February 03, 2006
Using Mutual Fund Proxy Voting Data to Promote More Conscientious Voting
by Bill Baue
The final installment 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.
After examining 2004 and 2005 mutual fund proxy voting data provided by The Corporate Library (TCL) Senior Research Associate
Jackie Cook, we return to the original question: do the SEC disclosure rules boost "incentives to fund managers to
vote their proxies conscientiously?" While it would be nice to answer "yes," the data say "no," as
support for resolutions filed by corporate management increased and support for resolutions
filed by shareowners on corporate social responsibility (CSR), and climate change in particular,
(Read all four articles in the series here.)
From a business
perspective, these trends are perplexing, given that the most comprehensive academic study of CSR, conducted by Marc Orlitzky surveying 52 empirical studies
published between 1972 and 1997, found a positive association between CSR and financial
performance. So mutual funds would be hard pressed to advance a business case for opposing CSR
It is even more difficult to account for the decreasing support for climate
change resolutions, given that science and popular opinion have only hardened in the past year that
climate change is not only an environmental but also a significant business risk. Indeed, a
survey of 845 US mutual fund investors conducted by Opinion Research Corporation (ORC) that the Civil Society Institute (CSI) released last week finds that
seven out of ten respondents want their mutual funds to support climate change shareowner
Released in conjunction with this survey was a report from Ceres conducted by the Investor Responsibility
Research Center (IRRC) finding that none of the
100 largest mutual funds whose specific votes were analyzed supported any climate change
resolutions in 2005. These findings largely concur with TCL data, with some differences due to the
fact that Ms. Cook of TCL did not limit her dataset to the largest funds. For example, Goldman
Sachs (ticker: GS) mutual funds are not amongst
the Ceres dataset of the 100 largest funds, though data provided by
TCL's Ms. Cook to SocialFunds.com documents a 16.7 percent decrease in support for climate change
resolutions from 2004 to 2005 by the 26 GS mutual funds covered.
While Ceres President
Mindy Lubber applauds Goldman Sachs' new comprehensive, corporate-wide environmental policy and its incorporation of socially
responsible investing (SRI) strategies in its equities research, she expresses concern over its
proxy voting on climate change proposals.
"Goldman Sachs, while putting out a valuable set
of environmental guidelines for the company, has clearly not changed all of its investment
practices as it relates to climate change and we look forward to continuing to work with them to
see more of that incorporated into their assessment of firms," Ms. Lubber told SocialFunds.com.
Chris Williams, a press officer for Goldman Sachs, told SocialFunds.com that the company
declined to comment.
America coordinated with CSI and Ceres to launch a Web-based action campaign for mutual fund investors to
send an electronic letter to the three largest mutual fund families (Fidelity, Vanguard, and American Funds) exhorting them to support
climate change resolutions.
"These fund families collectively control $1 trillion, 70
percent of the US mutual fund market," said Alisa Gravitz, executive director of Co-op America.
"The bottom line is this: mutual fund companies have the clout to hold the companies in their
portfolios accountable for climate change impact, and furthermore they have a duty to do so."
"When investors learn about the dismal record mutual funds have on this important issue, they
will be outraged that mutual funds have been so negligent--they will be furious because failure to
take climate risk seriously is clearly dangerous to mutual fund investors as well as the
environment," Ms. Gravitz added.
Within one week, more than 2,300 investors had sent
letters, according to the automatic tracking tool on the Co-op America website. And this is not
the only such campaign. Last year Amnesty International USA (AIUSA) launched the SharePower program, which provides tools
for investors to harness their power as mutual fund shareholders to encourage proxy voting in
support of human rights, and just this week Amnesty expanded the program to Canada. Mila
Rosenthal, director of Amnesty's business and human rights program, expresses concern mixed with
optimism regarding the trends toward decreasing support for CSR resolutions exposed in TCL data
provided to SocialFunds.com.
"Your analysis of the results is fascinating and shows some
surprising, and in some cases disappointing short-term trends, but I think the long-term trend will
be a positive one for human rights," Ms. Rosenthal told SocialFunds.com. "We believe that
transparency on proxy voting records will eventually push mutual funds to vote more and more
positively on human rights related resolutions, as they hear from more and more individuals that
these issues are important to them."
"The SharePower campaign is designed to give
individuals the tools they need to communicate these values to investment companies who speak for
them and their money, but SharePower is still a new initiative, and I would expect it to take a
while longer for the mutual funds to get the message," Ms. Rosenthal added. "We think that within
the next couple of years we'll see a more positive trend on proxy voting on social issues, as
individual investors get more involved and flex their muscles."
Ms. Cook, the researcher
who authored TCL's report and provided additional data from her study to SocialFunds.com, sees
several ways that this information can be used to fulfill the intention of the SEC rule to promote
more "conscientious" proxy voting by mutual funds.
"Shareholder activists looking to file
proposals may look to previous season's results for how to make the appeal to the shareholder
body--what lines of argument appeal in general to shareholder bodies and in particular to funds
with large holdings in particular companies," Ms. Cook told SocialFunds.com. "And shareholder
activists looking to promote their proposals for upcoming votes might look to this type of data in
devising a strategy for communicating their case to investment funds."
Part one of this
multi-part series discusses The Corporate Libary report findings on decreasing mainstream fund
support for CSR resolutions.
Part two of this multi-part series
examines unpublished data to explain the apparent decrease in support for CSR resolutions by SRI
Part three of this multi-part
series examines unpublished data and finds decreasing support for climate change resolutions.
|SocialFunds.com thanks Jackie Cook for
generously offering access to unpublished research data and analysis for this and previous