Shareholders’ Voices Hold Little Clout

According to a study released by the Investment Company Institute, mutual funds voted overwhelmingly in support for management proposals in 2007, yet a mere 38% of shareholder proposals were backed.

The study found that funds voted to elect directors 92% of the time, and a company’s preferred choice of audit firm 98% of the time. Overall, management-backed proposals received support approximately 85% of the time.

On the other hand, shareholder-sponsored proposals regarding the board election process found support from funds only 49% of the time, and proposals regarding executive compensation only received a third of support.

However, ICI President and Chief Executive Officer Paul Schott Stevens maintained: “Simple vote tallies don’t tell the whole story.”

Stevens suggested that funds side with shareholder proposals when doing so would enhance shareholder value and for management when it would be appropriate to do so. For instance, when funds back management, it typically is for administrative purposes, like hiring an auditor. There are no “rubber stamps” for management, he added.

Since 2004, the Securities and Exchange Commission has ordered funds to disclose how they cast their proxy votes regarding companies in which they invest. Legally, mutual funds are required to vote in the interest of fund shareholders.

The debate over proxy voting practices is likely to continue. But according to Stevens, mandatory disclosure opens up the flood gates to criticisms from pension fund and various investors “who criticize our voting practices but don’t disclose their own.”