According to a highly publicized study released last week, mutual funds are enablers of runaway executive compensations packages because they tend to vote their massive shareholdings in favor of management. Now a second study suggests that not only could funds be voting for management in those situations, they might also be voting more than their fair share.

"Vote Trading and Information Aggregation," an academic study that's been passed around in recent months, reveals that an institutional investor can "borrow" shares for voting day and return them the next. So, for example, a fund with 1,000 shares in a company could borrow shares, either from another shareholder or on the active securities-lending market, and vote as if it held 2,000 shares, MarketWatch columnist Mark Hulbert offered.

The study data, however, does not reveal which shareholders are doing the borrowing.

That means it could work the other way, too. Anecdotal evidence suggests that dissident shareholders take advantage of the clandestine practice most often. For example, in the United Kingdom a few years back, a fund company that was critical of management revealed that during one crucial vote more than 90% of the shares it voted were not its own.

The suggestion that dissidents most often use vote trading, Hulbert added, is good news to individual investors because it might be a small step in readdressing a voting imbalance that favors larger investors.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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