November 23, 2009 / 6:04 PM / 10 years ago

Mutual fund activists claim more voting problems

* Sudan-divestment vote set for Tuesday at American Funds

* Activists say vote-gathering process flawed

* American Funds defends the process

By Ross Kerber

BOSTON, Nov 23 (Reuters) - Efforts to press Sudan on human rights through investor measures have also unearthed questions about the arcane world of mutual fund shareholder voting.

An activist group says it has received complaints over the way fund companies run their proxy contests.

The next showdown will be on Tuesday, when American Funds is set to release results of a vote on investments in Sudan at a shareholder meeting in Los Angeles.

Those worried about irregularities say some shareholders had trouble getting their votes recorded correctly by phone, and that millions of mailed ballots didn’t fully describe a proposal on Sudan.

“Certainly there’s something going on,” said Eric Cohen, chairman of Investors Against Genocide, a Boston-based activist group that received similar complaints as it pressed questions at Fidelity Investments earlier this year. “I’m not sure they are miscounting votes, but who knows?”

The questions come as the U.S. Securities and Exchange Commission begins its own broad review of corporate election mechanics after complaints surfaced over problems with a Yahoo Inc YHOO.O board election in 2008.

Among other things, Cohen said some American Funds shareholders had received ballots that did not fully describe his group’s proposal on Sudan. American Funds spokesman Chuck Freadhoff said shareholders who received abridged ballots had also gotten a 196-page document that contained the full text of the Sudan resolution.

“We feel that the shareholders had every opportunity to learn as much about the resolution as they would need in order to vote,” Freadhoff said.

An SEC lawyer recently told Investors Against Genocide that the agency shares its concerns about the upcoming vote and that all contests be conducted fairly, the activists said.

An SEC spokesman said the agency would not comment on the specifics of voting at a particular company, but noted it was seeking public comments about shareholder voting in general.

“We want to ensure that the U.S. proxy voting system as a whole operates with the degree of reliability, accuracy, transparency and integrity that shareholders and companies have the right to expect,” SEC Chairwoman Mary Schapiro said in a speech on Nov. 4.


Like corporate annual meetings, shareholder contests at mutual funds traditionally have usually been stodgy affairs to rubber-stamp the re-election of directors and approve other technical business.

But that is changing as groups such as Cohen’s seek to use the votes as a high-profile platform for their positions.

Investors Against Genocide also got its questions about Sudan added to ballot measures at Vanguard Group and Putnam Investments this year.

The group says royalty payments from China help prop up the Sudanese government, which has been accused of human-rights violations. As a result, Investors Against Genocide wants U.S. mutual funds to sell shares of PetroChina (601857.SS), Sinopec (600028.SS) and other Chinese oil companies with business ties to Sudan.

The fund companies say their investments are legal and that decisions to bar investments are best left to governments.

Shareholders typically can choose from several ways to vote, including by mail, by touch-tone telephone or on a website. They may also be called by proxy-solicitation firms hired to make sure enough votes are cast to reach a quorum.

In votes so far, Investors Against Genocide’s nonbinding shareholder proposals on Sudan have won backing of around 20 percent to 30 percent — still seen as a relatively strong outcome.

But the activists wonder if problems in the voting process could be distorting the figures.

For instance, two shareholders told Investors Against Genocide that a proxy solicitation firm made it hard for them to record their votes at Fidelity’s poll over the summer. Fidelity says there were no other complaints.

At least three other shareholders have made similar claims about the pending American Funds vote.

One, Cleveland physician Ann Reichsman, told Reuters a proxy-solicitor made it difficult for her to record her votes in support of the divestment resolution, and did not follow up on promises to call her back.

“This felt to me like an on-purpose attempt to change a vote that was not going the way they wanted,” Reichsman said.

She said she wasn’t sure which proxy-solicitation firm called her.

The average complaint rate is typically just a fraction of 1 percent of votes cast, said Peter Harkins, president of DF King & Co, which along with ComputerShare Ltd (CPU.AX) was retained for the $85 million American Funds ballot.

Also, he said, studies of recorded calls show that in most cases, call center operators recorded the correct votes.

ComputerShare declined to comment. American Funds’ Freadhoff said out of 13 million calls its solicitors made, it has heard back from 1,000 people, a very small percentage.

Still, there is evidence of at least some tensions in the vote-gathering process. In a recent SEC filing, American Funds said it had received feedback about the “quality” of the proxy solicitation firms’ calls and was trying to make sure they are kept “courteous and professional.” (Reporting by Ross Kerber; editing by Ros Krasny and Lisa Von Ahn) ((; +1-617-856-4341;

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