The Koch negotiating team insisted that their proposals were not simply a way to save money, but reflected Koch’s principles. Employees needed to act like owners and entrepreneurs. That was why, for example, Koch Industries didn’t just want the workers to join a cafeteria-style health care plan; the company also wanted workers to pay more money out of pocket for their premiums. Previous versions of the IBU plan had covered the entire monthly premium. Now Koch Industries insisted that it would only pay 80 percent of the cost, with employees picking up the rest of the tab. The logic behind this proposal traced back to the earliest days of Market-Based Management. Charles Koch believed that if a service was free to an employee, then the employee would overuse it. Employees needed to have “skin in the game” when it came to receiving health insurance.
Koch’s principles made labor negotiations difficult. It was hard to meet in the middle when Koch believed that the union’s approach was destructively misguided. Still, the IBU tried to argue. That’s when they discovered an infuriating pattern to Koch’s bargaining method. David Franzen or Steve Hammond would propose something to Barnard. Barnard would nod his head, look at his binder, write some notes, and then say that he needed to contact Atlanta to share the new idea. The IBU team came to believe that Barnard wasn’t in charge of the process and needed to get clearance from headquarters. After the IBU made a proposal, the Koch team would gather its things, get up, and leave the negotiating room, promising to return soon with an answer.
Hours passed. Afternoons passed. Bucknum took the negotiating committee out for lunch. Guys paced on the sidewalks outside and smoked cigarettes and talked on their cell phones. Finally, the Koch team returned.
“They’d say, ‘Well, we’ve looked at your proposal,’ ” Bucknum said. “They wouldn’t say ‘No’ directly. They’d just go: ‘This is our counterproposal to what you said.’ Or: ‘We’re sticking with our prior proposal on line eleven,’ or whatever. It was like watching paint dry, talking to these people.”
Koch dragged out the bargaining in another way: Barnard only agreed to meet three days a week. Monday was a travel day, as Barnard flew to Oregon from Atlanta. Friday was also a travel day, when he flew home. The meetings sometimes ended at two in the afternoon, because it was five o’clock in Atlanta, when people started to go home from work.
Negotiations took on a predictable tempo. The teams sat down in the morning. The IBU proposed something. The Koch people left for hours, returned, conceded nothing, and then indicated it was time to go home for the day. After negotiations wrapped up on Thursday, the Koch team returned to Atlanta. Sometimes it was weeks before they could find another opening on their calendar. Nine months into the negotiations, it seemed like they’d made no progress. Yet the IBU team held tight.
Finally, a small victory. Don Barnard agreed to let the IBU retain its health plan rather than moving into the Koch plan, as long as the IBU employees were willing to pay out of pocket, for the first time, to keep the privilege. In the beginning, they would pay 20 percent out of pocket, and then 25 percent in forward years. After so many grinding hours of negotiation, the IBU took the offer.
Almost immediately after this development, however, the IBU was informed that Don Barnard no longer worked for Koch Industries. They would be getting a new negotiator to deal with. There was something disconcerting about this abrupt departure, like watching a diplomat of some hostile government get executed right in front of you for disobeying his rulers. The IBU team was convinced that Barnard was fired for letting the IBU keep its health care plan, although Barnard’s former boss insisted that this was not the case.
Regardless, Barnard’s departure sent a chill through the team. Back in his cramped office at the Longshoremen hall, Bucknum tried to figure out who Barnard’s replacement would be. Bucknum was told through back channels to the Koch negotiators that the IBU team would “sorely miss Mr. Barnard.” Bucknum said this warning turned out to be true.
* * *
When Don Barnard reported back to Atlanta, he reported to a man named Ken Harrison. Harrison was vice president of labor relations for Georgia-Pacific, overseeing the company’s negotiations with labor unions at various plants.
