The Investment Company Institute has published the results of a survey the industry group conducted of the proxy voting trends of registered investment companies for the years 2007 to 2009. Generally, the study finds that during the recent financial crisis, mutual funds dedicated much time and energy in dealing with new issues and studying new types of proxy proposals resulting from the demands of the crisis itself, and also new regulatory trends and initiatives affecting corporate proxies. For the most part, mutual funds weathered and adapted to these changes by examining proxy proposals on their merits, and applying their proxy voting policies in the way that best advanced the interests of fund investors.
In particular, the study found:
• Registered investment companies ("funds") play an important role in corporate governance.Updating earlier ICI work, this study examines over 10 million votes placed by funds during the years 2007 to 2009, focusing especially on two issues taking on greater prominence during those years: shareholder rights and executive compensation. How funds voted on these kinds of proposals illustrates the complexity of proxy voting and the factors funds consider in their efforts to vote inthe best interests of fund investors.
• From 2007 to 2009, funds voted more than 90 percent of the time in favor of management proposals. In this category, dominated by director elections, funds generally gave high rates of approval to directors, broadly in line with vote recommendations of proxy advisory firms. However, the proportion of times that funds withheld votes from directors increased noticeably from 2007 to2009, in part because some funds, to express concerns about executive pay, withheld votes moreoften from directors on board compensation committees.
• Funds' approval of all types of shareholder proposals climbed from 35 percent in 2007 to 50 percentin 2009. This increase primarily ref lects a change in the mix of shareholder proposals toward proposals that funds were more likely to favor. Notably, there was a sharp increase in shareholder proposals seeking the right to call special shareholder meetings ("special meetings") and proposals seeking an advisory vote on executive compensation (shareholder "say-on-pay").
• From 2007 to 2009, funds generally gave high approval rates to special meeting proposals. Funds voted about three-fourths of the time in favor of special meeting proposals during this period, reflecting the principle generally espoused in funds' proxy voting guidelines of favoring proposals that advance shareholder rights.
• In 2009, funds voted nearly 60 percent of the time in favor of shareholder-sponsored say-on-payproposals. These proposals, which ask management to add an advisory (up or down) vote on executive compensation to the company's proxy statement, are a relatively new phenomenon in theUnited States. Thus, while funds supported these proposals the majority of the time, there was a spectrum of views among funds about the role and benefits of such proposals in promoting good pay practices.
• In 2009, funds voted about 80 percent of the time in favor of management-sponsored say-on-pay proposals. These proposals, which are fundamentally different from shareholder say-on-pay proposals, give shareholders the chance to express approval or disapproval (on an advisory basis) executive pay packages. Thus, funds expressed disapproval of executive compensation packages nearly 20 percent of the time.
The full text of the ICI's "Trends in Proxy Voting by Registered Investment Companies, 2007–2009" is available here.