As I noted earlier this week, I have dusted off my copy of a study done by the Corporate Library, AFSCME and the Shareowner Education Network called Compensation Accomplices: Mutual Funds and the Overpaid American CEO. Filled with charts and tables, the study makes a couple of interesting findings. One that caught my attention as I reread the report was a table on page 20.
In 2007, the study found that certain mutual fund companies voted to support directors standing for election or reelection more than an astounding 90% of the time. This compares with the average rate of voting for directors by the mutual funds studies of 58%. What this means in real terms is this: Regardless of how well or how poorly companies performed, regardless of how directors performed in overseeing companies on behalf of shareholders, the worst offending mutual fund companies voted to reelect them.
So who are these mutual funds?
Here’s the list of the funds and their percentage votes in favor of directors:
- Fidelity – 92%
- Columbia – 97%
- Federated – 97%
- American Funds – 100%
- Scudder – 100%
Until mutual funds begin to take responsibility for their investments and demand that companies take the issue of director accountability, excessive compensation and related governance issues seriously, examples such as this will likely continue. But what can an ordinary investor do?
Simple. Vote down all proposals on their mutual fund proxies. A bit of overkill? Perhaps but it raises the discussion level on this serious problem. Clearly mutual funds don’t hear what individual shareholders are saying right now on this issue.