November 10, 2002
Dear Secretary Katz,
I am writing in support of the SEC's proposed rule to require mutual fund companies to disclose how they vote on corporate proxy resolutions -- Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies: Release Number 33-8131.
Harvey Pitt, former head of the SEC, noted several months ago, "An investment adviser must exercise its responsibility to vote the shares of its clients in a manner that is consistent with its fiduciary duties under federal and state law to act in the best interests of its clients." (Letter from Harvey Pitt to John P.M. Higgins, President, Ram Trust Services, February 12, 2002.) However, requiring investment advisers to vote proxies in the interests of their investors is a toothless requirement unless funds are also required disclose how they vote. Without that disclosure, it is impossible to monitor or enforce the performance of fiduciary obligations.
Under the SEC's proposal, mutual funds would be required to disclose their voting policies and votes in corporate elections. Fund holders will finally be able to learn if our investments are being voted in our interests. However, two amendments are needed:
- Fund managers should be required to disclose conflicts of interests. For example, it is my understanding that Fidelity earned half of its $9.8 billion in revenues from fees paid by companies in which its funds are invested. I presume these fees were paid for them to manage 401(k) and other investment plans for company employees. Mutual funds therefore have an incentive to vote with company management in order to keep their fee business. Yet your proposed disclosure rules permit funds to keep their conflicts of interest secret. This is no different from investment analysts discovered by Eliot Spitzer to be recommending "buy," while at the same time emailing their friends that the same corporate stocks were over valued.
"Sunlight is the best disinfectant." -- Justice Brandeis
"It's only when the tide goes out that you learn who's been swimming naked." -- Warren Buffett
- Additionally, the proposal should be amended to require data be presented a readily accessible format. I believe the SEC requires disclosure of executive compensation too, but it would take hours or days to sort through the required filings in order to get anything like a full picture. Anyone without time to waste has to purchase such information from a vendor, such as The Corporate Library.
For more information, see Fund Democracy and Mercer Bullard's letter, which I wholeheartedly agree with.
James McRitchie, Editor
9295 Yorkship Court
Elk Grove, CA 95758