Enhancing Fund Voting Reporting
Nov. 2, 2022
Today, the Commission adopts important enhancements to the information mutual funds, exchange-traded funds (ETFs), and certain other funds report about their voting. We also fulfill a congressional mandate in the Dodd-Frank Act requiring managers to report how they vote proxies relating to executive compensation matters. By facilitating investor access to more usable and transparent information, both of these actions strengthen the SEC’s investor protection mission.
Funds are major shareholders in public companies that list on U.S. stock exchanges. The Commission estimates that, as of May of this year, over 12,000 funds with average total net assets of approximately $35 trillion were required by law to report their proxy voting.
Funds therefore play an important role in our capital markets, particularly for retail investors. In 2021, approximately 102 million individuals owned mutual funds. Millions of working families rely on these funds to meet their financial goals, fund their retirements, save for their children’s education, and to build wealth.
A fund exercises its voting power on behalf of its fund investors, and those voting decisions can have a significant impact on maximizing the value of a fund’s investments.
Currently, funds report those votes annually on a form filed with the Commission. Form N-PX, as it’s known, serves a unique dual purpose: informing investors about whether the fund voted on a proxy and how. Most importantly, investors can use this form to monitor their fund’s involvement in the governance activities of its portfolio companies. As the Commission stated in 2003 when it first adopted fund proxy reporting rules: “Investors in mutual funds have a fundamental right to know how the fund casts proxy votes on shareholders’ behalf.”
The current form, however, is outdated, overly lengthy, difficult to navigate, and of very limited use for comparisons across funds.
The Commission’s actions today will make the information provided on Form N-PX easier to understand, and will also facilitate comparisons across funds. Improved and meaningful transparency of a fund’s voting record will better enable investors to monitor their fund to ensure that it’s meeting their financial needs.
The rule will also require that certain fund managers publicly disclose their proxy votes on executive compensation matters, implementing a key Dodd-Frank provision that is long overdue. Recently, the Commission adopted key Dodd-Frank Act executive compensation reforms on clawbacks and on pay vs. performance. Taken together, all of these reforms will strengthen accountability by corporate executives and enhance the decision-useful information available to investors.
I am pleased to support the adoption of the rule and would like to thank the staff from the Division of Investment Management, and all other Commission staff involved, for their hard work on today’s release.