Fund Democracy

Fund Democracy Initiatives: Proxy Voting Disclosure

Statement of Mercer Bullard, Founder and President, Fund Democracy, at Pax World News Conference on January 23, 2003:

Thank you Mr. Stapf, and my thanks to Pax World for sponsoring this event and inviting Fund Democracy to participate.

As I said last October, the reason this rule is needed is very simple: Investors have a right to know how their funds vote proxies, because without this information they cannot make fully informed investment decisions.

Today the SEC and Chairman Pitt stood resolute against an onslaught of corporate lobbying efforts, and put the interests of America's investors first. I applaud the SEC. I applaud Chairman Pitt. Today he has made me especially proud to be an alumnus of a great institution.

Unfortunately, a great victory for the SEC and mutual fund shareholders has become a self-inflicted black eye for the fund industry. By giving investors a reason not to trust mutual fund managers, it has tarnished a reform that will help restore confidence in America's markets.

Let's compare what the industry told us about the SEC's proposal with the facts:

  • The industry said no one cares about proxy votes. Yet the proposal received almost 8,000 comment letters, twice as many as ever had been received in 65 years on an SEC rule proposal.

  • The industry said that it has no conflicts of interest when voting proxies. Yet the ICI confessed in its comment letter that the same people who market fund manager's 401(k) plan services to portfolio companies sometimes participate in voting proxies of those companies.

  • The industry said the proposal would cost too much. Yet its own inflated cost estimate comes out to only 25 cents for each of America's 165 million mutual fund accounts.

  • The industry said the voting process would be politicized because non-shareholder groups would dictate how fund managers vote. Yet fund managers are legally obligated to completely ignore the interests and views of such groups when voting proxies.

  • In a last-minute stunt, the industry suggested that the proposal would burden fund shareholders with phone-book-size documents. In fact, the SEC rule requires the delivery of not one document to shareholders.

  • Finally, the industry said it always votes proxies in the best interests of shareholders. "Trust us," it said, while every claim it made about the proposal turned out to be false or misleading.

Instead of engaging in constructive debate, the fund industry repeatedly misled shareholders about the facts. And if this weren't shameful enough, fund shareholders themselves paid for this assault on their interests. The ICI, the lobbying organization for fund managers, is substantially financed with fund shareholders' money.

While I understand the press's interest in reporting on the adoption of today's proposal, the important question facing us now is what will be the industry's position as mutual fund reform moves forward?

Fund Democracy's next major fund reform initiative will be to push for rules that would prohibit funds from excluding the fund's own brokerage expenses from their expense ratios. The day that these expenses are included in fund expense ratios, you will see an immediate, dramatic reduction in turnover in fund portfolios. Investors will save billions of dollars every year.

Where will the fund industry stand on this and other proposals? Will it continue to use shareholders' money to fight pro-shareholder reforms? Or will it engage in a constructive debate about how to best secure the financial security of America's 95 million fund shareholders?

I hope that the fund industry will choose to work with the SEC and shareholder advocates to support reforms that will help restore investors' confidence in our securities markets.