Posts filed under ‘mutual funds’
“Investor activists say they are finally getting some support from the $12 trillion mutual fund industry, huge shareholders long scorned as rubber stamps for the management of companies whose shares they own,” Ross Kerber says in a report for Reuters.
“Sensitive to the issue, mutual fund executives say they have begun to demand more details and to vote more aggressively in corporate elections. … Activists hope to see the new approach reflected when the results of this season’s shareholder proxy votes are released, especially in the aftermath of the financial crisis that plunged the world economy into recession.”
ProxyDemocracy will track mutual funds’ reports of their proxy votes to see how measurable this trend is.
“In the wake of last month’s tragedy at Massey Energy Co.’s Upper Big Branch coal mine in West Virginia, the New York State Common Retirement Fund called on shareowners to withhold votes from three candidates for the company’s board of directors,” SocialFunds.com reports. “The three — Baxter F. Phillips, Richard M. Gabrys and Dan R. Moore — also serve on the board’s safety, environmental and public policy committee.”
“The disaster at Upper Big Branch, which claimed the lives of 29 miners, occurred in the aftermath of repeated environmental and safety violations by Massey, which led to at least two criminal convictions in the past three years. In addition, Massey has already reported that financial losses from Upper Big Branch could lead to losses of as much as $150 million.”
The California State Teachers’ Retirement System, which discloses its votes with ProxyDemocracy, will withhold support from the three candidates.
Whether Massey’s two major institutional shareholders, Fidelity Investments and BlackRock Inc., will side with the dissidents is unknown, according to Reuters. Both companies said “their voting policies were based on enhancing shareholder value,” Reuters reported. Fidelity owns about 9.5 percent of Massey’s common stock, while BlackRock holds just over 9 percent.
Massey’s annual shareholder meeting is scheduled for May 18. Check here for more vote announcements or sign up for our e-mail alerts.
“What would happen if all the small investors banded together and cast their ballots during proxy season …?” the New York Times asks in an article that cites the contribution of ProxyDemocracy in educating shareholders. “How much of an impact would they have?”
It’s possible they could have more of an effect on corporate actions than ever, the Times says.
“More voter resources are beginning to sprout on the Web that aim to educate smaller investors, demystify the issues on the ballot and make voting easier,” according to the Times.
Organizations like ProxyDemocracy are helping shareholders to make decisions on issues like executive pay and corporate governance — and to increase their influence, writes Tara Siegel Bernard.
Individual investors own about 30 percent of outstanding shares, and have a much larger stake when their holdings in pensions and mutual funds are taken into account. While historically only a fraction of retail investors have voted their proxies, they do have the power to sway results, especially in close contests.
“Thirty percent of outstanding shares is a substantial portion, easily enough to change the outcome of many proxy voting results,” Mark Latham, a member of ProxyDemocracy’s board of directors, told the Times.
Nell Minow, co-founder of The Corporate Library, is quoted as saying that small stockholders should research how activists, such as the California Public Employees’ Retirement System, plan to cast their ballots.
The article points out how investors could benefit from changes in policy implemented or contemplated by the Securities and Exchange Commission and Congress.
They don’t have to wait to help themselves, however. Mutual fund holders, whose managers vote proxies on their behalf, can shop around to find those that do the best job of voting their interests, Latham said.
“The biggest thing you can do is find a better mutual fund,” he said. “If you are in a Standard & Poor’s 500 index fund, there are many S.& P. 500 funds. But some vote better than others, and that is the biggest leverage you have.”
Comparing the voting records of funds is another of our key services. Go here to see how your fund votes.
The mutual fund industry group, the Investment Company Institute, released a report a few weeks ago entitled “Proxy Voting by Registered Investment Companies: Promoting the Interests of Fund Shareholders.” I got a chance to read the report this morning and wanted to convey some of my impressions.
