Tuesday, September 28, 2010

More Canadian mutual funds supporting shareholder proposals

Mutual fund votes for shareholder proposals rose to more than 21% in 2009 from just 3% in 2006, according to SHARE’s annual Proxy Voting by Canadian Mutual Funds report.

The numbers are significant since such proposals are almost always opposed by management, says Jackie Cook, founder of FundVotes.com and a co-author of the report.

Although fund support for corporate management is declining, it remains very high except among funds managed by Canada’s three major SRI fund companies (Ethical Funds, Inhance and Meritas).

“The three SRI fund families we surveyed are far less supportive of management than each of the other fund families every year, and in every category of proposal examined,” the report states. “The vote reports of these fund companies indicate a strong desire for change on boards, in auditor appointments and on equity-based compensation. This sentiment is perhaps no better expressed than by the SRI fund companies’ strong support for shareholder initiatives, many of which were filed by one of these companies.”

“At the other extreme, the ten largest Canadian retail fund families voted, as a group, a higher percentage of their ballots in favour of management on all the issues we examined than the average of the 21 funds we surveyed. As these funds represent an enormous proportion of the voting power of all funds in which an individual can invest, they deliver a strong signal in favour of current corporate practice.”

Canadian mutual funds were particularly critical of management proposals on executive compensation, voting against 1 in every 5 in 2006 and 1 in 4 in 2009, the report notes. “SRI funds were more than four times more likely to reject management proposals on executive compensation than non-SRI fund families in 2009. The gap between SRI and non-SRI funds’ voting records on this issue has increased in the last four years.”

The proxy numbers were boosted by strong support from Canadian mutual funds on “say on pay” shareholder proposals filed at Canada’s largest banks. For example, in 2008, funds included in the report voted 52% of their proxy ballots for say on pay. The following year, fund support increased to 68% of ballots.

The report also notes a marked increase in mutual fund support for shareholder proposals on environmental and social issues, up to 39% in 2009 from 26% in 2006. SRI mutual fund companies supported 98% of the proposals that raised environmental and social matters.

“Mutual funds vote billions of shares every year. Fund unitholders cannot direct how those shares should be voted because they do not own shares directly,” says Laura O’Neill, SHARE’s director of law of policy. “What they can and should do is examine the voting decisions of their funds on key issues identified in this report and let their fund companies know if they have concerns about how this important franchise is being exercised.”

SHARE and FundVotes.com analyzed four full years of data on votes cast by 258 funds managed by 21 fund companies in connection with the shareholder meetings of more than 200 senior Canadian issuers.

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