March 04, 2004
Report Urges Foundations to Vote Their Proxies
by William Baue
Surprisingly few foundations regularly vote their proxies, according to a new report written by the
As You Sow Foundation, an advocate of active proxy voting.
Foundations are significant investors in the US, with total endowments of about $400 billion. As
with most investors, foundations invest predominantly in equities of domestic companies, such that
foundations hold slightly more than 2 percent of the total US equities market. One would expect
these foundations to leverage their significant position as company shareowners by actively voting
their proxies, which often include shareowner proposals on social or environmental issues that may
overlap with their own missions.
However, a report released last week by Rockefeller Philanthropy Advisors and the As You Sow Foundation documents surprisingly
low levels of active proxy voting by foundations. According to a 2002 Council on Foundations survey, 402 of the 680 respondents (62
percent) delegate proxy voting to investment managers, who typically vote with management. While
slightly more than half of the responding foundations say they do not automatically vote with
management recommendations, only 10 percent of these respondents actually have written guidelines
for voting proxies on social or environmental issues.
"We believe that passive holding of
corporate stocks without assessment of the social and environmental, as well as the financial
performance of a corporation does not fulfill our obligation as a shareholder," state the proxy
voting guidelines for the Jessie Smith Noyes Foundation, which promotes
sustainable and just social and ecological systems.
"We can vote our values with our
investment dollars, but the real leverage for change is an asset that most foundations ignore--the
proxy vote," said Lance Lindblom, president of the Nathan Cummings Foundation, a Jewish charity that promotes
The report, entitled Unlocking the Power of the
Proxy, reprints both of these foundations' proxy voting guidelines in its appendix. Report
author Conrad MacKerron, director of As You Sow's corporate social responsibility (CSR) program,
advocates active engagement in proxy voting as a means of promoting foundation missions and
protecting shareowner value.
The report makes the case for proxy voting by dispelling
common myths around the process, such as the idea that proxy voting contravenes the fiduciary duty
to maximize profits. In fact, many foundation trustees consider proxy voting to be a specific
"It is a right and a fiduciary obligation to vote the proxies we hold in
accordance with our foundations' values," said Mr. Lindblom.
The report also cites
research, such as a study by Harvard Professor Paul
Gompers, that correlates strong corporate governance with financial outperformance. Many issues on
the proxy ballot address corporate governance issues.
The report points out new rules enacted last year by
the US Securities and Exchange Commission (SEC) requiring mutual funds and investment advisors to
develop proxy voting policies and disclose proxy voting records.
"In this new spirit of
disclosure, foundations may want to consider disclosing their voting records as well," Mr.
MacKerron writes in the report, where he also recommends that foundations develop proxy voting
The report presents a step-by-step process for creating proxy voting
guidelines. It also describes real-life examples. For instance, the Cummings Foundation unveiled
its proxy voting guidelines in 2002. The guidelines give highest consideration to matters of
“When a program interest is at stake, the foundation will vote in
line with the program interest,” said Caroline Williams, Cummings' chief financial and
In 2003, the foundation cast about 400 proxy votes on about 100
companies in 2003, according to Ms. Williams, who personally reviews the proxies and recommends
voting positions to the president of the foundation.
There are other proxy voting options
available to foundations. These include instructing asset managers to vote according to guidelines
or to purchase proxy voting services. Firms such as Institutional Shareholder Services (ISS) and the Investor Responsibility Research
Center (IRRC) provide such services for between
$6,000 and $10,000 a year.
Although this financial investment in proxy voting may seem
steep, the report points out that foundations may recoup some of this expense in the long run, as
shareowner action victories may help solve issues related to foundations' programs.
this sense, foundations may be promoting quicker results by voting their proxies in support of
program related proposals, thus saving themselves from having to make future grants on the same
issue," the report concludes.