Do You Know What Your Mutual Fund Is up to?

By Brett Wilkison

An estimated 95 million Americans own shares in mutual funds, with a total of $6.4 trillion invested. Yet unlike direct shareholders, who have used resolutions to change company policies—from Home Depot’s sale of old-growth lumber to the use of polystyrene food containers at McDonald’s—most mutual-fund owners haven’t undertaken that kind of activism. This is largely because powerhouse funds have kept their proxy voting records secret.

Proxy votes are the ballots individual and institutional investors cast each year on everything from board membership to climate change. While "proxy" usually means giving away power, investors who directly own stock in a company are able to vote their proxy ballot personally. For mutual-fund investors, however, the proxy votes are cast not by them but by the mutual-fund group.

With the exception of a handful of socially responsible investment funds, until now most mutual-fund groups have been unwilling to disclose their voting records, hiding their practice of siding almost exclusively with the management of the companies they invest in. "Over the last ten years most major mutual funds have consistently voted their proxies against environmental shareholder resolutions," says Doug Cogan, a deputy director with the Washington, D.C.–based Investor Responsibility Research Center.

But after years of pressure by socially responsible investment funds, advocacy organizations, and institutional investors, the Securities and Exchange Commission decided in January that all mutual funds must make available their proxy voting records. "This is another way of empowering investors to make sure their investments are being managed for the long term," says Nicole St. Clair of the Coalition for Environmentally Responsible Economies.

To take advantage of the new openness, investors should review their fund’s proxy voting record—either on the mutual fund’s Web site or on the SEC’s—and, if necessary, write their funds to express disapproval of voting policies.

Meanwhile, for individual investors with direct ownership of company shares, the general rule is to treat your ballot as an asset, an annual opportunity to support shareholder resolutions calling for improved environmental and social accountability. With most companies, not voting or failing to mark items on the proxy ballot is a vote cast on the side of management. Abstaining—a ballot option different from not voting—usually withdraws the ballot from consideration. —Brett Wilkison

For a list of sites with more information on shareholder resolutions and environmentally responsible investing, go to www.sierraclub.org/sierra/funds. The Sierra Club Mutual Funds, a family of funds from investment advisor Forward Management that incorporates environmental guidelines from the Sierra Club, were launched in January (www.sierraclubfunds.com).