The author is a Reuters contributor. The opinions expressed
are her own.
By Marla Brill
Nov 1 The Occupy Wall Street movement has shown
us that many people want their opinions to be heard on how
companies conduct business. But if you own a mutual fund,
chances are your fund manager is siding with corporations.
Voting with proxies on behalf of shareholders, mutual funds
weigh in on a variety of issues such as how companies pay top
executives, handle environmental practices, and elect board
members. With over one-quarter of the country's stock market
value under their control, they wield enormous power over
But Jackie Cook, founder ofa website
that tracks proxy voting patterns of mutual funds in the U.S.
and Canada, says money managers could do a better job of
representing shareholder interests. Since 2004, Cook has been
tracking the arcane -- yet increasingly important -- issue of
how mutual funds cast votes. "Most of the time, they side with
management," says the 41-year-old economist and research
analyst. "They typically don't lead the way on voting issues."
That certainly holds true for the issue of executive pay,
according to the most recent study of mutual fund proxy voting
patterns from the American Federation of State, County, and
Municipal Employees (AFSME), which used fundvotes.com data. It
found that for votes cast from July 2009 through June 2010, the
26 largest mutual funds in the U.S. supported an average of 80
percent of the executive pay proposals initiated by
Most those proposals involved equity-based compensation
plans aimed at raising pay, says the AFSME report. But the
funds supported less than half of proposals initiated by
shareholders to increase investor input on how much top
managers pull in.
Executive pay isn't the only issue where funds usually side
with management. Only 24 percent of climate-change resolutions
to limit greenhouse gas emissions found voting support among
the 46 mutual fund families, notes a 2010 survey from Ceres, a
coalition of environmentalists and investors. That's down 3
percentage points from 2009.
"U.S. mutual funds' voting support for climate-related
shareholder resolutions is not keeping pace with the escalating
risks associated with climate change," the Ceres report
Cook cites a fear of signaling a lack of confidence in their
holdings to the market and a desire to avoid ruffling the
feathers of companies that use their 401(k) plans as two
possible explanations for why funds often side with
Considering such business relationships would not be
consistent with a fund's fiduciary obligation to vote in the
best interests of shareholders. That's a mandate the funds take
seriously, notes a study from the trade organization Investment
Company Institute (ICI) on mutual fund proxy voting patterns
between 2007 and 2009.
"Guided by a broad obligation to vote in the best interest
of investors, funds considered a range of factors, including
the details of individual proposals, the performance of the
companies to which they applied, the quality and responsiveness
of management of those companies, and the recommendations of
proxy advisory firms," it states.
The ICI study found that funds approved some 90 percent of
proposals on a variety of issues from management and about half
of those put forth by shareholders, and that votes often fell
along the lines of recommendations made by independent proxy
vote advisory firms.
In addition to proxy voting, fund managers who wish to
influence corporate policy often do it in other ways, such as
engaging in discussions with management or board members or
simply selling a company stock. Individual stockholders can
also vote with their feet, or cast proxy votes themselves or
through services such as
Fund shareholders have fewer options. They might examine
their fund's proxy voting record, which is required to be
posted on fund web sites, and consider it in choosing a fund.
If they're investing through employer-sponsored plans, they
could urge employers to consider proxy vote records as one of
the criteria for selecting mutual fund investment options.
Realistically, that's unlikely to happen. Most people invest
in mutual funds to pay for college or a comfortable retirement,
not to influence corporate policy. What they want, first and
foremost, is strong investment performance from their funds.
The problem is that many of them aren't getting it according
to Rick Ferri, a Troy, Michigan financial adviser and author of
"The Power of Passive Investing." In his study of long-term
performance of actively managed funds over the last 20 years he
found that only 20 percent of funds outperform their
benchmarks, and even then most only do so by a small margin.
Another 40 percent of funds underperform, while the rest either
match their benchmarks or shut down.
For fund shareholders, having managers who vote in ways that
encourage corporate practices that add value beyond the next
quarter's earnings numbers might at least help ease the pain of
that performance drag.