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December 22, 2011

Mutual Fund Support for Political Spending Disclosure Inches Upward
    by Robert Kropp

An analysis prepared for the Center for Political Accountability by Jackie Cook of Fund Votes reveals that mutual fund support for corporate political spending disclosure increased in 2011 for eighth year in a row.

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During the 2011 proxy season, shareowner resolutions addressing political spending and disclosure were included on the ballots of 32 companies. Vote totals for eight of the resolutions exceeded 40%, and an additional 14 resolutions gained more than 30% of shareowner support. At Sprint Nextel, a majority of shareowners approved the resolution.

An annual review of proxy voting by mutual funds on corporate political spending resolutions, conducted by Jackie Cook of Fund Votes for the Center for Political Accountability (CPA), reveals that 40 of the largest US mutual fund firms voted in support of such measures 34% of the time.

The amount was the highest recorded in the eight years of the study, surpassing the 2010 vote total by on percent. In 2004, the first year of the study, only eight percent of the votes by mutual funds supported disclosure.

Overall, support by mutual funds for resolutions relating to corporate governance reached 46.4% in 2011. Support for resolutions on director elections relating to board declassification increased from 59% to 67%, and votes in favor of an independent Chairperson, addressed in 27 resolutions this year, showed an increase in support as well.

"The increase in support for corporate governance issues is significant," Cook said. "There's a stronger emphasis this year on proxy governance, and I expect it will continue next year."

While the increase in support was incremental, the report does highlight several encouraging trends. Seventeen of the mutual funds cast majorities of votes in support of the resolutions, and seven funds—Morgan Stanley, MFS, Oppenheimer, Wells Fargo, Schroder, Russell and Allianz—supported more than 80% of resolutions.

"Russell provided the biggest surprise of the year," the report observed. "Having never cast a single vote in support of corporate political contributions resolutions between 2004 and 2010, this group of funds cast 95% of their votes for these resolutions in the 2011 proxy season."

In November, Mike Clark, chair of the Russell Sustainability Council, said, "There are a number of factors which mean that investors around the world are taking an increasing interest in responsible investment. This requires an understanding of how companies might be impacted by ESG considerations, cultural shifts and regulation as major influencing elements on their portfolios."

Since 2009, Russell has been a signatory to the United Nations'
Principles for Responsible Investment (PRI).

On the other hand, 14 fund families failed to support a single resolution calling for disclosure of corporate political spending. In addition, TIAA-CREF, another PRI signatory, abstained on all but two of the 32 political spending resolutions that it voted on in 2011, a voting pattern that appears to be at odds with its own voting guidelines.

TIAA-CREF guidelines state that it "will generally support reasonable shareholder resolutions seeking disclosure or reports relating to a company's political expenditures, including board oversight procedures, direct political expenditures, and contributions to third parties for the purpose of influencing election results."

The report concludes with a call for mutual funds to develop guidelines on how they vote on disclosure of corporate political spending. "With growing investor interest, international pressure on institutional investors to exercise greater stewardship, and more than thirty resolutions to consider on the proxy ballots of large corporations held by most fund families for the 2012 proxy season, it seems reasonable to expect" that fund groups take such a step, the report states.

Since 2003, CPA has engaged with corporations, not to prevent them from spending on political elections, but to have them disclose their policies on the issue and provide board oversight of corporate political spending. The organization has thus far engaged successfully with 90 major US corporations, convincing them to voluntarily adopt policies addressing political spending and board oversight of the issue. More than half the companies are listed in the S&P 100. The leading companies also report their payments to trade associations such as the US Chamber of Commerce, and in some cases directly request that their membership payments not be used for political purposes.

Unfortunately, the improved performance in voting by mutual funds on political spending and other corporate governance issues does not extend to social and environmental resolutions. An
analysis of mutual fund voting on climate-related shareowner resolutions, conducted by Fund Votes and Ceres, found that support for such issues actually declined in 2010, to 18.1%.

And in 2011, "Support for environmental and social issues didn't go up that much," Cook said.

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