Impact on Microsoft stock with World of Warcraft employees voting to unionize

Why vote to unionize?

Warcraft workers are part of Activision Blizzard, a company acquired by Microsoft in the fall of 2023. Prior to the acquisition, Activision was battling the state of California and the US Equal Employment Opportunity Commission, after the state and agency filed lawsuits accusing the company of violating civil rights laws.

These lawsuits were part of an ongoing battle with Activision, sparked by an employee walkout in 2021. The walkout came after the Department of Fair Employment and Housing in California filed a complaint alleging a “frat boy culture” and harassment at the company. In the end, Activision paid an eight-figure settlement to resolve the dispute; however, the settlement also meant that all parties agreed that “no court or any independent investigation has substantiated any allegations that there has been systemic or widespread sexual harassment at Activision Blizzard.”

Where Microsoft Corp (NASDAQ:MFST) stands on unionization

In 2022, Microsoft announced a set of principles designed to facilitate unionization. Microsoft maintains an uncharacteristically union-friendly stance, supporting its employees' right to unionize and committing to good-faith negotiations with the CWA. As such, Microsoft Corp (NASDAQ:MFST) agreed to voluntarily recognize and negotiate with the union if majority support was secured, reflecting its ongoing commitment to a collaborative approach to unionization.

Microsoft has adopted a similar approach to organizing efforts by other American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) unions. The tech giant is also partnering with AFL-CIO represents to understand the impact of artificial intelligence (AI) on workers.

Role of unions in large corporations

The decision to unionize by the World of Warcraft team is part of a broader trend that includes unionization victories at Apple, Amazon, Volkswagen and Starbucks.

These efforts reflect a growing movement toward organized labour in various high-profile workplaces since the start of the pandemic.

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Impact on Microsoft Corp. (NASDAQ:MFST) profits

The unionization of additional workforce at Microsoft Corp. (NASDAQ:MFST) may impact the company's market value.

A Princeton study published in 2012 found that new unionization is generally associated with a reduction in a firm's market value. The study authors found that, for publicly traded firms, the process of unionization led to a decrease in market value.

According to the study data, in the two years after NLS unionized the firm experienced an abnormal decline in profits that resulted in a -75.00% return. Similar companies in this sector reported a -10.00% loss during the same time period.

When factoring in rising worker costs and lost profits due to inefficiencies, report authors David Lee and Alexandre Mas concluded that each newly unionized NLS worker cost the firm approximately USD$40,500. This equity loss due to unionization can take 15 to 18 months to full materialize.

The impact on Microsoft's market value could follow the pattern identified in the Princeton study — with a decline in profit and shareholder value over the next few years; however, authors Lee and Mas both acknowledged that not all transitions to a unionized workforce lead to big profit declines. Plus, not all declines had longevity.

What should investors do?

There are a variety of strategies to consider when significant changes take shape in a well-capitalized, profitable company, like Microsoft Corp. (NASDAQ:MFST).

For the next 12 months, investors may want to consider how to use the potential shifts in the profitability of Microsoft Corp. (NASDAQ:MFST) stock.

For instance, this may be an opportunity for investors to buy stock in Microsoft Corp. (NASDAQ:MFST), assuming that the tech giant will rebound from the temporary changes imposed by the unionization of the workforce.

For bearish investors, this could be an opportunity to short-sell — capitalize on the belief that stock prices for Microsoft Corp. (NASDAQ:MFST) will decline.

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Bottom line

As with all investment decisions, the key is to investigate and only execute on a trade if it follows your investment plan and strategy.

Sources

1. Princeton: Do Unions Cause Business Failures? (March 2003)