Retire Rich

April 9, 2007

Labor Group Takes Notice Of Funds' Proxy Votes

It's been three years since the Securities and Exchange Commission began requiring funds to annually disclose their proxy voting records. When the measure was passed, many dismissed it as a mere administrative nuisance, reasoning that even if investors eventually began to pour through funds' voting records, the day when they would be able to systematically make sense of the information, let alone actually be interested in it, was a long way off.

Since then, investors have become increasingly aware of the fact that mutual funds own 25% of all of the publicly traded stock in this country worth $9.5 trillion.

The day of proxy vote reckoning may have finally arrived.

One influential group representing $180 billion in pension assets voiced its anger last week over support of what it deems excessive executive pay packages. A federation of seven unions representing six million workers interested in creating universal healthcare and a secure retirement, called Change to Win, last Monday challenged 14 mutual fund companies on their support for directors who voted in favor of enormous pay packages for executives at companies facing financial challenges, including Home Depot. Specifically, the group wants to know why the fund companies, which include Fidelity Investments and American Funds, can justify these pay packages to investors.

The inquiry comes on the heels of a report from The Corporate Library indicating that fund companies are increasingly voting their proxies in favor of management proposals. In 2006, funds supported 92% of management-sponsored proposals but only 37% of shareholder-sponsored recommendations. This is up from support of 90% of management proposals in 2005 and 89% in 2004.

In regards to compensation, funds voted in favor of management-proposed executive compensation recommendations 74% of the time. The greatest support came from Alliance, Barclays Global Investors and Dreyfus, which supported more than 90% of such proposals. The least support came from Federated Investors, which opposed management-proposed executive compensation packages 61.8% of the time, and Putnam Investments, which voted against them 51.2% of the time.

To date, funds' proxy reports have only been bandied about among academics, pension plan giants and those in the industry. The fact that a union group is now paying attention to these records proves individual investors are wising up-and fund companies will have to be prepared to answer to their pointed questions.

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