SEC Votes in Favor of Fund Proxy Vote Disclosure By IndexFunds.com Staff January 23, 2003

The Securities and Exchange Commission today voted 4-1 in favor of requiring mutual funds to disclose how they vote the proxies of corporations whose stock they hold.

Under the new rule, funds must file their proxy vote records with the SEC each year, and must make that information available to fund investors who request it, or publicly through a website. Funds must also disclose their proxy-voting policies and procedures in public filings.

Fund proxy vote disclosure became a hotly-contested issue in the weeks leading up to today's SEC vote. Opponents contended that disclosing fund proxy vote records would subject funds to unnecessary pressure from political activist groups, and was too expensive. The fund industry's opposition to the proposed rule was highlighted by a Wall Street Journal editorial co-written by the chief executives of Vanguard and Fidelity, the two largest fund firms, and rivals.

"A fund manager's focus belongs on investment management, not on becoming an arbiter of political and social disputes," wrote Edward C. Johnson of Fidelity and John J. Brennan of Vanguard in the piece. "The effect would be to make mutual funds the prime pressure point for every activist group with a political or social ax to grind with corporate America."

Proponents of the rule argued that investors have a basic right to know how their fund is voting corporate proxies, especially in the wake of recent accounting scandals.

"The fundamental relationship between agent and principal should override any business issues," said Vanguard founder John Bogle, who publicly supported the measure, in a previous interview. "Shareholders should know about relationships between the fund and corporate management."

Today's SEC vote has been hailed as a victory for shareholder advocacy groups, who no doubt have their sights firmly fixed on the upcoming proposal that could force funds to disclose their holdings more frequently.