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January 18, 2006
Unpublished Data Clarifies SRI Proxy Voting on CSR Resolutions
    by Bill Baue

In part two in this multi-part series, examines unpublished data associated with a recent report from The Corporate Library, and finds that statistics are not always what they seem at first glance.

The Corporate Library (TCL) report on 2004 and 2005 mutual fund proxy voting released last week defies expectation in many ways. With the spotlight shining on proxy voting, one would anticipate mutual funds voting more independently of management and thus increasingly supporting shareowner resolutions. The report, which is based on 45 funds' N-PX filings with the SEC, does indeed document a 1.5 percent increase in overall support for shareowner resolutions, from 35.8 percent in 2004 to 37.3 percent in 2005.

(Read all four articles in the series here.)

However, when delving deeper to distinguish between support for corporate governance (CG) resolutions and those on corporate social responsibility (CSR), the report surprisingly finds support for the latter decreasing 1.3 percent, from 17.5 percent in 2004 to 16.3 percent in 2005. Even more confounding are the results that break down between mainstream funds, which support CSR resolutions less than 10 percent of the time, and socially responsible investing (SRI) funds, which support CSR resolutions about 60 percent of the time, according to the report.

"Mainstream funds' support for CSR resolutions declined by around 1.4 percent, however SRI funds' support for CSR resolutions declined by almost 3 percent," writes Jackie Cook, the senior research associate at TCL who conducted the analysis, in the report she authored. "The decrease in SRI funds' support for CSR resolutions was caused by decreased support by Catholic Funds (-14.5 percent), Pax (-13.3 percent), and Parnassus (-7.5 percent)."

source: The Corporate Library

The finding that SRI funds decreased support for CSR resolutions--which are predominantly filed by SRI funds and allied organizations--is quite counterintuitive, and may result in large part from the inherent limitations in the research methodology.

"It should be noted that, since most SRI funds apply screening criteria to their portfolios, these funds are not voting on a comparable set of resolutions to those of mainstream funds," Ms. Cook writes in the report. "Rather, they are voting on a subset at corporations that have already passed the various screening criteria applied by individual funds."

In other words, SRI funds are voting on a much smaller set of resolutions--not only because of screening, but also due to the simple fact that SRI fund firms tend to be much smaller than mainstream fund families and hold many fewer companies in their portfolios.

"It was not any conscious decision on our part to reduce voting on CSR," said Jerry Dodson, president of Parnassus Investments. "It's probably because the statistical sample is so small that a change in how two or three resolutions are voted would make a major difference."

According to unpublished data provided to by Ms. Cook, Parnassus voted on only 16 resolutions in 2005, opposing five and abstaining from five. Of the 20 resolutions it voted on in 2004, it opposed eleven. So the 7.5 percent decrease in Parnassus' support for CSR resolutions hinges on a single vote.

"We don't vote for all the CSR resolutions--we do look at each one carefully, but sometimes we don't agree with all of them," Mr. Dodson told

Anita Green, vice president of social research at Pax World Funds, concurs.

"If there is a change in our numbers, it is not due to a change in policy or voting procedure--it's more likely just a statistical anomaly," Ms. Green told

Of the 13 resolutions it voted on in 2004, Pax opposed only two and abstained on one, according to the data provided by Ms. Cook. Of the 11 resolutions it voted on in 2005, Pax opposed four--as with Parnassus, the decrease resulted from a mere vote.

Another somewhat confounding aspect of the report is how "abstain" votes are counted, which voice neither support ("for") nor opposition ("against").

When investigating Investor Responsibility Research Center (IRRC) data published in the Social Investment Forum (SIF) 2003 Trends Report a few years ago, Ms. Cook contacted IRRC to inquire how it counts abstain votes on individual resolutions to ascertain whether they qualify for re-submission, and discovered that IRRC leaves them out of the equation. IRRC divides the number of votes "for" by the sum of the number of votes "for" plus the number of votes "against." IRRC had consulted with the SEC, which confirmed that this is the correct method for tallying votes to determine eligibility for re-submission.

For the purposes of the TCL study, which seeks to provide a comprehensive view of mutual fund proxy voting, Ms. Cook reasoned that including the "abstain" votes (by dividing the number of votes "for" by the sum of all votes--"for," "against," and "abstain") was necessary to account for all votes cast.

"Abstain votes skew the results either way you count them," Ms. Cook told

Excluding abstain votes (as IRRC does) paints an accurate picture of voter will on specific resolutions, as it only counts clear expressions of support or opposition, but it neglects to account for a portion of the votes cast--perhaps appropriately, as these voters deferred from expressing a clear will. Including abstain votes (as the TCL report does) accurately accounts for all votes as is appropriate for a broad survey of proxy voting across entire mutual fund families. However, one effect is that this method de facto lowers support by increasing the denominator--despite the fact that these voters expressed neither support nor opposition to the resolution.

"If we were to apply the SEC-sanctioned IRRC method to the fund voting data, the effect would definitely be an increase in support for CSR resolutions by SRI funds," said Ms. Cook.

Catholic Funds and Parnassus, which together account for the lion's share of the decrease in SRI support for CSR resolutions, also account for the most abstentions on CSR resolutions--Catholic Funds abstained on 61.4 percent of its CSR resolutions in 2005, and Parnassus on 31.3 percent.

"Our proxy guidelines include an explicit list of issues on which we abstain," Catholic Funds President Ted Zimmer told "We chose these because we do not claim much expertise on these issues and/or because it may not be clear how Catholic values influence the appropriate response to the issues."

Using the IRRC calculation method, SRI fund support for CSR resolutions decreased a mere 0.5 percent from 2004 to 2005, and increased by 2.6 percent for all shareowner resolutions (as opposed to decreasing 0.4 percent, as the results that count abstain votes find.)

source: Jackie Cook

Counting abstentions as the SEC instructs results in a much different picture of SRI fund voting on shareowner resolutions, especially those focused on CSR.

Part one of this multi-part series examines mainstream mutual fund proxy voting results from The Corporate Library report.

Part three of this multi-part series examines unpublished data and finds decreasing support for climate change resolutions.

Part four of this multi-part series steps back to consider the implications of the findings and how to harness them to push mutual funds to support corporate social responsibility.

Editor's Note: thanks Jackie Cook for generously offering access to unpublished research data and analysis for this and subsequent articles.


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