I applaud Chairman Pitt and Commissioners Campos, Glassman, and Goldschmid for standing up to mutual fund companies’ aggressive opposition to revealing their proxy votes.
The corporate scandals of 2001-2002 reinforce how serious the consequences can be when mutual fund companies vote their shares to approve massive increases in executive compensation, to defeat a shareholder proposal calling for a majority of independent directors such as a proposal at Tyco, or to approve Stanley Works’ proposal to move its headquarters to Bermuda – and yet there is no disclosure of mutual funds proxy votes.
The AFL-CIO petitioned the SEC to rein in the conflicts of interest that can lead mutual funds to cast proxy votes that promote their own business relationships ahead of individual investors’ interests. The SEC responded last September, and a record 8000 individual and institutional investors, including Vanguard founder and former CEO John Bogle, sent supporting comments to the SEC on its proposed rule. Only the mutual fund industry, led by Fidelity Investments and Vanguard, opposed it.
The new SEC rule means that mutual fund investors will have the information necessary to determine if the votes mutual fund companies cast on our behalf truly represent investors’ best interests, as required by law, and do not represent an effort to curry favor with the CEOs of portfolio companies in order to win lucrative contracts managing employee benefit programs.
Investors have good reason to suspect that mutual funds hide voting records that show a lockstep allegiance to management. For example, we believe that Fidelity, the world’s largest mutual fund firm and one of the largest shareholders in most major corporations, used its shares to oppose a majority of independent directors at Tyco International, to re-elect an Enron director to the board of Lockheed Martin, and to approve a proposal by Stanley Works to move its headquarters to Bermuda. As a result of the new rules, if Fidelity supports similar proposals in the future, those votes will no longer be secret.
To enable investors to more easily evaluate and interpret their mutual fund’s proxy voting record, they will need help identifying and tracking these key votes going forward. We look forward to providing investors with this information by adding mutual funds to the AFL-CIO Key Votes Survey, which already includes virtually all of the other major institutional money managers, and making the survey publicly available on our web site as soon as the funds disclose their votes.
The AFL-CIO has published the Key Votes Survey for the past five years, and believes it to be the first and only systematic review of investment manager proxy voting records. The most recent survey, covering the 2001 proxy season, rates 167 money managers and proxy consultants based on their votes on 32 proxy proposals concerning corporate governance, executive compensation and management accountability.
Contact: Kathy Roeder (202) 637-5018
