Friday, August 17, 2007

When your mutual fund speaks for you, what does it say?

Every year when companies have their annual meetings, there are a series of resolutions for stockholders to vote on.  Many of these are introduced by the company and have to do with things like confirming board members, but there are also increasing numbers of resolutions introduced by shareholders, often having to do with issues of corporate social responsibility (CSR). 
These votes are only advisory, but they express the positions of shareholders on the company's approach important social and environmental issues, and often lead corporate management to take action.  Resolutions are filed every year on issues from environmental impacts to non-discrimination and diversity to animal welfare to executive compensation to political contributions to human rights and many, many more.
If you hold stock directly, even a small amount, you're entitled to vote on these resolutions yourself.  But if you hold stock through mutual funds, the mutual funds vote for you.   And different mutual funds treat proxy voting very differently.
An analysis of the voting records of dozens of mutual fund families found that in 2006, mainstream mutual funds supported just 11.3% of CSR shareholder resolutions, compared to socially responsible investing (SRI) funds, which supported 74.9% of those resolutions. 
And a closer look at the mainstream funds reveals wide disparities.  TIAA-CREF supported 43.7% of the CSR resolutions, JP Morgan supported 25.6% and Goldman Sachs supported 18.8% of them.  But American Funds supported only 2.7%, Vanguard 2.3%, and Fidelity 0.8%-- four or less votes in favor of CSR in each case.  And the latter three funds control more than two-thirds of the U.S. mutual fund market.  (You can find information on the CSR voting records of ten major funds in this article, and many more at this website.)
These funds, and many investors, say that corporate social responsibility is irrelevant to a company's success.  But actually, there can be financial consequences to corporate irresponsibility-- from fines to lawsuits to bad PR to decreased productivity to being left behind by changing trends.  And beyond the dollars and cents, some investors are troubled by making money in ways contrary to their values, and would be happier if the companies they invest in would change their ways. 
If your mutual fund is not voting on shareholder resolutions the way you'd prefer, what can you do?   One option is to make your feelings known, either by contacting them directly or through coordinated campaigns (like this appeal on climate change to Fidelity, Vanguard, and American Funds).  Another, more dramatic choice?  Pick SRI mutual funds with a track record of not only voting "yes" on CSR shareholder resolutions, but often actually introducing those resolutions and negotiating with corporate management for change.
Where do your mutual funds stand on these issues?  What are their proxy voting policies?  Does it matter to you?
Related posts:


MoneyChangesThings said...

Fidelity is getting a lot of heat for its investments in Chinese companies in Sudan, where they are looking the other way in all the atrocities perpetrated on Darfur. I have a lot of money invested through fidelity. (I wrote them a strong letter, but didn't think it warranted moving all my accounts... geez, that would have been a fulltime job, and whose to say other places are really better?). I think the divestment strategy is very smart.
But in truth I don't know squat about how my mutual funds actually make money, or in this week's case, lose it.

Art Dinkin said...

What a great message. All too often people toss their proxies without realizing the power of their vote.

Thanks for the reminder.