* Fidelity Contrafund switched to oppose Citi executive pay
* Two big American funds wanted CEO/chair split at JPMorgan
* Like oceans, mutual funds "heat up slowly" - academic
By Ross Kerber
BOSTON, Aug 28Several leading mutual funds
disclosed voting against management in high profile proxy
battles at companies like Citigroup Inc, JPMorgan Chase &
Co and Chesapeake Energy Corp, showing for the
first time that they were part of this year's wave of
Shareholders large and small turned up the pressure on
corporations during the spring proxy season, fed up with high
pay and a lack of accountability. Citi shareholders shocked
management by rejecting Chief Executive Vikram Pandit's pay in
April while a significant minority of JPMorgan owners voted in
May to split the CEO and chairman titles held by Jamie Dimon.
Large mutual funds have generally acted as allies for
management in the past, but the critical votes on some
closely-watched 2012 votes helped explain the contentious proxy
season and may be a sign of more change to come.
"Mutual funds are like the ocean," said Charles Elson,
director of the Weinberg Center for Corporate Governance at the
University of Delaware. "They heat up slowly, but eventually, if
the heat goes on long enough, they get pretty active."
At Citigroup, Fidelity's famed Contrafund switched sides and
voted "against" the $15 million pay package of CEO Pandit, for
instance, after backing his much lower compensation the year
before, according to recent regulatory filings.
At JPMorgan, well-known American Funds Growth Fund of
America and Investment Company of America sided with a proposal
to split Dimon's r o les of Chairman and Chief Executive, a switch
from votes the funds cast on similar measures in past years,
according to filings. The funds also voted "against" the pay of
Pandit and other Citigroup executives, as they had in the past.
FILINGS STILL ARRIVING
Mutual funds have only begun disclosing their votes on a
form called "N-PX" filed with the Securities and Exchange
Commission. The forms were required by the SEC a decade ago as a
way to show retail investors how money managers were voting
assets in their name. Funds have until Aug. 31 to file their
votes and many big firms' votes are still to come.
Contrafund, Growth Fund of America and Investment Company of
America submitted their filings ahead of the deadline, each
detailing votes on hundreds of proxy contests. Spokespeople for
Fidelity and American Funds declined to discuss the votes or to
make executives available to be interviewed.
Overall at Fidelity and American, two of the largest U.S.
fund families, funds still generally voted in favor of
management on pay proposals, according to a tally by Jackie
Cook, principal of research firm Fund Votes.
Fidelity funds supported management on pay at Russell 3000
companies just under 90 percent of the time this year,
approximately the same as last year, Cook said. American Funds
backed management on pay about 75 percent of the time this year
versus 85 percent last year.
When funds dissent, "they have been selective," said Geoff
Bobroff, a Rhode Island consultant to the funds industry. "Maybe
it's viewed as a nudge," he said.
Last year was the first in which most public companies were
required by financial reforms to hold advisory "Say on Pay"
votes on their compensation. In all, 37 companies in the Russell
3000 Index failed to get at least 50 percent support for their
pay from shareholders through mid-July, data from Los Angeles
pay consulting firm Semler Brossy showed.
This year, through July 18, 51 companies failed to get a
majority of support, Semler Brossy said.
DISSENT AT CITIGROUP
Contrafund voted its shares "against" the advisory vote to
ratify the compensation of Citigroup's named executive officers
on April 17, according to it s fi ling. A year earlier, Contrafund
had backed management and voted "for" Citigroup's advisory vote.
Fidelity's Magellan fund also voted against the pay package,
although it did not list a vote on t h e issue a year earlier,
likely because it did not own the stock.
Citigroup had ramped up the pay of Chief Executive Vikram
Pandit to about $15 million in 2011 from a symbolic $1 in 2010,
even though the bank continued to face challenges after the
financial crisis such as failing to win regulatory approval for
a dividend increase or share buyback.
In all, just 45 percent of Citigroup shareholders backed the
Fidelity also appeared to change its opinion in the case of
Chesapeake Energy, the Oklahoma oil company under criticism for
the pay and controversial governance practices of its Chief
Executive and co-founder Aubrey McClendon.
Last year, Contrafund owned the stock and voted mainly with
management at the company's annual meeting.
This year, of the two funds only Magellan listed owning
Chesapeake. It withheld votes for two directors, voted "against"
the company's pay, and did not back management on two other
matters. Magellan's votes were part of a broader shareholder
rebuke of Chesapeake: the two directors offered to quit
afterward and only 20 percent supported the company's pay.
At JPMorgan Chase, a shareholder proposal to strip Dimon of
the additional title of chairman won 40 percent support, up from
34 percent in 2010.
American Funds including Growth Fund of America and
Investment Company of America voted in favor of separating the
roles, filings from both dated Aug. 24 show, a change from their
support in 2010 for Dimon to keep both jobs. Last year, both
funds voted with management to oppose a related resolution
calling for the bank to appoint an independent lead director.