First, the report does little to advance the debate about conflicts of interest in the mutual fund industry. Shareholder activists have alleged for a long time that some mutual fund companies have business ties that prevent them from voting against management. (More specifically, the allegation is that mutual fund companies that manage retirement accounts for corporate clients are wary of opposing management in their proxy voting, for fear of damaging their lucrative retirement account administration business.) I expected the ICI study to focus on refuting those claims, but it doesn’t seriously address the issue. The study does include a box addressing the issue, but it just describes two academic studies and discounts evidence of the 401(k) bias in an unconvincing way. (I give them credit for mentioning Davis and Kim’s finding that mutual fund companies involved in the retirement account business support shareholder proposals less often, but they follow this point with a very unconvincing counter-argument that these companies can’t be conflicted because they support some shareholder proposals a lot. Weak.)
Second, and related to the previous point, the report glosses over major differences among mutual funds’ voting records. As you might expect from an industry group, the report speaks on behalf of all mutual funds and minimizes comparisons among funds that might upset ICI members. It repeatedly makes a distinction between SRI funds and the rest of the industry, but otherwise it talks about “how funds voted” as if it were by consensus. What I’ve found in analyzing mutual fund data for ProxyDemocracy, and what Jackie Cook has found at fundvotes.com, is that there are significant differences among mainstream funds. For example, the voting profile of Schwab’s S&P 500 fund on ProxyDemocracy is very different from Vanguard’s. That particular difference probably doesn’t have much to do with conflicts of interest (both companies manage retirement accounts), but it’s relevant to investors choosing a fund: the funds own the same portfolios and have very low management fees, so the voting difference is about the only difference you’ll find between the two. I don’t expect ICI to highlight these differences, but they are worth keeping in mind as you read ICI’s account of “how funds voted.”
Third, and I think most important, the report shows clearly that mutual funds are more opposed to shareholder proposals than are the proxy advisers they hire. The bottom of Figure 11 (page 19) indicates that ISS and Glass Lewis were much more likely to endorse shareholder proposals on takeover defenses and board elections than were funds. (ISS was also much more favorable toward social/environmental proposals and compensation proposals than were mutual funds, although Glass Lewis was less favorable than funds were on these proposals.) The text does little to account for this discrepancy: it explains some reasons why a shareholder would sometimes vote against a majority vote standard for directors, for example, but does not explain why funds voted against such a standard even when ISS and Glass Lewis recommended a vote for it. In shareholder activism circles you hear a fair amount of grumbling about proxy advisers being conflicted or not progressive enough, but in this case it seems that the tactic should be to question why mutual funds failed to follow the proxy advisors’ recommendations.
A few more points of note:
- The analysis of proposal sponsors (pp 6-7) shows that individuals are the most common sponsor of shareholder proposals (34% of proposals in 2007), and that about one in six shareholder proposals (17%) in the 2007 season were filed by one of just five individuals. I know about one or two of those individuals but I want to follow up and find out more about who is submitting so many proposals.
- The report includes what looks like a very good explanation of what’s on the ballot (“What are some common proxy proposals?” pp. 10-11). I’d like to have more material like this on the PD site.
- They include a useful survey of fund family voting guidelines on selected proposal types (Figure 8, pg. 14). However, the table is not as useful as it appears at first. The table shows that, for example, 24 of the 35 major fund families state that they would oppose a proposal to adopt supermajority vote provisions. (The remainder vote case-by-case or do not state a policy.) But the more relevant issue is whether they would support a shareholder proposal to remove supermajority vote provisions; this is the issue that comes up much more often.
I’ve been critical of the report, clearly, but overall I think it’s a good thing that ICI devoted resources to the report and attention to these issues. There’s lots of useful stuff in here that I will return to, and I recommend taking a look if you’re interested in a profile of the proxy voting scene.
Heather Green of BusinessWeek wrote a nice little piece about ProxyDemocracy last week. Nell Minow of the Corporate Library is quoted as saying, “I just about stood up and cheered when I saw the site.” Given her experience in this area, I myself was moved to stand up and cheer when I read that.