SEC responds to AFL-CIO's push for proxy vote reform

WASHINGTON: The AFL-CIO saw one of its major PR efforts of recent months bear fruit last week. It comes as organized labor takes advantage of the recent backlash against big business to push its agenda of corporate reform and increased government oversight.

WASHINGTON: The AFL-CIO saw one of its major PR efforts of recent months bear fruit last week. It comes as organized labor takes advantage of the recent backlash against big business to push its agenda of corporate reform and increased government oversight.

The SEC has agreed to consider a rule change that will force mutual-fund companies to disclose to shareholders their funds' proxy-voting record.

Currently, mutual-fund companies are not required to publicly disclose how the funds vote on their corporate proxies. Proxies are binding shareholder referendums on matters of corporate governance.

The move by the SEC comes after the AFL-CIO announced this summer that forcing mutual-fund companies to disclose their proxy voting records was one of the issues topping its list of necessary corporate reforms.

While other shareholder groups have been pressing for the change, the AFL-CIO has been the most active and visible in pushing for action. The group has been seeking an SEC action on the matter from at least December 2000, when it first sent a request to the SEC.

In late July, the organization ended a series of corporate-reform rallies along the Northeastern corridor in Boston, the hometown of mutual-fund behemoth Fidelity, to protest the fund company's policy against disclosing its proxy voting records. The labor group also published a pamphlet delineating and questioning the fund company's votes on proxies for a series of controversial companies such as Enron, Tyco, and Qwest.

Fidelity responded by calling the AFL-CIO's suggestions "unfounded and reckless."

That rally and a subsequent meeting between AFL-CIO and Fidelity officials resulted in the mutual-fund company bending toward a compromise whereby the company posted a general list of its proxy voting guidelines on its website.

The AFL-CIO's main objection is that the mutual-fund companies need to reveal their votes to mitigate a serious conflict of interest that has arisen within the asset-management industry in recent years. The union says the conflict stems from the fact the funds are secretly casting votes on corporate-governance matters for the hundreds of corporations at the same time they are vying for the right to manage the assets of these corporations' pension and 401(k) funds. The union argues that because fund managers seek the business of many of these companies, there is a serious disincentive on the part of the fund companies to cast votes that may displease the management of these companies.

The fund companies have argued that disclosing proxies would increase a fund's administrative costs, a burden it says would be eventually passed on to investors.

At the time of the Fidelity rally, the union also sent a letter to SEC chairman Harvey Pitt urging him to reconsider the rules that exempt mutual-fund proxy disclosure.

A month later, Pitt responded to that letter, acknowledging the group's concerns. The SEC's decision to open discussion on the matter is the first step in the process of getting the commission to change the rule.

"We're obviously pleased by this step," said Brandon Rees, a staffer at the AFL-CIO's office of investment. "It's an issue we have been pressing for a while now, and we're happy to see evidence of movement at the SEC."

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