Harrison was a trim man in his early sixties, nearing the end of a decades-long career. His hair, once bright red, had faded to a thin and silvery gray. He wore a tightly trimmed goatee, also gray, that highlighted the severity of his high cheekbones and slender face. His face could convey a lot of feeling with even a small grimace or a half smile. Harrison measured his words with extreme care and dispatched them with a surgeon’s precision. Harrison began traveling frequently to Portland to negotiate directly with the IBU.
“You could tell that he thought this little group of a hundred people in Portland, Oregon, was beneath his pay grade. He didn’t really like to be bothered by us,” Bucknum remembered. “He didn’t look kindly at us—or the people on his side of the table.”
With Harrison in charge, the negotiations took a harder turn. Barnard had been infuriating, in his placid way, but Harrison was simply unmovable.
“I remember Ken Harrison looking across the table once and going ‘What part of “no” don’t you guys get?’ ” Hammond recalled. Hammond shook his head and widened his eyes at the recollection. The IBU team subscribed to the naïve notion that the bargaining session would be a series of compromises. Harrison disabused them of this notion.
“It just floored us all, you know?” Hammond said. “Because we just never heard anything like that. Now, bear in mind that we’re just a bunch of forklift drivers and stuff. We’re deckhands on boats, and things like that, negotiating against lawyers. The working man really didn’t have too much of a chance against those guys anyway.”
When he wasn’t at the negotiating table, Harrison had a surprisingly easy air about him. When asked how he came to be one of Georgia-Pacific’s top officials over labor unions, Harrison cracked a half smile and replied, “A drunk sailor charted my course through life.”
Harrison earned degrees in both business and law before spending his career at Georgia-Pacific. One reason Harrison was so stern at the negotiating table, so measured in his words, was that he knew loose language could create a chaotic process. If the other side didn’t believe what you said, it could upset expectations and create uncertainty and delays. That could undermine the company’s leverage.
“Full faith and credit; your word’s your bond,” Harrison said. “If it’s not, you’re going to be paying more than anybody else.”
Harrison, then, did not improvise. Like Koch’s commodity traders, Harrison based his actions on deep analysis. During every negotiating session, Harrison and his team set up a private “caucus room” where they could strategize. It was possible to do this because the negotiations had been moved from the Georgia-Pacific offices to a nearby hotel called the Red Lion, which was seen as neutral territory. The parties rented one room for their meeting, and Koch rented a second room for its team. Inside the caucus room, the Koch negotiators drank hot coffee and sat at a table with their laptops as they conferred.
The caucus room was essentially a makeshift trading floor. Harrison and his team developed a point of view on the large, multiyear trade to which they were committing Koch Industries. They evaluated the multiyear price that Koch should pay for the IBU workers’ labor, and they treated this trade exactly as Koch treated a multiyear hedge on oil prices. They sucked in data from diverse sources like federal labor statistics, private financial services, and even other labor unions. Backed by a team of analysts with spreadsheets, they analyzed the market and figured out their view on what the true price of the labor should be. This was a technique that Koch Industries had used since at least the 1990s. Randy Pohlman, the former Koch human resources executive, said Koch’s team in the caucus room used spreadsheets to tweak and tailor the numbers even as negotiators worked next door.
When Harrison and the team settled on their price for IBU’s labor, they were encouraged not to
pay a penny more. While Koch didn’t introduce any radical new negotiating tactics to Harrison’s team at Georgia-Pacific, the new owners did provide a new emphasis: “Run it more efficiently at a lower cost.” Because of the billions in debt that Koch loaded onto Georgia-Pacific, Harrison was told to help cut costs and lower overhead wherever he could. (Koch later said that Harrison’s superiors don’t remember giving him this directive. But the company did embrace the strategy of making Georgia-Pacific more efficient.) This explained the deep gulf between what the IBU wanted and what Koch was willing to offer.
After the process dragged on for months, the IBU implemented lessons they learned from Lynn Feekin. They decided to fight outside the negotiating room.
