Last month, The Corporate Library, together with the American Federation of State, County and Municipal Employees and the Shareowner Education Network, released a study, "Compensation Accomplices",which found that 26 large mutual fund families, as a group, became more supportive of management positions on pay despite the growing consensus that executive pay is often excessive and has become unmoored from corporate performance.
In addition to providing a wealth of data on mutual fund voting patterns, the study raises intriguing questions for follow-up analysis. First, can any of the voting trends be explained, at least in part, by changes in the universe of voting items? One trend in shareholder proposals was obvious: between 2006 and 2008, the number of “say on pay” proposals grew tremendously at the expense of other compensation proposal categories. Thus, funds’ positions on this proposal took on additional importance in the overall shareholder proposal support levels. Because of the large number of ballot items, we did not segment management proposals, but it would be interesting to see whether the make-up of that large category shifted in any way during the years studied, accounting for the higher levels of support we found. There’s no reason to believe that’s the case, but even proof of this negative would add to our understanding of fund voting.
Second, what role do funds’ proxy voting guidelines play in determining voting patterns and are funds’ votes consistent with those guidelines? For example, the study data show that at some fund families individual funds often vote differently on the same ballot item. It would be worthwhile to assess whether such inconsistent votes are due to different guidelines from one fund to another, varying application of those guidelines to a particular voting item (perhaps because voting is not centralized or because fund managers are permitted to weigh in and override the guidelines) or some other reason.
Finally, proxy advisory services’ recommendations surely factor into mutual funds’ voting decisions. Contrary to predictions made during the debate over disclosure of mutual fund proxy votes, however, the proxy advisors do not dictate mutual funds’ votes. (The data show far too much variation for this to be the case.) If one could obtain information on advisor-client relationships involving mutual funds, it would be possible to evaluate how often funds follow proxy advisors’ recommendations and whether funds tend to depart more often on certain kinds of ballot items.
I’d be interested in hearing about any other questions related to mutual fund proxy voting you think could be answered using data from mutual funds’ NPX filings with the SEC.
Beth Young — Senior Research Associate, Shareholder Issues, M&A and Takeover Defenses