Regulators introduce tougher proxy voting rules

(June 7, 2004) Canadian fund companies will be required to fully disclose their proxy voting records under the terms of proposed new regulations unveiled recently by the Canadian Securities Administrators (CSA). Proxy voting has been a sore spot for many investor advocates, who have been pushing for increased disclosure and transparency from the mutual fund industry.

The tougher rules — contained in CSA National Instrument 81-106 — require investment funds to establish policies and procedures for voting proxies and to maintain a proxy voting record, available to unitholders on request. The U.S. Securities and Exchange Commission introduced a similar rule last year but the first version of the CSA’s proposed rule did not require funds to disclose their proxy voting records.

The CSA says that while investment funds have traditionally been viewed as passive investors, reluctant to challenge management on issues such as corporate governance, that attitude appears to be changing.

“In recent years, some investment funds, along with other institutional investors, have become more assertive in exercising their proxy voting responsibilities,” the regulator says.

“This is an important issue for investors,” says Gary Hawton, president of Meritas Mutual Funds, which has disclosed its proxy voting records since the firm was established three years ago.

“For a long time, investors have been in the dark on what has been happening with regard to the interaction between their mutual funds and the management of the companies that those funds own,” says Hawton. “This is an opportunity for fund managers to be fully transparent and to tell investors in those funds what they are doing with their proxy votes to influence corporate management and to improve the performance of the company and, we believe, improve the performance of the investment.”

Ethical Funds president Don Rolfe believes the proposed rules will lift the “veil of secrecy” surrounding mutual funds and proxy voting. “By adopting the new rules, the CSA will usher in a new era of transparency and accountability — for publicly traded corporations and for the mutual funds that invest in them.” Ethical Funds has published its proxy voting records since 2001.

Since Meritas and Ethical Funds are the only retail fund companies who currently release proxy voting information, it’s often painted as a socially responsible investing issue, says Hawton.

“But the reality is, if investors understood the power of proxy voting and if other fund managers acknowledged that power, the cry for disclosure would go well beyond the socially responsible investment community.”

The regulations require fund companies to prepare an annual proxy voting record by June 30 of each calendar year. The companies must “promptly” send a copy of that record to unitholders on request. The CSA’s proposals are open for comment to July 27, 2004.

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