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Are Proxy Disclosures Worth the Trouble?

Does anyone really care about proxy votes? That's the big question as last Friday's deadline loomed for comment on a proposed Securities and Exchange Commission rule that would require disclosure of mutual fund proxy voting on public companies [see MFMN 9/30/02, 10/21/02].

After all, some mutual fund groups already have been disclosing their proxy voting policies and votes for quite a while.

"We have not found great interest in proxy voting guidelines from shareholders," said Vincent Loporchio, spokesman for Boston- based Fidelity Investments. Fidelity has posted a four-page discussion of its proxy voting policy on its Web site since August [see MFMN 12/2/02].

Quiet Diplomacy'

Fidelity, however, does not post actual proxy votes. "We vote 5,000 proxies every year," Loporchio said. "We have an active process for voting them where we negotiate with companies. We've long believed in quiet diplomacy. If the information is released publicly, it could have a negative impact on the price of a stock we own if we vote against management. It would not be in the best interest of mutual fund shareholders."

Vanguard spokeswoman Rebecca Cohen noted that her firm, headquartered in Valley Forge, Pa., limits its online disclosure to proxy policy discussions: "If the SEC winds up requiring [vote disclosure], we will [comply]. We do not support the proposal to disclose proxy votes, but we are not elaborating on rationale until we have submitted our comment letter to the SEC," said Cohen, in an interview in advance of last Friday's comment deadline.

So far, comment to the SEC has been overwhelmingly in favor of increased proxy disclosure. Out of nearly 3,000 letters to the SEC, only a handful spoke out against the idea of letting the public know how mutual fund companies vote their trillion-dollars' worth of shareholder influence.

Flexing Some Muscle

Leading the charge to greater proxy voting disclosure have been socially responsible funds. Pax World Funds, Portsmouth, N.H., even teamed up with the AFL-CIO and Fund Democracy to form a coalition aimed at pushing the proposed rule at The Web site contains a letter that visitors, in turn, can e-mail to the SEC in support of greater disclosure.

One week after the Web site was launched on Oct. 22, Anita Green, director of social research for Pax World Funds, said 250 letters supporting greater proxy vote disclosure had gone to the SEC. Since then, Pax World has prompted nearly 1,000 letters to the SEC.

Exactly what mutual funds have been doing in view of shareholder pressure to disclose proxy votes on public companies varies. Fidelity and Vanguard have relatively brief discussions of their proxy voting policies on their Web sites.

By contrast, Domini Social Investments of New York and Pax World have gone so far as to post online their actual votes on issues at public companies contained in their portfolios.

In fact, most socially responsible funds show their policies in great detail. With Pax World Funds, for example, shareholders can call up public companies in its portfolios. Take Microsoft. Viewers can see the Redmond, Wash., giant's earnings and proxy meeting dates, ticker symbol, proxy proposal and results. In the case of Microsoft's Nov. 7 meeting, Pax World voted for the proposal to elect a slate of directors.

On another Microsoft proposal, "Implement Human and Labor Rights Standards for China," the Pax World Funds' vote was "For" but additional notes revealed that the fund complex's vote was against management.

"We have always disclosed our votes [when] our shareholders asked for it," Green said. "In 2000, we put our votes on our Web site and made [them] publicly available. We recently added guidelines as well. It was a matter of taking the database and streaming it into the Web site," for a mere cost of $5,000 or $6,000, she added.

Who Cares?

Mariann Murphy, vice president, marketing for the $1 billion Pax World Funds, said that in the first 10 days of the firm posting its proxy voting guidelines, it already had 350 visitor hits. That compares with 10,000 to 11,000 visitors to its Web site monthly. In the 12 months ended in October of this year, she said, the actual proxy votes drew 1,610 visitor hits, an average of 134 monthly.

Amy Domni, CEO and founder of $1.5 billion Domini Social Investments, said her fund group has disclosed proxy vote information since its inception in June 1991. Since the fund group went on the Internet in 1997, it began posting votes. In the quarter from July through September, 2002, which she stresses is a slow quarter because meetings typically are in March, 1,275 visitors viewed Domini's proxy votes.