Voting mutual fund proxies

(This information may be very US-specific. I have no idea how this works in other countries.)

If you hold money (such as retirement savings) in a mutual fund, you have probably received, from time to time, mailings asking you to vote on some issue put before the shareholders. They usually involve elections of trustees and sometimes other administrative changes to the funds. These mailings always provide some option to vote the recommendations of the board without any further effort. If you're like I used to be, you probably either ignore these or, if made to feel guilty by the pleas to vote your shares so that they don't have to contact people again, vote the recommendations.

I'd like to encourage you to stop doing that and instead read and really vote.

First, voting, including not voting the recommendations, is very easy and doesn't require filling anything out and mailing it. Every one of these proxy votes that I've seen recently uses, which is a simple and fairly usable web site. You just go to the web site, enter the number at the top of the proxy card, and click on the Vote button (without selecting the box to vote all the defaults).

Second, apparently in at least some circumstances all the shares held by a particular investment company are voted proportionately based on the people who respond. In other words, the votes that are received are taken as representative of the people who didn't vote. This means that your vote can actually have a substantial effect. (Cynically, I suspect this is the actual reason why they encourage uninterested people to vote to "save resources"; what they're really hoping is that those uninterested people will vote the recommendations because it's easier.)

When I read the literature, I usually end up voting against most of the proposals.

For example, my most recent proxy vote had a proposal to move the fund from Massachusetts to Delaware, which is a tax and regulation dodge to move into a very corporate-friendly legal state from one that cares more about individuals and has more regulation. I voted against.

It also had a bunch of proposals to relax investment requirements "not required by law" to give the fund more "flexibility." If you're like me, more "flexibility" in investing around things like borrowing, creating new senior shares, short-selling, and investing in real estate sounds like a rather bad idea. So does eliminating all restrictions not required by law. I voted against.

There was also a set of proposals that, so far as I could tell, basically allowed the management company of the mutual fund to execute a legal dodge to treat separate funds as separate corporate entities for the purposes of investment law in some countries, allowing it to bypass some limits. I voted against.

Voting for trustees is harder, since the typical invester isn't going to know anything about most of them, but I apply some similar logic to how I vote for judges in local elections. When voting for judges, I vote for all defense attorneys and against all prosecutors, since I think the legal system in California is too skewed towards prosecution and revenge. Similarly, when voting for trustees, I withhold my vote for anyone who holds positions with companies like J.P. Morgan or Citigroup or who works in businesses like corporate strategy, because I think the management of such funds is too biased towards insider Wall Street affiliations. It may not accomplish anything, but I'm fairly sure it's not going to hurt.

Next time you get one of those proxy cards, think twice before tossing it or returning it with the minimum number of checks. If you don't like the way that corporate governance in the US seems to be primarily about dodging taxes and avoiding regulation, you may be able to have more impact than you realize by taking ten minutes to visit the web site and vote against a few things.

Posted: 2009-11-07 15:03 — Why no comments?

Last spun 2013-07-01 from thread modified 2013-01-04