Tuesday, June 30, 2009

Small steps for shareholder action

Most Canadian mutual funds still strongly support management on shareholder resolutions, though there are signs of some movement away from that trend, according to a report by the Shareholder Association for Research and Education (SHARE) and Fund Votes.

For example, the second annual Proxy Voting by Canadian Mutual Funds report notes that Canadian mutual funds are more likely to oppose the election of directors put forward by corporate management than in previous years. And note the success of this year's "Say on Pay" campaign (not included in the report), which will allow shareholders of Canada's big banks an advisory vote on executive compensation starting next year.

“Canadians depend on mutual fund companies to protect their retirement savings and studies have shown repeatedly that careful proxy voting adds value and manages risk for investors,” says SHARE’s Laura O’Neill. “At this time of battered financial markets and depressed shareholder value, it is a positive sign that more funds are challenging management’s hold on the ballot.”

The report found that three mutual fund companies stood out from the crowd. “Among their peers, Inhance Asset Management, Meritas Mutual Funds, and Northwest & Ethical Funds, were significantly more likely to vote against management,” the report notes. “The three companies are known for integrating environmental, social and governance factors into their investment decisions.” Inhance, Meritas and Northwest & Ethical voted in favour of shareholder proposals on at least 40% of all ballots and each also withheld support from management on at least one in five resolutions.

However, those three companies are the exceptions. Canadian mutual funds supported management about 90% of the time. Eighteen of 21 fund families rejected more than 80% of the shareholder proposals they voted on.

And the report turned out a few anomalies of interest to SRI investors, especially those who are invested in SRI products from fund companies that are not SRI-exclusive or SRI specialists. For instance, the proxy voting records of SRI funds sold by diversified fund companies are likely to be the same. “We looked for evidence that SRI funds would report voting in favour of corporate social responsibility proposals more heavily than non-SRI funds in the same family. With notable exceptions, we found that this was not the case.”

“When you invest in a fund from an SRI family, you can count on very progressive proxy voting,” O’Neill said. “We found that in most cases, an SRI product managed within a non-SRI fund family votes in the same management-friendly way for all of its funds.”

Canadian fund companies have been required to publicly disclose their proxy voting records since 2006. The SHARE/Fund Votes report is available here.

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