Mutual fund voting and executive compensation

Apropos of yesterday's discussion of Gretchen Morgenson's attack on institutional shareholders not policing executive compensation, the WSJ reports today on a study of mutual fund voting co-sponsored by AFSCME. The study reaches the same conclusion as Morgenson, and cites the same motivation she does: that fund companies supporting management are conflicted because they want managers to buy their fund administration and other services.

This study is a fallout from the SEC's rule requiring mutual funds to disclose votes. The rule is obviously having the predictable effect of politicizing voting. The article notes, for example, that activists are planning to petition fund groups on global warming.

Who could object to more transparency in this respect, one might ask. Shouldn't fund investors be able to determine whether their funds are voting responsibly, and invest accordingly?

Consider why shareholders would decline to invest in funds with "poor" voting records. Is it to maximize their returns? But this bottom line should be fairly transparent already.

Also, is this the kind of evaluation mutual fund investors really want to engage in?  How should these passive investors be expected to evalute what the right voting decision is? Should the fund companies engage in management, or follow the Wall Street Rule, as Fidelity says it's doing? 

If the funds do get involved in these management decisions, how should they vote? Fidelity, for example, is rated "absolute worst" at supporting shareholder resolutions, yet voted against a significant proportion of management compensation proposals. Is this the right strategy?

But is this even about the returns of fund investors?  A main objective throughout the executive compensation brouhaha, as indicated by who is co-sponsoring the study, is to embarrass management on behalf of labor. Labor minded shareholders might want the information for political purposes.

But do shareholders as a whole understand this motive? One of the co-sponsors of the study bills it as informing investors "which mutual funds are truly committed to shareholder value." This is certainly the way Morgenson characterized the issue.

So politics gets confused with shareholder value. No doubt the sponsors of these political moves like it that way, but one wonders if the SEC should be furthering their aims.