Mutual funds in Canada overwhelmingly support corporations' positions and oppose shareholder resolutions on annual shareholder proxy votes, a new study concludes.
A report issued yesterday by the Toronto-based Social Investment Organization (SIO), a trade organization for socially responsible investment funds, found mutual funds voted 67 per cent against shareholder resolutions last year.
The report is the first broad study of fund voting since Canadian regulators introduced mandatory rules requiring mutual funds to begin disclosing their annual proxy voting patterns as of June 30 last year.
SIO executive director Eugene Ellmen said many mutual funds do not appear to give careful consideration to proxy votes and automatically vote in favour of management.
"We say there is an implicit fund philosophy deferring to corporate management," he said.
"Funds, for whatever reason, seem to reflexively vote in favour of management on shareholder proposals. There is no culture of actually treating these resolutions seriously and thinking about them and scrutinizing them and really coming to a position on them."
The study examined proxy voting patterns at 990 individual mutual funds - including 55 socially responsible investment (SRI) funds - from 27 mutual fund families.
Most of the 57 proxy resolutions reviewed were culled from a list of more than 700 Canadian and U.S. resolutions submitted in 2006. They were selected based on their broad importance to investors, their reasonableness, and whether they were proposed by reputable groups with known track records in the investment or SRI sectors.
"They are ones we think reflect the broadest views in terms of investor opinion and are imminently supportable," Mr. Ellmen said.
The results showed a great deal of variation in voting patterns among fund families.
Not surprisingly, socially responsible funds were most likely to support shareholder resolutions, with 79 per cent voting for the proposals, compared with 31 per cent support from conventional funds.
Among conventional fund families, four were highlighted for voting in support of shareholder resolutions at least 50 per cent of the time - AIM Funds Management Inc., Guardian Group of Funds Ltd., National Bank Financial Inc. and RBC Asset Management Inc.
At the other extreme, three fund families did not vote against management's recommendations on any shareholder resolutions - AIC Ltd., Counsel Group of Funds and Fidelity Investments Canada Ltd.
Mr. Ellmen said he thinks the lack of support for shareholder proposals at some fund companies may stem not only from a general bias in support of management, but also from a lack of clear and detailed proxy voting guidelines, which help fund managers know when they should vote against management.
However, Pat Dunwoody, vice-president of the Investment Funds Institute of Canada, a national association representing investment fund companies, said it is wrong to assume that votes cast in favour of management positions have not been carefully considered.
"They are assuming fund companies are always voting on behalf of management's views, but that is not the case," she said. "They do their due diligence and make the appropriate decisions based on the fiduciary responsibilities to their investors."
The subjects that garnered the greatest level of support from conventional funds were proposals related to splitting the role of chairman and chief executive officer; holding votes on dual-class voting structures; requiring reporting on climate change impacts; and adopting human rights policies or reporting on human rights issues.
Conventional funds voted least often to support general environmental proposals such as phasing out environmentally damaging practices. There was also low support for executive compensation proposals as well as employee proposals in areas such as safety practices and employment equity.
Mr. Ellmen said some of the environmental and employee proposals may have lost support from conventional funds - although they were widely supported by SRI funds - because of concerns about the costs they could impose on a company.
Fund family support for shareholder resolutions
|Fund Family||Support %|
|Inhance Investment Management||100.0|
|The Ethical Funds||93.94|
|Acuity Funds (SRI funds only)||77.78|
|Meritas Mutual Funds||66.67|
|National Bank Financial||57.41|
|AIM Trimark Investments||57.14|
|Guardian Group of Funds||54.17|
|RBC Asset Management||50.51|
|Mavrix Fund Management (one SRI fund)||50.00|
|CIBC Asset Management||42.22|
|Desjardins Funds/ SRI funds||40.58/50.00|
|Brandes Investment Partners||33.33|
|IA Clarington Investments||32.00|
|Scotia Securities Inc.||28.83|
|Franklin Templeton Investments||22.73|
|Investors Group/SRI fund||22.67/22.22|
|Philips Hager&North/SRI funds||21.65/47.61|
|TD Asset Management||17.50|
|Dynamic Mutual Funds||0|
|Counsel Group of Funds||0|
|Fidelity Investments Canada||0|
SOURCE: SOCIAL INVESTMENT ORGANIZATION
© 2007 The Globe and Mail. All rights reserved.
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