PALM DESERT, Calif. -- Registered investment companies vote in favor of management proposals more than 90 percent of the time, according to a study of 3.9 million proxy ballot items.
This is “in line with what you read in media” reports, according to Sean Collins , senior director of Industry and Financial Analysis, for the Investment Company Institute.
But it also is “about in line with what proxy advisory firms also are recommending,” Collins said, at the 2011 ICI Mutual Funds and Investment Management Conference.
Funds, however, also voted about 50 percent of the time in favor of proposals by shareholders, he noted in discussing an ICI study of fund votes on proxy ballot matters in 2009. The study covered proxy votes involving Russell 3000 firms, not the full Russell 5000 list of publicly traded stocks, Collins said.
The study covered 3.7 million management proposals, including 2.9 million involving elections of directors. Also in the 3.9 million total were 244,281 shareholder proposals.
Funds’ voting patterns change by year. In 2008, Collins noted, funds only voted in favor of approximately 35 percent of shareholders’ proposals.
The biggest slice of management proposals are compensation related. This is about two-thirds of the proposals that are not either about ratifying board of director nominations or auditor nominations.
Shareholder proposals are more mixed, with about 26 percent involving social or environmental issues.
This is becoming broader each year, according to Martin Dunn, a partner in the corporate finance practice of the O'Melveny & Myers law firm in the nation’s capital. Dunn also spent 20 years in various positions at the Securities and Exchange Commission, most recently as Deputy Director, and former Acting Director, of the Division of Corporation Finance.
Proposals are not supposed to deal with “ordinary business matters,’’ he noted. But more issues that used to be considered ordinary now get elevated to important issues for corporate conduct.
Last week, for instance, one company’s proposal on employee compensation was elevated to a matter that required a shareholder vote. Why? Because the package could present a financial risk to the company. That is “the environment we’re in,” Dunn said. “Things you didn’t have votes on before, you’re going to have votes on now.’’
According to the ICI study of the 2009 proxy ballot items, funds backed shareholder proposals 49.8% of the time, while International Shareholder Services, a global corporate governance analysis firm and proxy adviser, recommended favorable votes 76.0 percent of the time.
Overall, only 24.9 percent of shareholder proposals ultimately passed.
Shareholders got most traction with shareholder rights and antitakeover proposals. In those cases, 57.3 percent of their proposals passed.
But board structure and election process proposals only passed 25.7 percent of the time; compensation-related proposals passed 13.2 percent of the time; and social-environmental proposals passed just 3.0 percent of the time.
On those issues, ISS recommended positive votes 48.2 percent of the time. Funds voted in favor of 20.6 percent of those proposals.
Collins noted that funds withheld votes from at least one director in a given board election a very high percentage of time.
The state: 87 percent of funds withhold votes from directors among at least one portfolio company. That state comes from a review of 2,770 funds.