Trillium Asset Management
December 5, 2002
Jonathan G. Katz
Re: Proposed Rule: Proxy Voting by Registered Management Investment Companies, File No. S7-36-02
Release Nos. 33-8131, 34-46518, IC-25739
Dear Mr. Katz:
Trillium Asset Management is the oldest and largest independent investment firm in North America specializing exclusively in socially responsible investment. Founded in 1982, we currently manage approximately $600 million for individual and institutional clients, and manage The Advocacy Fund (ADVOC), a mutual fund.
We write today to express our enthusiasm for the Security and Exchange Commission's ("the Commission") proposal to require mutual funds to disclose their proxy voting guidelines and voting records. We agree strongly with the Commission's position that the time has come for mandatory disclosure. The economic and social consequences of secrecy are simply too costly to investors and society at large.
Trillium Asset Management posts both our proxy voting guidelines and the voting record of The Advocacy Fund on our web site. Our firm has always embraced the position endorsed by the Commission and the Department of Labor (with respect to ERISA-governed private pension funds) that the proxy is an asset and should be voted by fiduciaries in their clients' best interest.
We can think of no principled reason why our clients should not be entitled to know how we are voting on proxy proposals at companies in portfolios managed for their benefit. If we cannot publicly defend a position that we take on a proxy proposal, then we believe that we have no business taking that position. Contrary to the assertion that opponents of the proposed rule change have made, we have found that our clients are very interested in our proxy voting policies and our votes at individual companies. We have found the cost of disclosing this information on our web site to be negligible. We believe that this transparency, which is shared by most or all of our peers in the social investment industry, is a major factor in the rapid growth of the social investment industry.1
For a number of years, Trillium Asset Management has filed a number of shareholder proposals on a wide range of social and environmental concerns, and we actively monitor the progress of shareholder proposals filed by our colleagues in the social investment industry, the religious shareholder community, and in the corporate governance arena. Particularly with respect to proposals dealing with social and environmental matters, we are accustomed to seeing most receive much less support from fellow voting shareholders than would be expected if one assumed (reasonably, we believe), that those responsible for voting mutual fund shares held views not broadly out of line with the views of the general public.2 Indeed, the voting behavior of mutual funds and other institutional investors could be generally characterized, without exaggeration, as the knee-jerk supporting of management's recommendations.
We believe that this behavior has several root causes. Conflict of interest is a driving force, as many mutual fund companies will not risk existing or potential business relationships with their portfolio companies. Apathy is another explanation, particularly with respect to non-corporate governance proposals. In addition, many mutual funds are simply unwilling to invest the necessary resources (which we have found to be reasonable) required to ensure that voting is undertaken conscientiously. Thus while we believe that transparency may afford a slight competitive advantage we are nonetheless pessimistic that in the absence of disclosure requirements, mutual fund companies will continue to lack incentive to vote conscientiously or disclose their votes to their own shareholders.
At this critical time of low investor confidence and sorely eroded trust in corporate truthfulness, failing to adopt the proposed rule change would represent a terrible missed opportunity. Voting behavior characterized by disinterest or conflicts of interest results in the placement of too much power in the hands of management. The risk extends beyond shareholder value to society as a whole; it extends to the multiple stakeholders who are profoundly affected by a wide range of corporate decisions. In this historic moment when the corporate sector is the dominant economic power and influence in our society (and arguably the dominant influence on culture), companies need more oversight from and contact with their stakeholders, not less.
We believe that mandatory disclosure will serve the following worthy ends for investors and the public at large:
The professional investment community deserves a significant part of the blame for Enron, Worldcom, Tyco and other corporate disasters. Business-as-usual - the continuous approval by proxy of sleeping boards of directors, compromised accounting firms and perilous incentive packages - has resulted in painful economic upheaval for millions of Americans. Going along with management was done in the name of stockholders and was facilitated by most mutual fund shareowners' ignorance that such a thing as a proxy vote even existed. Should this proposal be enacted, mutual fund shareowners - nearly half of all U.S. households - will become aware for the first time of the positive role they can play in preventing future corporate misdeeds and eliciting greater corporate accountability to investors and society.
Before closing, we would like to endorse, based on our own experiences, several arguments, observations and recommendations made by our colleague Amy Domini of Domini Social Investments regarding this matter in her letter to the Commission dated November 1, 2002. Specifically, we agree with Ms. Domini's points regarding opponents' arguments against disclosure and specific recommendations for disclosure methods, categories of disclosure, and disclosure by registered investment advisers.
We applaud the Commission's bold and timely rule proposal. We respectfully submit the forgoing comments and are grateful for the opportunity to do so.