The report presents the results of an analysis of the voting behaviour of funds as reported in their 2004 and 2005 proxy filings. It compares voting records on a number of dimensions:
- across the two years (2004 and 2005),
- across 45 fund families and two groupings of fund families: ‘mainstream’ and socially responsible investment (‘SRI’) funds, and
- across 2 main types of shareholder-sponsored resolutions: corporate governance (‘CG’) resolutions and corporate social responsibility (‘CSR’) resolutions, with a closer look at the subcategories of CG resolutions.
The key findings are that:
- SRI funds are more aggressive towards management with respect to both management and shareholder-sponsored resolutions than are mainstream funds, i.e. they are less likely to support management resolutions and more likely to support shareholder resolutions. No surprises here.
- Of the shareholder-sponsored resolutions, CG resolutions are supported to a far greater extent by both SRI and mainstream funds than are CSR resolutions.
- SRI funds show higher levels of support for both CSR and CG resolutions than do mainstream funds.
- Mainstream funds are 4-5 times more likely to support CG resolutions than CSR resolutions, whereas SRI funds were 11-18% more likely to support CG resolutions. On average, SRI funds supported CG resolutions around 75 percent of the time, whereas mainstream funds supported CG resolutions around 50 percent of the time. On average, SRI funds supported CSR resolutions 60 percent of the time, whereas mainstream funds supported CSR resolutions only 16 percent of the time.
- The most popularly supported sub-categories within the broad category of CG resolutions are poison pill rescission or voting, stock option expensing and implementation of a majority voting standard in director elections.
- Resolutions on stock option expensing and poison pill rescission or voting achieved, on average, more than 80 percent support from both mainstream and SRI funds in both reporting years. However, the number of resolutions in both categories decreased by 50 percent between 2004 and 2005 due to regulatory changes and more general changes in board practices, respectively.
- The number of resolutions requesting implementation of a majority vote standard for director elections increased by around 4 times between 2004 and 2005. Whereas no funds included in the survey had supported this resolution in 2004 where it had been voted on, SRI funds supported this resolution 100 percent of the time in 2005 and mainstream funds supported this resolution 60 percent of the time.
- Average support for CSR resolutions by both mainstream and SRI funds declined between 2004 and 2005, with SRI funds as a group showing more of a decline in support than mainstream funds (3 percent as compared to 1.5%). This surprising result has been attributed to the greater use of abstentions (as opposed to a vote for or against a particular resolution) by SRI funds, in particular, Catholic Funds and Parnassus.
The report goes on to explore the voting profiles of individual fund families in relation to some of their published proxy voting guidelines and also explores the implications of, and outlook for, shareholder activism around the majority vote standard in director elections.