Several mutual fund companies and investment advisors that have taken steps to comply with the Securities and Exchange Commissions proxy voting reporting rules are ill prepared to continue the task significantly beyond the Aug. 6 deadline.
The structures currently in place are "stopgap measures" that will likely prove inadequate in the coming months, according to experts at the Investor Responsibility Research Center and Bisys. The duo warned that many of the 6,000 U.S. investment advisers and their 10,000 mutual funds are "underprepared" for the several issues and requirements stemming from the rules.
The new regulation requires that registered management investment companies disclose proxy voting policies, procedures and votes. Firms must also communicate to shareholders that their voting policies are available on the SEC Web site and via the company at no charge to the investor. As firms must disclose their votes for the previous 12 months every Aug. 31, their first disclosure date is Aug. 31, 2004.
"While few registered management investment companies will totally fail to meet the SEC deadline, we believe that a significant number will find that their solutions break down when subjected to real-world test of what the SEC is asking for," said Carol Bowie, IRRCs director of corporate governance service.
Bradley Webb, a vice president with IRRC, said many firms are putting "skeletal systems" in place that they know will not hold up for the long run. "We know that because we are working right now with many firms to develop complete solutions for them concerning proxy voting protocol," he said.
IRRC said it is offering clients a compliance product to deal with the many issues arising from proxy disclosure requirements. Also, mutual fund companies that outsource their proxy voting can use its IRRCs proxy voting agency service to manage operations.