NEW YORK – If you’re an attentive investor, you know how your mutual funds did last quarter. If you’re very, very attentive, you know how the funds’ managers voted in proxy contests.
Those are your shares the management is voting: Investment companies registered in the United States managed $9.5 trillion at the end of 2005, or 25 percent of all U.S. stocks, according to the Investment Company Institute, the fund industry’s trade group. Individual investors held 90 percent of all mutual funds.
That doesn’t mean mutual funds consult their investors before voting on proxy proposals. Would you have voted against a 2005 proposal at Verizon Communications Inc. requiring a majority vote for the election of directors? If you owned shares of American Century Investments Equity Growth fund, you did. That’s how your shares were voted, anyway.
The Securities and Exchange Commission began requiring funds to disclose their proxy votes in 2004. Mutual funds must file their votes in N-PX filings with the SEC.
Some mutual fund firms, such as American Century, go a step further by putting their voting records on their Web sites. To find American Century’s proxy voting record, go to the very bottom of its home page, www.american century.com, and click on “About Us.” You’ll find the record of how each of its funds voted on every proxy proposal at every company in each of its holdings.
Shareholder activists have just begun to dig through the filings; one early study indicates that mutual fund firms’ voting records are mixed.
The American Federation of State, County and Municipal Employees, the AFL-CIO and The Corporate Library examined mutual fund proxy votes from 18 of the 25 largest fund families. Their study, which focused on executive compensation issues, looked at 2,393 management compensation proposals and 362 shareholder compensation proposals at 1,603 companies.
It found that “with a few exceptions, the largest mutual fund families are complicit in runaway executive compensation for failing to vote in the best interests of the shareholders.”
The mutual funds in the study voted for management’s recommendations on compensation issues 73.9 percent of the time. Mutual funds voted for shareholder-sponsored compensation proposals, including CEO compensation, compensation disclosure, option expensing and pay disparity only 27.6 percent of the time. The funds supported shareholder proposals tying executives’ stock options grants to their performance 37.6 percent of the time.
The funds’ voting records sometimes diverged dramatically. Consider “golden parachutes,” provisions in a company’s by-laws that give executives a big payout if they are pushed out following a merger. If Capital One Financial Corp.’s $14.6 billion purchase of North Fork Bancorp is completed, for instance, North Fork’s chief executive could get a payout of nearly $200 million.
Most governance experts agree these provisions serve little purchase other than enriching executives and some of the largest fund families would seem to agree. The Dreyfus Corp. and TIAA-CREF voted against golden parachutes 100 percent of the time, according to the study. The Vanguard Group, Inc., AllianceBernstein, Janus Capital Group, T. Rowe Price Group Inc. and Federated Investors, Inc. voted against the golden parachutes at least 90 percent of the time.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
