SOCIAL TOPICS (Archive): INVESTMENT & ECONOMIC ANALYSIS

Published, March 2003

Timothy Smith is president and chair of the Social Investment Forum, as well as Director of Socially Responsive investing here at Walden. The following is excerpted from his January 23 statement pertaining to new SEC rules on proxy voting.

Both socially and environmentally responsible investors hail today’s important decision by the Securities and Exchange Commission (SEC) to protect the rights of all investors by requiring meaningful disclosure of proxy voting by mutual funds and investment advisors. In taking this action, the SEC has empowered investors with the right to information that can be used to evaluate the commitment of mutual funds and investment advisors to good corporate governance and long-term shareholder value.

For years now, Social Investment Forum members have called for disclosure of proxy votes and voting guidelines. Forum members were the first firms in the nation to voluntarily make such disclosures. In fact, all of the U.S. mutual fund companies that currently disclose both their guidelines and voting decisions publicly are members of the Forum. Our members have done so voluntarily because they understand that mutual funds have a fiduciary duty to vote proxies in a manner that is consistent with the best interests of their shareholders and clients.

It is important to remember that corporate scandals like Enron, Tyco, and WorldCom were not caused by executive greed alone. Mutual funds were among those that approved Enron’s board of directors, supported CEO compensation packages, and voted against numerous corporate governance measures that may well have prevented some of the abuses we’ve recently witnessed. The SEC’s action today tears away the cloak of secrecy that up until now has shielded mutual fund proxy voting from much-needed public scrutiny.

The SEC action is good for investors and it is a good thing for the mutual fund industry, including those companies that do not yet appreciate that fact. There is mounting evidence that attention to shareholder rights, including social and corporate governance issues, is linked to long-term corporate performance. When all mutual funds reveal how they use proxy votes, enabling shareholders to know what is being done in their name, we expect to see a contribution to long-term shareholder value.

More and more investors today understand the importance of good governance, ethics and corporate citizenship in the companies in which they invest through mutual funds. They want to see if mutual funds “get it” and are voting thoughtfully and conscientiously on their behalf. Today’s action by the SEC finally makes that possible.