​Corrupt Negotiations

Companies and their labor unions need to take measures to prevent corruption and conflicts of interests among their leaders.

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​U.S. federal prosecutors have indicted a United Auto Workers (UAW) executive for allegedly accepting payments and gifts from Fiat Chrysler Automobiles NV to influence labor contract negotiations, the Detroit News reports. Nancy Adams Johnson, the union's No. 2 official representing Fiat Chrysler workers is the sixth UAW and Fiat Chrysler official to be charged with conspiring to corrupt labor negotiations between the two parties. The indictment alleges Adams Johnson received tens of thousands in benefits from former Fiat Chrysler executive Alphons Iacobelli through the UAW–Chrysler National Training Center, on which she was a board member. An earlier Detroit News story noted that Adams Johnson also had charged more than $75,000 in personal expenses to union credit cards between 2014 and 2016. Iacobelli has pleaded guilty to federal corruption charges, along with another Fiat Chrysler executive, and awaits sentencing.

Lessons Learned

According to the Center for Union Facts, a not-for-profit organization that promotes transparency and accountability in labor unions, U.S. unions collect more than $10 billion from workers annually in mandatory dues. They control another $400 billion in financial assets that include strike funds, pension plans, and health-care benefits. But frauds such as embezzlement, bribery, and corruption also are significant. Other findings by the center related to this story include:

  • The Department of Labor's (DOL) Office of Labor-Management Standards (OLMS) has investigated and prosecuted union leaders for embezzling more than $100 million in union dues since 2001.
  • Investigations by the DOL's Office of Inspector General, which investigates labor racketeering and organized crime's influence within the labor movement, has resulted in more than $1 billion in fines, restitutions, and forfeitures.
  • Fewer than 5 percent of unions audited by the DOL received unqualified passes.
     

Here are some measures Fiat Chrysler, the UAW, and government regulators should consider to improve this situation and prevent further incidents:

  • Both Fiat Chrysler and the UAW need to carefully review and strengthen their internal controls. In light of this story, those controls should include addressing weaknesses in internal financial systems dealing with matters such as hospitality and conducting fraud risk assessments. Unions and companies also should establish strict separation of labor versus management roles and activities. For example, they should take measures to prevent joint training centers from funneling cash and benefits between the two sides. Moreover, they should review human resources measures such as background checks on those involved in collective bargaining, scrutinize significant lifestyle changes, tighten rules and review of hospitality and travel, and rotate staff members in and out of bargaining roles more frequently to prevent too-close relationships.
     
  • Management and labor should strengthen ethics and conflict-of-interest measures. These measures include imposing tougher sanctions where noncompliance is found and updating mandatory ethics/conflict-of-interest training to reflect the kinds of risks revealed in this story. If Starbucks can close 8,000 stores to provide unconscious bias training to employees, it should be relatively straightforward for Fiat Chrysler and the UAW — as well as other automakers and related unions — to do the same for ethics training.
     
  • Labor regulators should step up requirements, enforcement, and education related to reporting and disclosures. U.S. regulators should improve the quality of reporting and auditing required by the Labor Management Reporting and Disclosure Act (LMRDA) to help detect and deter potential fraud. The LMRDA requires unions to file annual financial reports detailing their financial condition and operations. The law directs unions to provide detailed information on their dues and other income sources, assets, line-item expenditures, and union leaders' salaries and fringe benefits, depending on a union's yearly income. Moreover, it requires union leaders to report potential conflicts of interests.

    Needed improvements include more timely and complete reporting — and stronger penalties for failures to do so. Also, specific reporting on the results of audits, such as those related to embezzlement, would help. Better training of staff members involved in preparing reports also could be useful. And, regulators should consider stiffer penalties for repeat offenders.

  • Regulators should audit unions' compliance and assess penalties consistently. The OLMS has broad powers to audit U.S. unions' financial reports and ensure compliance with reporting requirements. However, unlike Internal Revenue Service audits, which can result in significant fines, few OLMS compliance audits result in specific punitive damages being assessed in court. Stronger penalties could deter significant violations of the LMRDA such as filing false reports, keeping false records, and destroying records.
Art Stewart
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About the Author

 

 

Art StewartArt Stewart<p>​Art Stewart is an independent management consultant with more than 35 years of experience in internal audit, financial management, performance measurement, governance, and strategic policy planning.​​​</p>https://iaonline.theiia.org/authors/Pages/Art-Stewart.aspx

 

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