Mutual Fund Proxy Votes

Abstract

We examine how large mutual funds voted their proxies. Data concerning fund voting has recently become available in two new datasets. In the first, mutual funds are required to disclose their policies for making voting decisions. In the second, they are required to disclose how they actually vote on all issues. We find that the large mutual fund families have decided to vote the shares in all their funds as a block, thus increasing their voting power. They claim they do not wish to interfere in the operational management of their investments. This includes social or ethical issues. However, they feel strongly about antitakeover policies and executive compensation. Analysis of the voting data shows that the largest funds voted with management on most issues. However, they voted against management often on antitakeover and executive compensation issues. There is evidence that the funds voted against boards that were not sufficiently independent from management. We also find that voting patterns vary between funds with different investment styles. Stock pickers tended to vote with management more often. Funds with a passive investment approach, such as index funds, tend to vote against management slightly more often. Finally, we investigate the question of conflicts of interest. We compare the voting records of fund companies that are primarily mutual funds to the voting records of fund companies that are a small part of larger financial services companies. We do not find a difference in how often they vote against management.