December 08, 2004
Two Reports Reveal Proxy Votes Rubber-Stamp Management Recommendations
by William Baue
One finds the majority of top US mutual funds voting against climate change resolutions, the other
finds contradictory proxy by Canadian pension fund managers.
"If your friend asked you to jump off the Brooklyn Bridge, would you?" So goes the
all-too-familiar parental rejoinder promoting independent thinking in the face of peer pressure.
Apparently, many fiduciaries have yet to learn this lesson. Two reports released this week expose
knee-jerk proxy voting according to corporate management recommendations, suggesting that
fiduciaries may not be fulfilling their duty of voting proxies in the best interest of
beneficiaries and shareowners.
The first report, prepared by the Investor
Responsibility Research Center (IRRC) for the
Coalition for Environmentally Responsible Economies (CERES), analyzes how the 100 largest US mutual funds voted on
climate change resolutions in the 2004 proxy season. The report, made possible by the new
Securities and Exchange Commission (SEC) rule
requiring mutual funds to disclose proxy votes and policies, finds that only three of the 28
investment firms managing top-100 funds voted in favor of climate change resolutions.
"Increasingly, investors of all types are recognizing that global warming poses large financial
risks and opportunities that will bear directly on the bottom lines for shareholders," said Pam
Solo, president of the Civil
Society Institute, whose Results
for America project sponsored the report. "Yet the vast majority of mutual funds ignore the
threat to shareholder value by casting their proxy votes against global warming proposals."
"Given this track record, it is no surprise that these funds fought so hard to prevent
disclosure to investors of how they vote on major proxy issues such as global warming," she added.
Many of the investment companies studied have a blanket policy of voting with management
on all so-called corporate social responsibility resolutions.
“Davis Advisors will
generally vote with management on shareholder social and environmental proposals on the basis that
their impact on share value is difficult to judge and is therefore best done by management,” states
Davis Funds' proxy voting guidelines, adopted in April 2004.
Boston-based Davis Funds has over $40
billion in assets under management.
However, the report requested by the resolutions asks
companies to assess potential financial impacts of climate change and to present mitigation plans,
so support for the resolution would only increase information on which to base investment
"For most mutual funds that pride themselves on gaining in-depth knowledge of
companies' financial goals and risk-management strategies, this near-universal stance against
global warming proposals is surprising and disturbing," said Mindy Lubber, executive director of
Mutual fund firms' rubber stamping of climate risk resolutions stands in stark
contrast to many pension fund fiduciaries, such as the $20 billion Connecticut Retirement Plans and
Trust Funds (CRTPF), which actively
support the resolutions as prudent risk assessment.
The second report, prepared by
Vancouver-based Shareholder Association for Research and Education (SHARE), examines the pension fund proxy voting of 37 investment
managers and proxy voting services in Canada on 31 different management and shareholder proposals.
It finds lax proxy voting patterns similar to those identified in the ICCR/CERES report, with
fiduciaries reflexively voting with management.
An examination of voting on a resolution
that asked companies to disclose other directorships held by director nominees for the past five
years reveals what seems like schizophrenia, or at least blind adherence to management
recommendations, on fiduciaries' part. Interestingly, Bell Canada Enterprises (ticker: BCE) management
supported the proposal and recommended shareholder approval, while National Bank of Canada (NA.TO) management
opposed the proposal and recommended shareholders vote against it.
"The survey results
show that six investment managers voted for the resolution when management supported it and against
it when management did not, raising concerns that votes are being decided based solely on
management's recommendation rather than on the merits of the proposal," writes report author Gil
Yaron, SHARE's director of law and policy.
While it is possible that the situation at the
two companies differed significantly enough to warrant different votes, it is much more likely that
the investment managers employed a tick-box approach, and pension fund trustees did not catch the
Interestingly, some pension funds opposed management on an
environmental resolution when management urged a “yes” vote. Faced with a proposal asking for a
report on environmental liabilities, Bank of Montreal (BMO) management asked shareowners
to support the proposal. However, five of the 30 survey respondents broke with management to
oppose the resolution.