Four years and counting, the battle over the disclosure of mutual fund proxy voting records shows no sign of ebbing.
"Corporate governance and voting proxies is as important as fund performance," says John Montalbano, president of Phillips Hager & North Investment Management Ltd. in Vancouver, a staunch supporter of new securities regulation that requires fund companies to detail how their managers voted on issues put to shareholders.
PH&N is in the minority. The bulk of the fund industry argues that investors care little about governance issues and are happy to abdicate all aspects of investment decision making -- including proxy voting -- when they invest in a mutual fund.
"Mutual funds are bought by people who delegate really all of the investment management process," said Ed Legzdins, president and chief executive officer of BMO Investments Inc. BMO, along with Mackenzie Financial Services Inc. and TD Mutual Funds, says investors have shown little or no interest in proxy voting.
That's a shame, said Allan Smith, president and chief executive officer of Saxon Financial Inc. Proxy decisions reflect fund management principles, and more disclosure can only boost the public's confidence in the fund industry at large, he said. "Any time you increase access to information . . . it's dealing the cards face up. I think it can only help in the goal of good governance." A detailed review of proxy voting records indicates that most mutual fund managers are staunch defenders of the status quo.
Nine times out of ten, Canada's biggest mutual funds aligned their interests with management. Analysis of voting records of the country's 10 largest equity funds found that, on average, fund managers backed company management 87.3 per cent of the time. Fund support of board of director and trustee nominees was even higher, with funds supporting management candidates 91.1 per cent of the time. The data are based on a review of almost 8,000 proxy votes made public for the first time by the fund industry.
Only a handful of fund companies supported National Instrument 81-106, sweeping fund regulation first discussed four years ago aimed at improving disclosure, including proxy voting records. The majority of fund companies considered the release of proxy details costly and of little interest to investors, the Investment Funds Institute of Canada told the Canadian Securities Administrators in 2004.
Regulators stood their ground and, as of Aug. 31, fund managers posted voting records for the past 12 months on their websites. In general, the voting data are difficult to find, access is cumbersome and voting details sparse.
The reluctance to share information may stem from the complex nature of corporate governance, said Glorianne Stromberg, a former Ontario Securities Commissioner and writer of a landmark report in the mid-1990s calling for sweeping reforms of the fund industry.
Proxy voting "isn't just black and white," Ms. Stromberg said. "A lot of it comes down to the individual manager's point of view."
Indeed, industry interviews indicate a wide range in guidelines and sophistication when it comes to proxy voting. While many companies seek independent advice on proxy votes, most funds rely ultimately on a manager's gut feeling. For example, the investment team at Winnipeg-based Investors Group Inc. will meet to find "a collective view" on a proxy issue; nevertheless, there are exceptions to every rule, reports fund manager Domenic Grestoni. "They are not guidelines that are written in stone," he said. "There are going to be situations . . . that warrant a company-by-company individual review."
The voting data reveals a deep divide between fund managers when it comes to shareholder proposals on the proxy ballot. For example, the $12.2-billion Investors Dividend A Fund, Canada's largest mutual fund, managed by Mr. Grestoni, voted 20 for 20 against shareholder proposals. But the CI Canadian Investment Fund, a $5.1-billion Toronto-based fund managed until recently by Sionna Investment Managers Inc., sided with shareholders 53 per cent of the time.
Fund managers agreed on some key issues. In general, the bulk of managers backed shareholder resolutions opposing stock option plans and in favour of separating the role of chairman and chief executive officer. On May 2, six funds that held shares in Magna International Inc. all abstained when it came to voting on the auto parts maker's proposed board of directors. In the past, some institutional investors have complained about Magna's share structure and the compensation of chairman Frank Stronach.
"A shareholder is entitled to know how the manager exercises the voting, and what principles guide it," Ms. Stromberg said. "A vote in favour of whatever management is proposing is really a vote confirming the manager's decision to invest and continue to hold the company. If they are not prepared to be accountable for that, then there is a bigger issue."
Keith Damsell is editor of GlobeinvestorGOLD
© 2007 The Globe and Mail. All rights reserved.
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