NEW YORK: Two giants of the mutual-fund industry put aside their rivalry last week to unite against a proposed Securities Exchange Commission rule change that many experts feel will have a profound effect on the industry.
The CEO of Fidelity Investments, Edward C. Johnson, and his Vanguard Group counterpart John J. Brennan, took the unusual step of co-authoring a Wall Street Journal op-ed that strongly criticized the SEC proposal.
The rule change, if executed, would force mutual-fund companies to disclose how they vote on the proxies of the corporations whose stock they hold in their mutual funds.
Proxy votes are annual referendums that allow shareholders to vote on matters of corporate governance. Many mutual-fund companies, including Fidelity and Vanguard, do not disclose to their investors how they vote on these referendums. Many have criticized this policy as too opaque, because the stocks held in each investment company's funds are actually owned by the individuals that have invested in the funds, not the companies that manage the funds.
In the wake of recent corporate scandals, there has been an increased call for transparency in nearly all matters of corporate governance. This movement has helped prompt the SEC to consider this regulatory change, among others.
"We thought this was an important issue facing mutual-fund shareholders, and thought a combined op-ed by the two CEOs would get some recognition," said John Woerth, a spokesman for Vanguard. "It was important because it's an issue that's very popular with lots of people. In some sense, it's like coming out against apple pie and baseball."
In their Journal op-ed, the two executives argued that the SEC's proposed disclosure measure would unnecessarily "politicize" the proxy voting process, as well as make the mutual-fund companies the target of activist groups.