* * *
The IBU set up a large stage in Pioneer Courthouse Square, a public plaza in downtown Portland. The plaza was shaped like a shallow bowl, bordered by a gently ascending slope of stairs where curious onlookers sat and watched the show. Bucknum and David Franzen arrived for the rally, carrying placards stapled to wooden sticks, with the IBU insignia and the message “WE ARE ONE—RESPECT OUR RIGHTS.” Another protestor carried a sign that said: “CORPORATE GREED MAKES ME SICK.”
This was the modern-day equivalent of a union picket line—meaning that it was no picket line at all. The IBU rally was held in partnership with a local progressive political group called Portland Rising and a national group called Jobs with Justice. It was a circus-like event designed to garner publicity and to shame Koch Industries into agreeing to a better deal. The IBU didn’t have the clout to actually go on strike, and the members knew it. The rally was a publicity tool, not an economic weapon.
Before the march, several speeches were made from the stage. Fists were raised. A bullhorn was used, in spite of the presence of a nearby microphone and podium. Corporate greed was denounced. Workers were extolled. Bucknum sat nearby the stage, smiling sardonically when someone snapped a photo of him. The look on his face was almost pained. There was something about the rally, something about the protest in general, that felt out of step with mainstream American politics. Even in the Obama era, the American way of life had become centered on individual achievement. It was a nation that worshipped its entrepreneurs, its star athletes, and its self-made celebrities. There was something almost . . . unbecoming about a group of people assembling publicly to demand a bigger paycheck. The shouts and cries rose up from the square, echoed off the nearby skyscrapers, and then seemed to fade away. The media coverage was anemic; the attention paid to the rally, minimal.
Perhaps most importantly, the event was held several miles from the warehouse. The marchers paraded down the middle of the streets downtown, but their goal was to attract attention, not to slow production. Ken Harrison heard about the rally from local contacts in Portland. “I live in Atlanta,” he said. “It didn’t do anything to me.”
* * *
The rally didn’t hurt Koch’s bottom line, but it stoked energy among the IBU members. Hammond and Bucknum decided to harness the energy. They scheduled a vote on the contract terms that Ken Harrison was proposing. If the union members voted against it, it might increase the IBU’s leverage by garnering headlines and laying the groundwork for a strike.
The contract vote was held in the big auditorium on the ground floor of the Longshoremen hall. The room was an architectural embodiment of union militancy. Along one wall, a big white banner displayed an old prose poem, “The Scab,” by the novelist and journalist Jack London. It began: “After God had finished the rattlesnake, the toad, and the vampire, he had some awful substance left with which he made a scab.” The poem went on from there, and became even less kind toward workers who might cross a picket line. Along another wall, a sentimental mural depicted the Longshoremen’s glory days, with stoic workers standing strong among the cranes and cargo ships. It was impossible, in that auditorium, not to feel enveloped in the proud history of labor unions. It seems that the Georgia-Pacific workers were intoxicated by the environment when they arrived to vote on the contract.
Still, the vote results surprised everyone. All of the warehouse workers voted on the contract, and all of them voted it down. “The Longshoremen . . . were just blown away by it. They’d never had anything like that,” Hammond recalled. The union workers left the hall exultant. They had shown their resolve to beat the Koch brothers.
The IBU informed Harrison’s team about the news. It planned to return to the negotiating table with new leverage, a new wind at their back. “They were all pretty dang tickled pink, you know,” Franzen recalled. The members were saying, “We’re gonna show them, we’re gonna take it to them. We’re going to do this.”
Then something unexpected happened. Ken Harrison quit meeting with them. As time dragged on and Harrison refused to show up, the union’s fighting spirit began to curdle into something else. Franzen and his colleagues were given the one thing that they needed the least. They were given time to start thinking things over. And Koch Industries knew just how to get them thinking.
