Submitted by US SIF: The Forum for Sustainable and Responsible Investment
The new study entitled "Mutual Funds, Proxy Voting, and Fiduciary Responsibility: How Do Funds Rate on Voting Their Proxies and Disclosure Practices?" concludes: "Socially responsible investing (SRI) funds as a category support more shareholder-proposed corporate governance resolutions and 'vote no' campaigns than their conventional peers by a 2-to-1 margin. They also tend to support more controversial governance resolutions, like separating the CEO and chair positions, or limiting nonaudit services by auditors. SRI funds are also more consistent in their support of popular 'plain vanilla' governance issues we examined (poison pills, expensing stock options, golden parachutes, and declassifying the board)--totaling 90 percent support for these four issues, opposed to 72 percent support by 'conventional' funds."
Tim Smith, president of the Social Investment Forum and senior vice-president at Walden Asset Management, said: "We now have the facts that allow us to ask the question: Which funds are the true guardians and friends of investor interests? When it comes to mutual funds, there is a clear answer: Socially responsible mutual funds do a much better job of voting independently on a range of issues that make a real difference. No one will be surprised to learn that SRI funds are way ahead of 'conventional' mutual funds when it comes to voting on environmental and social issues. But many will be interested to learn that SRI funds have a more effective record than conventional funds in voting on corporate governance issues as well."
KLD Research & Analytics, Inc. President Peter Kinder, noted: "At a minimum, the Securities and Exchange Commission (SEC) has said mutual funds must 'monitor corporate events.' Those events include social and environmental issues. By requiring the funds to report their policies and votes, the Commission has given the funds' beneficiaries the means to judge whether the funds are meeting their duties to them. The funds will have to take these issues very seriously."
As of August 31, 2004, mutual funds and investment advisors were obligated by the SEC to begin disclosing how they vote on proxy issues. Using the new data covering the first 12 months of such disclosure, the SIFF report looks at how 10 socially responsible mutual fund families and 10 large "conventional" mutual fund families voted on 12 proxy issues and major "vote no" campaigns targeting directors for the one-year period from July 1, 2003 - June 30, 2004. The new study is the most comprehensive look so far at mutual fund voting practices in the United States, and whether there is evidence that they are living up to their obligations as fiduciaries to look out for the best interests of their shareholders.
OTHER KEY STUDY FINDINGS
Tracey Rembert, study author and coordinator of the Social Investment Forum's Advocacy and Public Policy Program, said: "Clearly, our results show that this disclosure rule is very important in prodding fund companies to uphold their fiduciary allegiance to fund investors. Already, we've seen improvements in policies and voting guidelines that benefit individual fund owners looking for this information. With a new spotlight on fund voting, we should see improvements in the years to come of funds standing up to management more often when it's in the interest of their fundholders."
The full Social Investment Forum Foundation study is available online at www.socialinvest.org/areas/research/votingpractices/default.htm.
The Social Investment Forum Foundation study looked at six corporate governance issues (expensing of stock options, separation of CEO and chair positions, limiting consulting by auditors, shareholder approval of poison pills, shareholder approval of golden parachutes, and declassifying the board/holding annual elections), six social or environmental issues (reporting on climate change/climate risk, addressing the HIV/AIDS/Malaria/TB pandemics, supporting labor/vendor standards, sexual orientation nondiscrimination policies, human rights, and sustainability reporting), and four major "vote no" campaigns targeting specific directors where proxies were withheld in substantial numbers (Walt Disney, Federated Department Stores, Kohl's, and MBNA). The report examined domestic large cap equity and hybrid funds at the top 10 mutual fund companies (in terms of total equity and non-equity net assets) for both conventional and SRI funds.
Mutual funds also were examined in terms of: accessibility of fund voting records and guidelines; quality of proxy voting guidelines; transparency on proxy issues from fund staff and web and written materials; conflict of interest policies; disregard for social resolutions as an entire class; ability to cast votes against directors (withholds); and customer service and support related to proxy information requests.
ABOUT THE FORUM FOUNDATION
The Social Investment Forum Foundation is a national nonprofit organization providing research and education on socially responsible investing. The Forum Foundation provides cutting-edge research on the trends, practice, performance, and impact of social investing.
EDITOR'S NOTE: The full study, a related news release and streaming audio from the news event will be available on the Web today (April 12, 2005) at www.socialinvest.org. The study and release will be available by 10:30 a.m. ET on April 12th and the streaming audio by 4 p.m. ET.
The Social Investment Forum (SIF) is the only national membership association dedicated to advancing the concept, practice, and growth of socially and environmentally responsible investing (SRI). Our members integrate economic, environmental, social and governance factors into their investment decisions and SIF provides programs and resources to advance this work. SIF's membership includes more than 500 social investment practitioners and institutions, including financial professionals, analysts, portfolio managers, banks, mutual funds, researchers, foundations, community development organizations, and public educators.