Mutual fund voting: mgmt, ISS or muse? James Cotter – Wake Business Alan Palmiter – Wake Law...
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Mutual fund voting: mgmt, ISS or muse? James Cotter – Wake Business Alan Palmiter – Wake Law Randall Thomas – Vanderbilt Law Villanova Securities Symposium March 14, 2009
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Transcript of Mutual fund voting: mgmt, ISS or muse? James Cotter – Wake Business Alan Palmiter – Wake Law...
Mutual fund voting:mgmt, ISS or muse?
James Cotter – Wake Business
Alan Palmiter – Wake Law
Randall Thomas – Vanderbilt Law
Villanova Securities SymposiumMarch 14, 2009
And now some numbers …
28.9%
(probably closer to 33%)
72% / 48%
which means
21-24% / 14-16%
98%
Source: Rothberg & Lilien, Mutual Fund Proxy Votes (Feb. 2005)
Now some jargon …
Rule 30b1-4 (2003)
Forms N1-A, N-PX, 10Q
Rule 14a-9(Rule 14a-8)
Schedule 14A
Now some pictures …
Now some data …
Mutual Fund Voting on Executive Compensation Proposals
Managementproposals
Shareholder proposals
Capseverance
pay
Performance-basedoptions
Expensestock
options
All payproposals
Fidelity 66.5% 3.0% 0% 5.3% 2.2%
Vanguard 64.6% 95.2% 0% 100% 23.4%
American 86.5% 81.3% 0% 100% 25.4%
T Rowe Price 87.6% 92.3% 35.0% 23.1% 28.1%
Franklin Templeton 80.8% 69.2% 67.6% 67.4% 35.3%
Source: Corporate Library/AFSCME (2005)
Mutual Fund Voting on Executive Compensation Proposals
Managementproposals
Shareholder proposals
Capseverance
pay
Performance-basedoptions
Expensestock
options
All payproposals
Fidelity 66.5% 3.0% 0% 5.3% 2.2%
Vanguard 64.6% 95.2% 0% 100% 23.4%
American 86.5% 81.3% 0% 100% 25.4%
T Rowe Price 87.6% 92.3% 35.0% 23.1% 28.1%
Franklin Templeton 80.8% 69.2% 67.6% 67.4% 35.3%
Source: Corporate Library/AFSCME (2005)
Mutual Fund Voting on Executive Compensation Proposals
Managementproposals
Shareholder proposals
Capseverance
pay
Performance-basedoptions
Expensestock
options
All payproposals
Fidelity 66.5% 3.0% 0% 5.3% 2.2%
Vanguard 64.6% 95.2% 0% 100% 23.4%
American 86.5% 81.3% 0% 100% 25.4%
T Rowe Price 87.6% 92.3% 35.0% 23.1% 28.1%
Franklin Templeton 80.8% 69.2% 67.6% 67.4% 35.3%
Source: Corporate Library/AFSCME (2005)
Proposal type
ISS study(all shareholders)
Corporate Library study(only mutual funds)
2004 2005 2004 2005
Board leadership (independent chair) 28% 30% 44% 48%
Board structure / board committees 26% 29% 38% 28%
Declassify board / term limits 72% 63% 64% 64%
Director elections (majority voting) 12% 44% 21% 60%
Shareholder rights / takeover defenses 61% 58% 86% 85%
Shareholder voting rights 55% 50% 56% 63%
Total 42.3% 45.7% 51.5% 58.0%
Proposal type
ISS study(all shareholders)
Corporate Library study(only mutual funds)
2004 2005 2004 2005
Board leadership (independent chair) 28% 30% 44% 48%
Board structure / board committees 26% 29% 38% 28%
Declassify board / term limits 72% 63% 64% 64%
Director elections (majority voting) 12% 44% 21% 60%
Shareholder rights / takeover defenses 61% 58% 86% 85%
Shareholder voting rights 55% 50% 56% 63%
Total 42.3% 45.7% 51.5% 58.0%
Sources: • The Corporate Library, Analysis of Fund Voting for 2004-2005 (Jan. 2006)• ISS, 2005 Postseason Report: Corporate Governance at a Crossroads (Oct. 2005)
Proposal type
ISS study(all shareholders)
Corporate Library study(only mutual funds)
2004 2005 2004 2005
Board leadership (independent chair) 28% 30% 44% 48%
Board structure / board committees 26% 29% 38% 28%
Declassify board / term limits 72% 63% 64% 64%
Director elections (majority voting) 12% 44% 21% 60%
Shareholder rights / takeover defenses 61% 58% 86% 85%