* * *
During 2010, Abel Winn put the final touches on his study exploring ways to defeat the holdout. In September he submitted his findings to a peer-reviewed publication called the Journal of Economic Behavior & Organization. Winn had reason to be optimistic that his paper would be selected for publication. His data showed something quite striking.
Early data from the experiment suggested that it might be impossible to beat a holdout. Different strategies could undermine the holdout’s leverage, but the holdout couldn’t be eliminated. There was, however, one strategy that nearly decimated the holdout problem. The data was just astonishing on this point. The best way to destroy a holdout’s position was to make them expendable.
Winn discovered this fact when his experiments divided the virtual landowners into groups and then made it clear that some of them might be cut loose if they bargained too hard. In this scenario, the pipeline company was looking to buy up land on which to build a route, but it could take alternative paths. It wasn’t necessary in this case to get all of the landowners to sell in order to build the pipeline. The company could assemble a path while excluding some landowners.
This strategy created a beautiful dynamic, from the pipeline company’s point of view. It embedded competition between landowners. It made each neighbor’s bargaining power the deepest liability to his or her neighbor’s. Everybody started looking over their shoulders and worrying that they might be undercut if they held out too long for a higher price. “When there’s competition, that completely blew the problem away,” Winn said. “Everybody behaved much better.”
* * *
As it turned out, the IBU workers faced outside competition, and their managers at the warehouse made sure they were constantly reminded of it.
While the labor union waited to meet again with Harrison, the warehouse employees reported to work every day. They also continued to attend regular team meetings with their managers. During these meetings, the managers discussed day-to-day operations, but they also focused on something else: the relentless competition that the facility faced every day. Dennis Trimm, the warehouse manager who helped implement the LMS, said the main message delivered during many of these meetings was simple: “They can replace you tomorrow.”
The employees were shown slideshows illustrating the report cards that Trimm reviewed at least once a month, data showing how the Portland warehouses stacked up against other distribution centers in the Georgia-Pacific network. The Portland warehouses usually ranked near the top, but they had to fight to stay there every day. The other facilities, not coincidentally, were nonunion shops, staffed by outside contractors. The third-party contractors competed against one another to provide cheaper labor to Georgia-Pacific, and they also competed against the IBU. Koch was evaluating, every day, whether or not to replace the IBU team with outsiders.
The fervor from the contract “no vote” began to dissipate. It began to seem like a liability, in fact. The no vote was left to hang in t
he air as a permanent reminder of the union’s militancy, as evidence that the union was in reality an obstacle to Koch’s efficient operation of the warehouse.
David Franzen’s coworkers began to call his cell phone. The bravery was gone from their voices. They implored him—begged him, almost—to find some sort of settlement with Koch. They wanted the contract to be closed, the deal-making finished. Even if the contract was less than they’d hoped for, they needed to know that a contract was in place. “They were calling me, literally crying on the phone. Guys with families and stuff: ‘We can’t go on strike. We’ll never come back. We’ll never have another job. They warned us,’ ” Franzen said.
The pressure on the IBU intensified dramatically. Hammond and Bucknum were notified that the IBU’s pension fund had been deeply wounded by the financial crisis. The fund had lost about one-third of its value, they were told, and might be considered insolvent. This meant that the federal government might take over the plan and cut retirement benefits dramatically. There was a near panic at this prospect. The retirement payments might be cut in half.
Bucknum stayed awake until the early morning hours, sitting at a computer in his home, trying to figure out the legal complexities of pensions. He never did get a clear picture of where his union members stood. The IBU asked Koch Industries if it would participate in a plan to shore up the pension, as all other employers who worked with the IBU had agreed to do. Koch said it would participate only if employees also paid into the pension relief fund out of their paychecks, a hard line position no other company took, Bucknum said.
It had been nearly a year and a half since the contract negotiations began. The workers had no new contract. They were afraid of being replaced. They appeared to be making no headway. And now they feared losing their pension. The Atlanta negotiating team contacted Hammond and Bucknum, and informed them that they had found a time to meet.
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