April Fools' Day has come and gone, but that great annual joke of corporate America -- the pretense of shareholder democracy -- is upon us again. It is proxy season, and you can bet that shareholder challenges to management are going to be voted down in droves.
Every year, companies are bombarded with shareholder resolutions, ranging from corporate governance issues like abolishing poison pills and ending the practice of repricing underwater executive options to social issues aimed at sweatshops and tobacco companies. But the deck is always stacked in management's favor.
Last year, the
Investor Responsibility Research Center
, a Washington group that tracks investor initiatives, identified 588 proposed resolutions dealing with corporate governance. Only 266 made it to a vote. Only 22 passed.
Much has been much written over the past few years about increasing activism by mutual fund managers who are curtailing corporate conduct that entrenches management at the expense of shareholders. What baloney!
Here's a simple test: Do you know how your mutual fund company voted on any shareholder resolution last year?
The answer is no. Fund companies do not disclose how they vote on such proxy questions, and they don't disclose it for two very basic reasons: They don't want to and they don't have to. Life should be so simple for us all.
Amy Domini, who runs the do-gooder
Domini Social Equity fund, thinks a little more transparency wouldn't be a bad thing. This month, her fund became the first to commit to providing public access to its proxy voting decisions for each of the 400 companies in its portfolio. Her Boston firm,
Domini Social Investments
, plans to post on its
Web site how it will vote about two weeks before each company's annual meeting.
This is one good idea.
The one-man, one-vote concept is a charmingly democratic idea, but some people and institutions are a lot more equal than others when it comes to corporate democracy. Those of us with 100 shares here and 500 shares there don't count. It is the fund managers with millions of shares who do.
But the $5.7 trillion in mutual fund assets today belong not to the managers -- or even the fund companies -- but to the shareholders of the funds. And if the fund managers are voting those shares in our interest, why shouldn't they tell us how they are voting?
"We believe that shareholders have an absolute right to know how their fund managers are voting their shares," says Domini, whose index fund has topped the
for the past two years. Its assets have more than tripled to $900 million in 15 months.
Don't look for the fund industry to embrace Domini's good idea. According to common investment theory, fund managers can do the Wall Street Walk if they are unhappy with a company's management, voting with their feet by selling their shares. And that happens, of course. But as the best returns have become concentrated in the biggest multinationals, that has become harder to do without undermining investment performance.
Fund companies complain it would be expensive to track the proxy votes, and besides, they say, nobody cares. "Our shareholders have not shown a desire for such information," says a
spokesman. "On the individual side, such requests are rare."
In this era when 401(k) money is king, Domini thinks there might be something more behind fund companies' reluctance to disclose such information. Do you think, she wonders, that some big company that has hired, say,
to handle its 401(k) business wants to see Fidelity publicly voting against it in a proxy challenge?
"Fund companies are afraid of turning off the 401(k) faucets," she suggests.
Robert A.G. Monks, a principal with
, the Washington-based activist investment group, drafted a policy while he was at the
in the mid-1980s, forcing pension fund trustees to act more like owners. He says he has pressed the
Securities and Exchange Commission
repeatedly over the years, to no avail, for similar regulations for the fund industry.
"It's just embarrassing they have done nothing," he says.
Cost can't be the excuse any longer. Domini has shown the Web can provide an economical way to give shareholders this information. If the fund companies are going to vote our vote, we should know how we are voting. That's simple common sense.
Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to TheStreet.com. At time of publication, they held no positions in the stocks or funds discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.