March 12, 2003
Mutual Fund Industry Takes Last Stab at Blocking Proxy Voting Disclosure
by William Baue
The Investment Company Institute, the mutual fund industry trade group, continues to lobby against
new SEC rules that require disclosure of proxy voting policies and records.
On January 23, 2003, the U.S. Securities and Exchange
Commission (SEC) announced new rules that require mutual fund companies
to disclose their proxy voting records and policies starting on April 14, 2003. The Investment Company Institute (ICI), the mutual fund
industry trade group, lobbied hard against the new rules, arguing that such disclosure would
financially overburden mutual funds and would, therefore, increase costs to investors. The SEC
acknowledged the ICI's cost estimates when it rejected this line of argument in the final rule.
However, the ICI has one last chance to plead its case, because the Paperwork Reduction Act of 1995
requires the White House's Office of
Management and Budget (OMB) to review the accuracy of the SEC's cost estimates. The OMB, which
administers the Paperwork Reduction Act, will accept public comments through Friday, March 14.
"[W]ith respect to arguments that the disclosure may impose excessive costs, we note
that several fund groups that currently provide disclosure of their complete proxy voting records
to their shareholders commented that although there are start-up costs for compliance systems, this
cost decreases over time, and that the overall costs of the disclosure are minimal," the SEC states
in the rules.
The SEC estimates that disclosing proxy voting records would cost $992
annually per equity portfolio. This estimate is consistent with cost estimates submitted to the
SEC by Walden Asset Management, Domini Social Investments, and Pax World Funds, all of which currently disclose their proxy
voting policies and records.
"By contrast, [the Investment Company Institute] estimated,
based on a survey of fund complexes conducted on its behalf by a third-party, that proxy voting
record disclosure would cost approximately $3,380 per fund in start-up costs, and $5,530 per year
in ongoing costs," the SEC regulation reads. Elsewhere in the rules, the SEC states, "We estimate
that a typical fund may have, on average, 30,000 shareholder accounts." These figures translate to
less than 20 cents annually per shareholder account.
"The cost is pretty insignificant by
investor," said Domini Director of Shareholder Activism and General Counsel Adam Kanzer, who is
writing a letter to the OMB expressing Domini's support of the SEC rules as they stand. "Math is
not my strong suit, but even the number the ICI came out with to scare everybody, which they
thought was enormous, doesn't seem like that big a number to me."
AFL-CIO Secretary-Treasurer Richard Trumka submitted a letter to
the OMB today in support of the SEC rules.
"The Commission estimates the total external
and internal costs of the additional disclosure required by the new rules at $12.7 million [per
year], which translates to an average cost of 13 cents for each of the nation's 95 million mutual
fund shareholders," writes Mr. Trumka. This figure includes the increase per equity portfolio as
well as other costs.
ICI is submitting its own letter to the OMB, according to ICI
spokesperson Chris Wloszczyna. Based on the same survey it used to calculate its original
estimate, ICI has calculated a revised estimate of the costs for implementing the SEC's proxy
voting record disclosure.
"[W]e believe that a more realistic estimate of the costs that
the fund industry, and hence fund shareholders, would incur . . . would be a transition cost of
$20.8 million and annual recurring costs of $40.9 million," reads the ICI letter to the OMB.
According to the ICI 2002 Mutual Fund Fact Book cited in the SEC rule, "Approximately 93
million individual investors hold shares of mutual funds." Therefore, even ICI's upwardly revised
estimate of the burden of the SEC's new rule amounts to less than a 50-cent increase in annual
costs for each shareowner account.
"I think it's extraordinary for the ICI to even attempt
this kind of an end-run," said AFL-CIO Office of Investment Corporate Transactions Coordinator
Michael Garland. "I would be very surprised if the OMB were to try to block this rule at this
"At a time when investor confidence is so low, to set back a major reform like
this would be political suicide," Mr. Garland told SocialFunds.com.