Although mutual funds own 25% of the stocks in the nation and could initiate corporate reform through their proxies, they overwhelmingly support management, The Wall Street Journal reports.

A Corporate Library review of how 38 leading mutual fund companies, excluding socially responsible investing funds, voted their proxies in the 12 months ended June 30, 2005, found that they supported fund management 92% of the time. They voted for shareholder resolutions only 30% of the time.

Recommendations by Glass Lewis, which consults with institutional investors on how to vote proxies, were similar but somewhat more favorable. The company recommended that the institutional investors support management 80% of the time and 53% of shareholder proposals.

“Mutual fund companies tend to not want to be on the forefront of shareholder activism,” explained Robert McCormick, who heads proxy-vote research at Glass Lewis.

However, as to the argument that funds that own a company’s stock and also run its 401(k) plan purposely vote along with management to secure that business, McCormick flatly disputes the claim. Indeed, two studies by professors at the University of Michigan and Baruch College bear that out. In fact, many fund companies that could face a conflict of interest in how they vote their proxies outsource those decisions to a firm like Glass Lewis.

But on specific measures, funds’ voting records are mixed. On the side of going against management, funds tend to vote to eliminate barriers to prevent a takeover, which often boosts a stock’s value, and for proposals that require a majority vote to elect directors, rather than for the antiquated system that permits a director to be elected if they receive just one vote.

On the side of supporting management, the Corporate Library found that funds are in favor of splitting the chairman and CEO positions only 46% of the time and curtailing executive pay only about 25% of the time.

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