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SHARE report sheds light on how mutual funds exercise their powerful voting rights to maintain the status quo in corporate Canada
Vancouver (31 July 2008) – A report released last month by the Shareholder Association for Research and Education (SHARE) has shed light on how mutual funds exercise their powerful voting rights to maintain the status quo in corporate Canada. Proxy Voting by Canadian Mutual Funds, the first multi-year report ever compiled, examines the 2006 and 2007 proxy voting records of 175 funds from 21 Canadian mutual fund families.
The authors, Laura O’Neill and Jackie Cook, find that most mutual funds examined by the study exercise their proxy votes in nearly unwavering support of director nominees, and voting against the vast majority of shareholder resolutions. “While we were not completely surprised that most mutual fund companies reported casting their ballots heavily in favour of director nominees and corporate auditors, in some cases it raises serious questions about ‘auto-pilot’ proxy voting”, said Ms O’Neill. “Based on our findings, we believe that more research needs to be done on whether mutual funds are actively considering investors’ interests when they vote proxies”.
Published by SHARE, in association with FundVotes.com, the report is based on publicly disclosed proxy voting decisions by mutual fund companies, a requirement under Canadian law.
The report does identify a small group of fund companies that take a more critical stance on board elections. Five fund companies of 21, or one in four, reported that they voted for directors on less than 90% of all ballots in one or both years examined: These five were: The Ethical Funds Company, Inhance Investment Management, McLean Budden, Meritas Mutual Funds and Phillips Hager & North.
The survey also revealed that a small number of fund companies routinely rejected proposals representing widely-accepted good governance standards, including initiatives asking for disclosure on compensation consultants, the work they do and the fees paid to them. As an example, Fidelity Investments Canada’s 2006 and 2007 voting reports indicated that the company’s funds did not support a single Canadian shareholder proposal.
Shareholder proposals on human rights issues generally fared better than proposals on other topics. As a group, Canadian mutual funds tended to vote in favour of requests that companies establish policies and produce reports aimed at ensuring that their operations incorporate respect for human rights.
“We were encouraged to find that shareholder concerns about the effect of corporate activities on human rights registered as a matter of serious importance with many fund companies,” said Ms Cook.
The Shareholder Association for Research and Education (SHARE) is a social enterprise that coordinates and implements responsible investment practices. Since its creation in 2000, SHARE has carried out this mandate by providing active ownership services, including proxy voting and engagement services as well as education, policy advocacy and practical research on emerging responsible investment issues – www.share.ca