Workers Uniting Concerned About Hedge Fund Efforts to Oust Arconic CEO

Workers Uniting has serious concerns about efforts by several hedge funds to oust the CEO of Arconic, the specialized metals and components company formed in late 2016 after the breakup of Alcoa, Inc. Read more here.

Workers Uniting, the 2 million-member global union formed by UNITE the Union and the United Steelworkers (USW), has serious concerns about efforts by several hedge funds to oust the CEO of Arconic, the specialized metals and components company formed in late 2016 after the breakup of Alcoa, Inc.  Together, UNITE and the USW represent more than 7,700 Arconic employees in North America and the United Kingdom. 

The hedge fund Elliott Management Corp., which states that it owns more than a 12 percent economic interest in Arconic, wrote to the company’s board of directors on Feb. 7 urging the board to oust Arconic CEO Klaus Kleinfeld and elect a competing slate of directors. Other hedge funds have expressed their support for Elliott’s efforts. Submitting to the demands of these hedge funds, whose interests likely focus on their short-term returns as opposed to the long-term needs of the business, poses too great a risk for Arconic’s employees and other stakeholders, as well as for communities in which Arconic operates.

The USW and UNITE have never hesitated to criticize the management of any company when criticism is due. We would call out Arconic management, just as we frequently called out Alcoa’s, if we were to conclude that management was not acting in the best interests of our members and the facilities in which they work. In this case, however, Elliot Management and the other hedge funds that have joined its campaign are simply seeking to engineer a short-term price increase at the long-term expense of the company, its other shareholders and its employees.

Arconic operates in advanced manufacturing sectors requiring management to focus sharply on making capital investments, supporting research and development, continually training its work force, and improving workplace safety.  The members of our unions demand that these expenditures be made because they understand better than anyone that keeping pace in a global market requires innovation. Indeed, making necessary expenditures and focusing on the long-term prospects of the business are particularly crucial in an environment where aluminum workers are under assault by unfairly traded aluminum from China (an unfortunate reality which Elliot Management ignores in its letter).

Elliot’s critique of Arconic’s performance misses several other salient factors. The metals sector has been an especially difficult space in which to compete for the past decade as a result of the dramatic expansion of Chinese smelting capacity. Likewise, the aluminum market is inherently cyclical, which Elliot and the other hedge funds fail to explain. Moreover, the activist shareholders’ focus on the company’s expenses ignores the $1.5 billion of capital expenditures in the Global Rolled Products business that allowed the company to enter the external automotive market strategically and at the right time.

Our unions were justifiably skeptical of the separation of Alcoa’s upstream and downstream businesses that occurred in late 2016, but we carefully studied the matter and were able to negotiate agreements, after tough bargaining, that protected our members as much as possible. At a time of unprecedented risk in the global aluminum sector – risk that falls primarily upon the company’s employees and retirees and communities in which it operates – Arconic should be managed by a team whose primary focus is on investing in the business and developing world-class products, navigating a global market roiled by unfair trade, and providing good jobs for its workers. Satisfying the unreasonable demands of hedge funds looking to pad their pockets and move on to their next investment is an unnecessary distraction.

 

Leo W. Gerard                                                Len McCluskey
International President, USW                         General Secretary, UNITE the Union

 

Tom Conway                                                Tony Burke
International Vice President, USW                 Assistant General Secretary, UNITE the Union

 

Andy Murray
UNITE the Union Convener & Chair, Arconic European Works Council