Mutual Funds Cozy Up to Corporate America

Mutual fund companies overwhelmingly vote in line with the recommendations of management at the firms in which they are invested. In 2005, funds voted with management 92% of the time, overwhelmingly rejecting shareholder proposals from unions, pensions and other stock owners, a study of the voting records of eight of the largest fund companies in the Boston area conducted by The Corporate Library for Boston Business Journal shows. Typically, those shareholder recommendations concern executive pay and voting rules.

In fact, the study showed that funds rejected 71% of shareholder proposals on director and executive compensation last year.

The eight firms included in the analysis were: Putnam Investments, Fidelity Investments, MFS Investment Management, Mass Mutual Financial Group, John Hancock Funds, State Street Bank & Trust, Pioneer Investments and Columbia Management. Of these companies, the ones that voted most regularly in line with management were State Street, MFS and Fidelity. Only Pioneer supported a number of shareholder proposals on compensation, voting in favor of 51% of 83 such suggestions last year.

The findings of the study done for Boston Business Journal were in line with a broader study that The Corporate Library released in January. That report looked at the voting records of 430 funds managed by 45 companies and found that they voted in line with management resolutions 88% of the time. They supported only 36% of shareholder proposals.

"I think it's long been recognized that mutual funds have basically been in the pockets of management," commended Jackie Cook, a researcher with The Corporate Library, noting how funds that administer companies' pension plans or 401(k)s are hesitant to vote against management recommendations at those firms.