NEW YORK (CNN/Money) -
California public retirement fund Calpers and some other state-run funds around the nation are among the best known -- and most powerful -- shareholder activists.
But private mutual fund firms such as Vanguard Group, which has sought to keep its proxy votes private, shouldn't be ignored when assessing the growing number of shareholder challenges to corporate management, according to experts and others in the field.
Calpers and public pension fund officials from states such as Illinois, New York and Connecticut have taken high-profile positions in some recent proxy battles. All have come out opposed to current management positions at grocer Safeway Inc. (SWY: Research, Estimates), for instance.
Calpers has also announced it would vote its 12.7 million shares against the re-election of Warren Buffett and some other directors at Coca-Cola due primarily to concerns over their decision on the company's audit committee. It will also vote its 26.7 million shares against Citigroup (C: Research, Estimates) Chairman Sandy Weill because it said Weill had, "a significant role in several scandals to negatively impact the company."
The public funds pushing for reforms are often joined by Institutional Shareholder Services, a provider of proxy voting information and management for private firms. ISS has also come out against management in several high-profile votes, such as Buffett's re-election to the Coke board.
But while ISS and the public funds have been the ones on the forefront of the corporate governance fights, private firms like Vanguard have also taken an active but quiet role, say experts.
Vanguard, the nation's No. 2 mutual fund manager, has a detailed position on when it will vote against management's positions on its proxy. But while its policy is public, its actual votes remain private.
Brian Heil, CEO of ProxyMatters.com, an online proxy research resource, said that Vanguard has long been a quiet leader in corporate governance issues. Finding other closet activists among funds is difficult, if not impossible, at this point.
"Many people believe it pays to be quiet when it comes to corporate governance," said Heil. "Large funds, they make their living by accessing information from management. The quickest way to turn off that spigot is to come out publicly against management."
Public disclosure could change votes
But starting in August, a new Securities and Exchange Commission regulation requiring all fund proxy votes to be disclosed publicly will give the first glimpse of how many behind-the-scene activists there are among the private funds.
Even with the new regulation, Vanguard won't join with the state fund managers to put public pressure on the companies, even when it is joining them in voting against management.
"It (taking a public position) could possibly increase the influence but we don't see that as our role," said Vanguard spokesman Brian Mattes. "The publicity surrounding activism is not what we seek. We'd rather do what's right and move on."
Mattes said Vanguard joined with other funds to unsuccessfully fight against the proxy disclosure rules due to concerns that it would open the funds up to undue pressure from various special interest groups. He said the firm believes it can be most effective by having a consistent and transparent policy on proxy votes.
Fidelity, the nation's largest mutual fund manager, has an even longer tradition than Vanguard of pushing for some corporate governance reforms, said John Olson, a corporate governance attorney at Gibson, Dunn & Crutcher. But like Vanguard, Fidelity has always worked behind the scenes, Olson said. The firm was not immediately available for comment.
Some public fund activists and experts in the field say that disclosure could lead funds to vote against management more frequently in future proxy votes.
Bill Atwood, executive director of the Illinois Board of Investment, which manages pension funds for state employees there, said private fund managers are already showing a greater willingness to listen to public fund managers positions against management, and he expects that to increase once disclosure is required.
"If they vote with management of a company that is not performing, I think that will require some explaining, given that individual investors are more attuned to issues," said Atwood. But the push for corporate governance reforms at companies that are performing well will still be difficult, he said.
"If the company has had good returns, voting with management is easier to explain to investors," said Atwood.
|
