve of labour unions, just shy of the highest recorded approval rating of 72% in 1965.

And the various environmental, social, and governance risks associated with the strikes—namely human capital risk—have been widely addressed throughout the most recent proxy season. Lindsey Stewart, director of investment stewardship at Morningstar, found that, in 100 well-supported shareholder resolutions in S&P 100 companies over the past two years, 26 of those resolutions addressed workplace equity themes, including unionization and workers’ rights; diversity, equity, and inclusion reporting; and pay equity.

Ultimately, investors must decide for themselves whether a company is dealing fairly with workers.

“Workers are immensely valuable,” says Poreda. “They have thousands of hours and money and training built in.”

Recognizing that is just the cost of business today.

Francesca Campo contributed to this report.