December 13, 2001
Domini Urges SEC to Require Proxy Voting Disclosure
by William Baue
In a letter to the U.S. Securities and Exchange Commission chairman, Domini Social Investments
outlines the benefits of mutual fund managers disclosing their proxy voting practices to their
On November 27, Domini Social Investments founder
and managing principal Amy Domini sent a letter to U.S.
Securities and Exchange Commission chairman Harvey Pitt urging the SEC to mandate proxy voting
disclosure for all mutual funds. Currently, the SEC does not require mutual fund managers to
disclose their proxy voting guidelines, much less their actual proxy votes.
believe that the current approach taken by most mutual fund companies in not disclosing their
policies or votes should be considered an abdication of their fiduciary responsibility," Ms. Domini
wrote in the letter. "The required disclosure of proxy voting policies and practices is clearly
consistent with the Commission's position on virtually every other mutual fund governance and
disclosure issue that I am aware of," she continued.
In 1996, Domini Social Investments
set a precedent in the mutual-fund industry by publishing its proxy voting guidelines, which it has
continued to do annually. In April 1999, Domini set another precedent by publishing its actual
proxy votes, making it the first mutual fund manager to do so. Each year that it publishes its
proxy voting record and guidelines, Domini re-issues its challenge for the rest of the industry to
follow its lead.
Only a handful of mutual fund managers have followed suit. Pax World Funds did so in May 2000, followed by MMA Praxis in October 2000 and Calvert Group in April 2001. Citizens Funds publishes only its proxy voting guidelines. Other
mutual fund managers, such as Parnassus
Investments, make their proxy voting guidelines available to investors upon request.
The nation's two largest mutual fund companies, the Vanguard Group and Fidelity Management & Research Company, do not report their
proxy voting records due to lack of investor interest, according to an April Washington Post
article cited by Ms. Domini. Clients hire mutual fund managers to vote their proxy for them,
Fidelity maintains. However, such an explanation acknowledges the fact that proxy voting is a
fiduciary responsibility, Ms. Domini points out.
"The question then surely becomes: if
proxy voting is a fiduciary responsibility of fund management, why is disclosure not mandated?"
wrote Ms. Domini. "I can think of no other instance where the Commission countenances opacity
rather than transparency in the discharge of fiduciary obligations. Indeed, when it comes to proxy
voting there is not even a record-keeping requirement, let alone a disclosure requirement. I
believe it is time to address this anomaly."
Investors potentially could find direct
benefits from the disclosure of their mutual fund managers' proxy voting records. Investors often
do not know, however, that mutual fund managers are voting proxies of the fund's holdings.
"Indeed, in a great many cases, ordinary investors are simply unaware of what they are missing,
and are not therefore in a position to 'demand' it," wrote Ms. Domini in her letter. She then
cited a 1994 study of the "CalPERS Effect," which found correlations between investor engagement
with company management and positive portfolio performance. Investor engagement with management
includes proxy voting.
Ms. Domini also appeals to the SEC's own history of support for
disclosing proxy votes. She quotes Chairman Pitt's opening remarks delivered this October before
the American Institute of Certified Public Accountants (AICPA) Governing Council as support for
transparency. "It is axiomatic that comprehensible information is the lifeblood of strong and
vibrant markets," Chairman Pitt stated.
Historically, the SEC has twice proposed rules
mandating the disclosure of mutual fund voting policies and practices, in 1971 and in 1978.
However, the SEC withdrew both proposals, according to Ms. Domini. This year, the Commission
proposed Rule S7-10-00, which stopped just short of requiring registered investment advisers to
disclose their proxy voting practices. Ms. Domini calls on the SEC to extend this rule to require
Adam Kanzer, general counsel for Domini, expresses optimism that it
will. "I would hope that they'd at least be willing to talk to us about it. We think that this is
consistent with their position on pretty much every other area related to mutual funds. It's about
greater disclosure and providing information to investors, which we think is critical for
evaluating whether a fund manager is appropriate for them. I would think that the SEC would
support it, but it's always difficult to predict."