How Mutual Funds Voted on Political Disclosures

As we look back on the 2012 elections one thing is clear, money flowed like water with any barrier that might have contained it removed by Citizens United. Writing for the court in the 5-4 decision, Judge Kennedy opined:

With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.

Of course, disclosure is the critical element Kennedy assumed but which is missing. Companies are not required under current law to report or account for their soft money political donations or their payments to trade associations and other tax-exempt organizations, such as “social welfare” 501(c)(4) groups, that are actually used for political purposes.

Bruce F. Freed, the Center for Political Accountability, its staff and supporters have been critical in the movement to obtain disclosure through “private ordering” by helping shareowners file proxy proposals and by helping them negotiate with corporate managers. See a list here of companies that have agreed to disclose and have agreed to disclose and require board oversight of their political spending with corporate funds. By my rough count, there were over 40 shareowner proposals on political funding disclosure this year, not all using CPA’s template.  Voting ranged from less than 1% at Google (where Zuckerberg has total control) to 52.66% for the proposal by Amalgamated Bank at WellCare Health Plans.

Working with Jackie Cook, the Center for Political Accountability released its Corporate Political Spending and Mutual Fund Vote: 2012 Proxy Season Analysis, which reviewed how 40 of the largest mutual fund families voted on shareholder resolutions that asked for disclosure of political spending based on the CPA model. Bruce Freed published a summary on the Harvard corporate governance blog Survey of Mutual Fund Support for Corporate Political Disclosure.

Key findings include the following:

  • In the 2012 proxy season, 40 of the largest mutual fund families supported, on average, 34 percent of the 29 CPA-model shareholder resolutions for corporate political disclosure. They abstained on 12 percent and opposed 54 percent.
  • Average mutual fund support in 2012 decreased slightly from 2011′s record 35 percent average support.
  • Five fund families — AllianceBernstein, Morgan Stanley, MFS, DWS Investment and Wells Fargo — supported disclosure of corporate political spending more than 80 percent of the time.
  • Thirteen of the 40 fund families supported at least 50 percent of corporate political disclosure resolutions in 2012.
  • AllianceBernstein and DWS Investments showed the largest increases in support between the 2011 and 2012 proxy seasons. AllianceBernstein supported disclosure of political contributions 90 percent of the time — the highest support by a large US mutual fund — in 2012, compared with supporting just 5 percent in 2011. DWS Investments supported 83 percent of all disclosure resolutions in 2012, compared with no support in the previous year.
  • While abstentions have decreased overall, two fund groups, Fidelity and Pioneer, abstained on all corporate political disclosure resolutions that they voted on in the 2012 proxy season. In previous years Vanguard had also abstained on all such resolutions, but in the 2012 proxy season cast votes ‘against’ five of the 29 resolutions.
  • Of the 30 fund groups that supported any corporate political disclosure resolution in either the 2011 or 2012 proxy season, average support declined at 20 funds but increased at 10 funds between the two years.
  • Two fund groups, Dodge & Cox and Vanguard, have never supported any of the 250 CPA-model political contribution resolutions that have come to vote in the nine-year survey.

Action: I urge readers who have investments with with any of these large funds to communicate with them. If your fund, like Vanguard or Dodge & Cox, hasn’t voted for proxy resolutions seeking political disclosure, please let them know you want them to do so. If your fund, like AllianceBernstein, has been supporting such resolutions, please let them know you appreciate that support and want it continued in 2013 and beyond.

See also Mutual Funds Slow to Engage on Political Spending by Robert Kropp at Social Funds.

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