Fiduciary Duty to Announce Votes (Part 3): Take Action

Advance Disclosure Infrastructure Already Exists

As I pointed out in Part 1 and Part 2 of this series, P&I’s editorial, Winning over proxy voters, presents a reasonable argument that expands on those made by Robert Monks to the Department of Labor concerning ERISA and that he, Nell Minow and Ram Trust subsequently made to the SEC regarding mutual funds and investment advisors.

Thanks to their efforts and those of thousands of others, it is now accepted law that trustees must vote in the interest of beneficiaries, members and shareowners. Disclosure allows investors to verify that votes are consistent with stated policies and to ensure accountability after the fact. However, to get the full impact of their vote, institutional investors must announce their votes in advance of annual shareholder meetings. They have a fiduciary duty to make full use of their voting analysis and voting power. That includes influencing other voters. Once the voting is over, it is too late to influence other shareowners.

The P&I editorial calls on the Council of Institutional Investors to

consider developing a project to move toward greater disclosure. In addition, proxy advisory firms could facilitate more disclosure through the use existing platforms that display proxy votes by funds.

While I encourage CII, ISS, Glass Lewis and others to take additional steps to encourage and facilitate greater disclosure by members and clients, the infrastructure for doing so is already available. Most funds can simply ask their proxy advisor to make their votes available on the web before annual meetings and ProxyDemocracy.org will automatically collect the votes. Some funds have chosen to instead periodically send ProxyDemocracy a spreadsheet of intended votes. Either way, we don’t need to reinvent the wheel.

More Advance Disclosures Will Facilitate Voting Decisions and Dialogue

Institutional investors have a fiduciary duty to vote in the interest of beneficiaries and shareowners. However, many don’t have much incentive to thoroughly research proxy issues. Since they hold diverse portfolios, benefits obtained through careful voting are gained equally by their competitors, while they bear all the costs for research (free rider problem; see Agency Capitalism: Corrective Measures). More votes announced in advance would allow funds to freely compare voting policies and decisions. I have noticed several instances where funds changed their vote after seeing on ProxyDemocracy how others voted, especially when a brief reason for the vote is provided.

Although retail investors own about a third of all shares, we only vote about 30% of the shares we own. That leaves a huge untapped pool of votes that might be cast if retail investors could simply copy the voting behavior of trusted “brands.” (see Proxy Voting Brand Competition) How would we know if our values align with those of funds voting in advance? One way is to review and compare how funds have voted on issue areas important to you like director elections, executive pay, corporate governance and corporate impact.

More ambitious investors can create your own focus lists, based on how you would vote on specific proxies.  For example, I quickly created a focus list based on votes for proxy access (ability of investors to place their director nominees on the proxy). If this is a key issue for you, look closely at how CalSTRS, CBIS, Domini, Florida SBA, and CalPERS vote. Users who are logged into ProxyDemocracy can also create alerts.

A few weeks before the meeting, we will send an email if we have the agenda, and we will let you know about any votes we have already collected. Then we’ll update you when we collect any additional votes, and remind you a few days before the meeting. Usually you’ll receive a total of two or three emails about a meeting, and at most you’ll receive four or five.

If You Don’t Own Stock, ProxyDemocracy Can Still Help

ProxyDemocracy can help you evaluate your mutual fund’s voting record and decide if you want to switch. Here’s how:

1. Find your fund using the mutual fund search box, or browse funds here. If they don’t have your exact fund, look for the fund family (e.g. Vanguard, Fidelity) as funds from the same fund family usually vote in a similar way. If they don’t have the fund family, let them know.
2. Look at the vote profile by clicking on the fund or fund family name. The vote profile contains lots of information that can help you compare your fund with other funds. If you find it confusing, they provide some help here.
3. Compare funds on an issue you care about. You can look at how funds rank on our activism scale for four issue areas: director elections, executive compensation, corporate governance, and corporate impact. Or, look at how your fund ranks on one of the FocusLists of key proposals created by users.
4. Take action. If you don’t like your fund’s voting record, contact the company and let it know, or move your money. Many participants in 401(k) plans can change funds easily. There are many similar funds available.  Invest in one whose votes reflect your values and economic interests.

What Others Are Saying About ProxyDemocracy

• “I just about stood up and cheered when I saw this site. My hope is that investors who are trying to make up their mind between one fund and another will use this.” Nell Minow, co-founder of GMIRatings
• “ProxyDemocracy is the long-awaited resource that brings the tools of shareowner engagement, available before only to deep-pocketed institutions, to the citizen investor’s computer screen. That produces a double dividend. We are now one important step closer to making corporate boards truly accountable to owners. And grassroots investors have potent means to protect and grow their hard-earned savings.” Stephen Davis, associate director of the Harvard Law School Programs on Corporate Governance and Institutional Investors, and non-resident senior fellow at the Brookings in Governance
• “ProxyDemocracy marks the beginning of a new era of potential activism by retail shareowners . . . . I have been covering Corporate Governance news and issues since 1995 and believe ProxyDemocracy is one of the most significant developments during this entire time.” James McRitchie, editor of CorpGov.net