Pension fund managers falling short on proxy voting obligations

(December 8, 2004) A significant number of Canadian pension fund managers are ignoring the interests of plan members by failing to challenge management on controversial issues, a recently released survey suggests.

The Shareholder Association for Research and Education (SHARE) tallies the proxy voting records of Canadian money managers on key management and shareholder proposals every year.

Results from the 2004 survey reveal that most pension plans continue to delegate responsibility for voting their proxies to intermediaries without providing direction on how their proxies should be voted, a violation of their fiduciary obligations, SHARE says.

Gil Yaron, SHARE’s director of law and policy, says the survey found inconsistencies in the responses of money managers to proposals calling for corporate directors to disclose past directorships as part of ensuring directors are independent and free of conflicts. “After Enron and Hollinger, shareholders are asking corporate directors to be more accountable,” he said.

The survey found that several fund managers supported proposals for more disclosure only if corporate management agreed with the changes. “A fund manager is supposed to vote the shares of pension clients in the best interests of the pension plan and pensioners,” said Yaron. “Fund managers seemed to flip-flop when company executives disagreed with proposals requiring directors to disclose other business interests.”

The study also examined resolutions addressing excessive executive compensation, repricing of stock options, the elimination of dual class share structures, and reporting on environmental liabilities.

SHARE received responses from 37 investment managers and proxy voting services (representing about $200 billion in assets) on their voting records on various management and shareholder proposals, and compared the results with SHARE’S own recommendations.

Only five firms voted consistently with SHARE’s vote recommendations at least 75% of the time, down from eight in 2003.

For example, only half of the 27 investment managers and proxy voting services that hold shares in Magna International opposed the election of Frank Stronach, despite concerns over a lack of independence on the Magna board, the firm’s dual-class share structure, and Stronach’s $54 million compensation package.

“The results highlight the need for pension plans to scrutinize the voting records of their agents to ensure their proxies are being cast in the best interests of plan members and beneficiaries,” SHARE says.

Canadian Labour Congress president and SHARE chair Ken Georgetti, called the survey results “troubling.”

“The survey points out the need for greater transparency and accountability by investment managers voting on behalf of pension funds,” he added.

“Pension plans should get much more aggressive about putting fund managers on a shorter leash, and reminding them their managing the deferred income of tens of thousands of workers and pensioners.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com