America’s top stock-market regulators are meeting Wednesday to consider how your fund managers report their votes on hot-button issues like executive pay, mergers, and the environment. Funds would have to disclose greater detail on how they voted on the companies in their portfolios under a proposal that will be taken up at the morning meeting of the Securities and Exchange Commission.
Mutual funds and exchange-traded funds already must file an annual summary of their votes on corporate proxy matters—but the format of these Form N-PX reports varies from fund manager to fund manager and can’t be readily compared by investors who want to monitor the institutions’ voting records.
In their current form, these N-PX reports can be dense thickets. One September filing by the Transamerica Series Trust ran to 235,000 words, for example. Filings by BlackRock approach 250,000 words. Wednesday’s proposal would standardize the reports, make them computer-readable, and clarify how funds voted when proxies address a company’s executive compensation in “say on pay” referendums.
If adopted by the commission, the proposal will be open for public comment for 60 days. It could then become effective in time for the next annual proxy season that begins around March. Institutional investors have become key voters in such tallies as the portion of public company shares held by fund managers steadily grows.
Over 20% of the shares in S&P 500 companies, and 16% of those in the Russell 3000, are held by three asset management firms: Vanguard Group, BlackRock, and State Street. Public companies in their portfolios increasingly engage directly with such institutions—or with proxy consultants like ISS and Glass Lewis—to seek their backing in votes on pay, diversity, takeovers, or ESG matters of environment, sustainability, and governance.
Activist hedge fund managers like Bill Ackman and Carl Icahn—and even large institutions like BlackRock and State Street—are becoming increasingly vocal on issues put to a proxy vote. BlackRock engages with 1,500 companies a year on climate issues and hundreds more on social risks.
For decades, mutual funds and pension plans routinely backed the managers of their portfolio companies. If an institutional investor was unhappy with the way a company was being run, it followed “the Wall Street rule” of simply selling the stock. The idea that funds should have to publicly disclose their proxy votes surfaced in the 1970s, but it took the scandals of the Enron era for the SEC to require in 2003 that funds report annual summaries of their proxy voting. Following the 2007-09 financial crisis and the Dodd-Frank Act, the commission in 2010 required public companies to regularly allow shareholders a “say on pay” vote.
The SEC’s disposition toward proxy activism has varied with the political tides. Under the Trump administration, some rules were eased on institutional investor voting. Wednesday’s proposal is one of many signals that SEC chairman Gary Gensler aims to heighten scrutiny of public company behavior.
Write to Bill Alpert at firstname.lastname@example.org