Petersen Hastings Investment Management
October 31, 2002
Mr. Harvey L. Pitt, Chairman
Dear Chairman Pitt:
We write to submit the following comments in response to the Securities and Exchange Commission's recently proposed rules, File Numbers S7-36-02 and S7-38-02, concerning proxy voting policies and voting disclosure by mutual funds and investment advisors. We strongly support the recommendations set forth by the SEC, and congratulate the agency for its forward-looking positions on a topic of utmost importance to the investment community.
Petersen Hastings Investment Management is a locally owned, independent, SEC Registered Investment Adviser with approximately $170 million under management. Our mission is to create financial solutions for our clients that provide an inseparable union between their personal or organizational values and financial performance. We provide financial planning services for individuals and qualified retirement plan investment services for businesses. We also integrate socially responsible issues into our client portfolios when our clients' objectives call for it and we take our proxy voting role seriously. We get involved with corporate responsibility and governance issues through the Social Investment Forum and other organizations because we consider the investment advisor as the final line of defense for the individual financial planning client or 401(k) participant from corporate wrongdoing. We were one of the early pioneers of the fee based approach to investment management as opposed to the commission based approach. We also are part of a larger group of advisors called the Zero Alpha Group LLC that represents over $1 billion under management across the United States. Zero Alpha Group Members have similar beliefs regarding the financial planning process and selection of investments based upon low cost index or passively structured vehicles.
Comments Regarding File No. S7-36-02: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management
We support Rule S7-36-02, and feel it is a major step forward in providing transparency for investors. This rule is also consistent with recent SEC moves designed to increase transparency in financial filings and transactions. The SEC is making a clear statement that proxy voting is a fiduciary duty and should be exercised with the best interests of investors in mind. The SEC must also realize that investment advisors cannot fully protect their client's interests when mutual fund proxy voting information is not fully disclosed or readily available.
It is of increasing concern to some investors (both individual and professionals) that there is no way of knowing how most mutual funds voted on key corporate governance and social issues.
Rule S7-36-02 would better enable shareholders and their advisors to monitor mutual funds' involvement in corporate governance, compensation, and social policy activity at companies. The proposed amendments would encourage mutual funds to be more actively engaged in the companies they hold, instead of passive institutional investors.
HOW THIS RULE BENEFITS INVESTORS:
RESPONSE TO INDUSTRY ARGUMENTS AGAINST THIS RULE:
Comments Regarding File No.S7-38-02 :
Proxy Voting By Investment Advisers
Under this rule, investment advisers are expected to create policy guidelines to disclose to clients how they will vote on given proxy issues. Advisers are also to keep adequate records of their voting in order to provide transparency to clients when requested. Because investment advisers have voting authority over $12 trillion in assets, in addition to the $7 trillion controlled by mutual funds, and vote these assets on behalf of their clients, methods for disclosing such votes seems a reasonable request. These assets make up the lion's share of the investment market in the U.S., and yet many individuals and institutions entrusting voting rights and obligations to advisers are left in the dark about how their assets are being used to strengthen a company's bottom line. Transparency regarding voting by portfolio managers is paramount in strengthening corporate governance at U.S. companies. We are one of these Advisers and not only recommend full proxy voting disclosure, we embrace it!
We commend the SEC on its recent efforts to encourage greater disclosure and transparency by mutual funds, including a "plain English" prospectus, and detailed disclosure requirements regarding investment strategies, fees, and risks. The proposed rules concerning disclosure of proxy votes and guidelines is a solid step on the path for true transparency for investors that have indirect control of their assets. Investors feel disempowered and frustrated by the litany of corporate scandals gracing newspapers and television screens. They want to know how their hard-earned monies are being invested for the future, yet are dubious that adequate checks and balances are in place to prevent future "Enron's."
Transparency of action and intent go a long way to alleviate such anxieties. This in turn will help to restore lagging faith in our currently volatile equities markets, and the mutual fund sector.
We look forward to your response concerning our comments.
cc: Commissioners Harvey Goldschmid, Roel Campos, Paul Atkins, and Cynthia Glassman; Secretary Jonathan Katz.