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Analyst Alert

Analysis of Fund Voting Records: 2004-2005
By Jackie Cook, Senior Research Associate
February 15, 2006

Investment companies regulated by the US Securities and Exchange Commission (SEC), including mutual funds, are required to report publicly on their voting record at public companies held in their portfolios. The first annual N-PX filings were to be filed by 31 August 2004. Two years' worth of filings are now available from the SEC's EDGAR database of electronic filings.

The voting records of 45 large mainstream and socially responsible investment (SRI) fund families were analyzed across the two reporting years, with special focus on voting on shareholder resolutions on corporate governance (CG) issues.

The results suggest that:

Management resolutions are supported to a far greater extent than shareholder-sponsored resolutions.
Of the shareholder-sponsored resolutions, CG resolutions receive significantly greater support from funds than do those relating to corporate social responsibility (CSR) issues.
Within each of these broad categories (CG and CSR), there is a wide variation in the levels of support for proposals assigned to sub-categories (such as executive pay, expensing options, board declassification, etc.)

However, mainstream and SRI funds differ in some important respects in their voting behavior:

Mainstream funds provide slightly more support for management resolutions than do SRI funds.
SRI funds provide significantly more support for shareholder resolutions than do mainstream funds; this applies across both CG and CSR-related resolutions, with SRI funds supporting around 70% of shareholder-sponsored resolutions and mainstream funds supporting around 30% of shareholder resolutions.
Both mainstream and SRI funds show greater support for CG resolutions than for CSR resolutions. This difference is around 11-18% for SRI funds, whereas mainstream funds' appear 4-5 times more likely to support CG resolutions than CSR resolutions.
The rate of abstention from CSR resolutions (7-11%) is far greater than that for CG resolutions (around 1%) and this contributes to some of the observed difference in levels of support for CG as opposed to CSR resolutions by both mainstream and SRI funds.
There also appear to be some important differences across the two reporting years:

Overall support for management resolutions increased slightly between 2004 and 2005 reporting periods. This increase was contributed to by both mainstream and SRI funds, but SRI funds showed a greater increase in support for management-sponsored resolutions. Overall support for shareholder resolutions also increased, and by approximately the same margin as for management resolutions. The increase in support for shareholder resolutions appears to be due to a significant (more than 5%) increase in support for CG resolutions by both mainstream and SRI funds.

The support for CSR resolutions by both mainstream and SRI funds appears to have declined. Mainstream funds' average support for CSR resolutions declined by around 1.4%, however SRI funds' average support for CSR resolutions declined by almost 3 percent.

See TCL Report: http://www.thecorporatelibrary.com/tcl-store/research.asp