SEC Proposal Would Press Investment Managers on Voting Results

September 16, 2002 ( - Staff members at the US Securities and Exchange Commission are expected to propose that mutual fund and other investment managers be forced to say publicly how they vote their shares in corporate proxy fights.

According to a Wall Street Journal report, SEC approval of the proposal would represent a major blow to the mutual fund industry, which has fought such disclosures as unnecessary. However, it would be a significant victory for those pushing for complete openness in corporate governance debates.

Those advocates claim that it’s proper for money managers to tell the ultimate owner of the securities how the proxy votes have been cast in such hot-button proxy issues as the level of executive compensation or requiring a minimum number of outside directors be appointed.

According to the Journal story, many mutual fund managers push for openness from companies in which they invest while, at the same time, battling similar initiatives to bring more disclosure to the fund industry itself.

The proposed rule will be considered at an open meeting Thursday. In addition to requiring disclosure of their proxy-voting records, investment managers would be mandated to disclose the policies and procedures they use to determine how to cast their votes, according to the WSJ.
As part of the lengthy process, the SEC will set a public-comment period on the rule proposal, normally at least a month. Then, before taking a final vote on the matter, the commission will spend a few additional months reviewing the comments, which may result in modifications to the original rule proposal.
Post-Enron Focus

How mutual funds, which hold about $3 trillion in stocks and are often the largest stakeholders in public companies, vote shares in their   portfolios has come under the spotlight in recent months in the wake of the Enron Corp. scandal and disclosure of other corporate-governance problems. Most fund companies — with the exception of a handful of small firms — don’t disclose their votes or their voting policies.
Fund companies cite numerous reasons they don’t reveal their votes and shouldn’t be forced to. Fidelity Investments, for example, argues that disclosing such information could have an impact on the stock price of the company in question.
The Vanguard Group raised a more practical issue. Costs of performing such disclosure, which fund shareholders would bear, also factor in, Vangaurd spokesman John Woerth, told the Journal. “We have 50 equity funds and own 5,000-plus stocks, and we are voting thousands of proxies each year.”
Critics of the fund industry’s stance, which have included Vanguard founder John Bogle, also contend fund companies are worried mostly about offending corporations to which they turn for such business as running 401(k) retirement plans.
Vanguard publishes its proxy-voting policy on its Web site. In August, Fidelity for the first time posted its proxy-voting policies on its site.