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Here’s a post from senior writer Michael Orey:
Not a day goes by, it seems, without news of additional layoffs. As my colleague Emily Thornton points out in this week’s magazine, a growing number of workers are hauling their former companies into court, alleging violations of severance laws. Those cases have yet to be resolved. But recently a lawsuit of a different sort ended with workers winning a reprieve from downsizing.
A proposed settlement of claims by shareholders of Sovereign Bancorp contains a no-layoff provision for bank employees. This unusual result hinged on factors unlikely to exist in other cases. Still, as corporations shed jobs, the case offers a rare example of directors acting to protect a constituency other than shareholders — in this case employees. A vocal minority of scholars and corporate-governance activists have long advocated allowing boards to exercise their fiduciary duties broadly to benefit all stakeholders in a company, rather than always having to put shareholders’ interests first.
Here’s what happened: In October, Spain’s Banco Santander moved to acquire the three-quarters of Philadelphia-based Sovereign it didn’t own. Sovereign stockholders then went to court claiming the price was too low. A Jan 21 settlement, which must be approved by the court, offers minimal relief for shareholders. But it does say that Santander will not lay off Sovereign’s 3,300 Pennsylvania workers for 12 months; and for 12 months after that, Santander will award laid off employees severance in accordance with the relatively generous packages that are offered currently.
Two factors explain how a case seeking redress for shareholders ended up winning job protection for employees. Through various stock plans the bank’s employees are also significant Sovereign shareholders, thus giving them an interest in the outcome. And a quirk in Pennsylvania law specifically allows directors of companies incorporated there to make decisions that benefit more than just shareholders. “That’s very unusual,” says Charles M. Elson, a corporate-governance specialist at the University of Delaware. “The idea of a shareholder suit is to recoup value for shareholders.”
A Santander spokesman says the deal does benefit shareholders, noting, “Besides settling the litigation, it helps motivate the Sovereign workforce as it joins Santander.”
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