Shareholder voting rights 55% 50% 56% 63%
Total 42.3% 45.7% 51.5% 58.0%
Proposal type
ISS study(all shareholders)
Corporate Library study(only mutual funds)
2004 2005 2004 2005
Board leadership (independent chair) 28% 30% 44% 48%
Board structure / board committees 26% 29% 38% 28%
Declassify board / term limits 72% 63% 64% 64%
Director elections (majority voting) 12% 44% 21% 60%
Shareholder rights / takeover defenses 61% 58% 86% 85%
Shareholder voting rights 55% 50% 56% 63%
Total 42.3% 45.7% 51.5% 58.0%
Sources: • The Corporate Library, Analysis of Fund Voting for 2004-2005 (Jan. 2006)• ISS, 2005 Postseason Report: Corporate Governance at a Crossroads (Oct. 2005)
Now our preliminary data …(on mutual fund voting)
Mutual funds vs. all shareholders(“for” votes)
Managementproposals
Shareholderproposals
Mutual funds 91.8% 30.5%
All shareholders 93.9% 27.7%
MF voting on management proposals(excluding proposals to elect directors, approve auditors)
ManagementFor
ISSFor
83.0%7,949
ISSAgainst
65.2%1,513
No ISSRecommend
80.5%41
MF voting on shareholder proposals
ManagementAgainst
ISSFor
42.6%1,493
ISSAgainst
9.3%1,314
No ISSRecommend
43.5%31
Interpreting the data …
MF voting on all proposals(excluding director elections, auditor approvals)
ManagementFor
Management Against
ISSFor
ForAgainst
ForAgainst
ISSAgainst
ForAgainst
ForAgainst
MF voting on all proposals(excluding director elections, auditor approvals)
ManagementFor
Management Against
ISSFor
ForAgainst
ForAgainst
ISSAgainst
ForAgainst
ForAgainst
Follow Mgt + ISS
MF voting on all proposals(excluding director elections, auditor approvals)
ManagementFor
Management Against
ISSFor
ForAgainst
ForAgainst
ISSAgainst
ForAgainst
ForAgainst
Follow Mgt (despite ISS)
MF voting on all proposals(excluding director elections, auditor approvals)
ManagementFor
Management Against
ISSFor
ForAgainst
ForAgainst
ISSAgainst
ForAgainst
ForAgainst
Follow ISS (despite Mgt)
MF voting on all proposals(excluding director elections, auditor approvals)
ManagementFor
Management Against
ISSFor
ForAgainst
ForAgainst
ISSAgainst
ForAgainst
ForAgainst
Follow Muse (despite Mgt + ISS)
Vote w/ Mgmt + ISS 63.5%
Vote w/ Mgmt (despite ISS) 15.0%
Vote w/ ISS (despite Mgmt) 9.5%
Vote w/ Muse (despite Mgmt + ISS) 12.0%
TOTAL 100%
MF voting on all proposals(excluding director elections, auditor approvals)
Some specific results …(ISS influence generally)
Declassifyboard
Majority voting
Poison pill vote
Separate chair-CEO Totals
MGT + ISS 45.6% 19.6% 16.8% 27.1% 31.0%
MGT (not ISS)
18.6% 44.0% 33.4% 46.8% 32.1%
ISS (not MGT)
28.3% 33.5% 44.4% 20.8% 31.3%
Muse (not MGT or ISS)
7.6% 2.9% 5.4% 5.2% 5.7%
Declassifyboard
Majority voting
Poison pill vote
Separate chair-CEO Totals
MGT + ISS 45.6% 19.6% 16.8% 27.1% 31.0%
MGT (not ISS)
18.6% 44.0% 33.4% 46.8% 32.1%
ISS (not MGT)
28.3% 33.5% 44.4% 20.8% 31.3%
Muse (not MGT or ISS)
7.6% 2.9% 5.4% 5.2% 5.7%
Take away …
Mutualfunds
All Shs
MGT + ISS 63.5% 31.0%
MGT (not ISS)
15.0% 32.1%
ISS (not MGT)
9.5% 31.3%
Muse (not MGT or ISS)
12.0% 5.7%
The end
Declassify board
ManagementFor
Management Against
ISSFor
85.8%217
60.4%193
ISSAgainst
--0
20.6%2
No ISSRecommend
96.7%2
60.2%5
Majority voting for directors
ManagementFor
Management Against
ISSFor
88.0%50
43.8%176
ISSAgainst
67.7%10
21.1%4
No ISSRecommend
--0
--0
Submit poison pill to shareholder vote
ManagementFor
Management Against
ISSFor
78.1%13
57.7%139
ISSAgainst
59.5%5
25.4%28
No ISSRecommend
--0
60.8%4
Separate chair and CEO
ManagementFor
Management Against
ISSFor
83.2%1
30.8%113
ISSAgainst
--0
16.2%53
No ISSRecommend
--0
27.7%3
