The Social Investment Organization has commended a new set of proposed policies by the Canadian Securities Administrators (CSA) to require mutual funds to disclose their proxy voting policies, as well as their records on proxy voting in companies in their portfolios.

"We are pleased the CSA has recognized the importance that share voting has for mutual fund investors across Canada," said Eugene Ellmen, Executive Director of the Social Investment Organization.

 

"We believe that share voting represents a critical asset that must be managed on behalf of investors. Through these new policies, the CSA accepts the view that share voting should be transparent so that investors have information on how their assets are being voted on important corporate issues."

 

The CSA's new proxy voting policy is part of a set of policies and rules outlining new continuous disclosure requirements for mutual funds.

The new rules drew praise from several SIO members that are active in proposing and supporting shareholder resolutions.

 

"The proposed rules will lift the veil of secrecy that has prevented anyone from knowing how mutual funds cast their proxy votes, said Don Rolfe, CEO of The Ethical Funds Company. "As a result, we believe other mutual funds will join us and participate more actively in making sure companies are acting in the best interests of investors."

"Mutual funds been either secretly using or virtually ignoring this client asset for years and it is time to come clean and tell investors what they have been doing with their proxy votes to help improve the companies in which they invest and, as an extension, the value of a client's investment portfolio," said Gary Hawton, CEO of Meritas Mutual Funds.

"These new rules are crucial in restoring confidence in the mutual fund industry and the financial markets," said Deb Abbey, CEO of Real Assets Investment Management. "Increased disclosure will make mutual fund companies more accountable to their unitholders."

 

Ellmen said that SIO will comment on the new rules in detail, and will urge CSA to approve the new policies in principle. 

 

Backgrounder

 

Transparency in mutual fund proxy voting is an important issue for the socially responsible investment community. In spite of the fact that mutual funds are major players in the capital markets, and therefore wield enormous potential power, most mutual fund companies fail to use the power they have, either neglecting to vote their shares at all, or routinely voting with management. This means that individual investors collectively representing a sizeable proportion of shares are denied a vote on corporate issues. Often these issues involve fundamental matters such as corporate governance, social responsibility or environmental sustainability.

This has the potential to change under these new rules. Under the proposed CSA policies and rules issued May 28, mutual funds will be required to disclose their proxy voting policies, and provide investors with a copy of their voting record upon request. The policy and rules have been released for consultation until July 27 and are scheduled to come into effect Dec. 31, 2004. Specifically, the new rules state:

 

1) Investment funds must establish proxy policies and procedures to determine whether and how to vote on any matter that they receive as a securityholder.

2) The policy must include the fund's standing policy on routine matters, variance for voting on routine matters, voting on non-routine matters, the procedures to ensure that securities are voted consistent with the policy, and procedures to notify investors of changes to the policy.

3) Voting records must include the name, ticker symbol and CUSIP number of the issuer, the meeting date, a description of the matter voted, the proposer of the matter, whether and how the fund voted, and whether the fund voted with management or against management.

4) Investment funds must prepare a proxy voting record on an annual basis for the period ending June 30 each year.

5) Investment funds must send a copy of the investment fund's proxy policies and record free of charge to any securityholder who requests such documentation more than 60 days after the end of the period to which the proxy voting record pertains.

 

The rules are similar to recent rules established for US mutual funds by the Securities and Exchange Commission, which require funds to provide policies and records without charge, upon request, by calling a specified toll-free number; on the fund's website, if applicable; or on the SEC's website.

While the new rules won't guarantee that mutual funds will pro-actively vote their shares, they will require mutual funds to consider their proxy voting policies, and to put in place procedures to ensure that their votes are cast according to those policies. This should gradually bring about a new culture of corporate governance in which major shareholders consider and debate issues of fundamental importance to the companies in which they hold shares. 

For full information on the new policies and rules, visit the British Columbia Securities Commission.